Hurricane Ike didn’t wreak as much havoc on coastal refineries as originally feared, but several days of operation were still lost due to the forced shutdown. This drop in gasoline supply went hand in hand with long lines at the gas pumps in several states. Yet the hurricane alone didn’t cause these gas lines: only when government officials interfere with market prices do consumers suffer actual shortages. The nationwide gas lines in the 1970s and the scattered lines following Hurricane Ike are largely due to regulators who short-circuit the market process.
For several days in the aftermath of Ike, several states were still experiencing gas shortages. Motorists would drive by gas stations that were simply closed for business, with plastic bags over the pump handles. And when motorists did manage to find a station selling gas, they often had to wait in lines of 20 or more cars, spilling out into the road and causing traffic jams. According to USA Today:
The crunch is especially severe in the Southeast and Mid-Atlantic, which get their gas through pipelines from the Gulf region. It’s largely hitting stations and convenience stores not affiliated with big brands such as ExxonMobil.
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In South Carolina, many stations are running dry, though the situation improved Wednesday as oil companies started drawing from gasoline reserves, says Michael Fields, head of the state Petroleum Marketers Association. Premium gasoline is especially scarce. Previously, he says, most stations could not even get regular.
“We aren’t seeing quite as many bags on the nozzles,” he says.
About half of Mapco’s 500 stations in the Southeast had no gasoline after Ike hit, says company spokeswoman Paula Lovell. Many were still dry Wednesday, but supplies have increased, she says.
In Virginia, about 15% of stations have no gas, though distributors are scrounging in other states for fuel. “People are going to Maryland, Pennsylvania and all the border states to pick up product,” says Mike O’Connor, head of the state Petroleum, Convenience and Grocery Association.
And yet, what the USAToday story failed to mention is that the shortages were the fault of price controls – either explicit or implicit. Specifically, gas retailers had been warned in several states not to “gouge” their customers. Gas retailers in Tennessee knew they had to tread carefully, as an AM radio news report and public service announcement made clear:
Complaints of high gas prices and gouging have gotten the attention of Tennessee officials. Now, they are going after retailers who illegally raise pump prices.
The State Department of Commerce and Insurance said it has received more than 750 price gouging complaints statewide.
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If you suspect gas gouging and want to report it to the state you can call the division of consumer affairs at 1-800-342-xxxx.
Drivers in Missouri were also “protected” from expensive—but available!—gas by their governor, according to this news article:
Missouri Gov. Matt Blunt directed the Attorney General’s office to investigate gasoline suppliers and stations for potential evidence of price gouging in response to Hurricane Ike, the state announced on Saturday.
“I have directed Attorney General Jay Nixon to investigate concerns about potential price gouging in the wake of Hurricane Ike,” Gov. Blunt said in a statement. “We have seen price gouging in our state before, and I will not permit businesses to reap unjustified profits by using a natural disaster as an excuse to gouge Missouri families who are already dealing with high prices at the pump.”
Not to be outdone, Georgia’s governor moved to hold down market prices as well, according to this official press release from September 12:
Governor Sonny Perdue signed an Executive Order today enacting Georgia’s price gouging statute to protect Georgia consumers from unlawful increases in gas prices and other products.
“The threat of Hurricane Ike has disrupted the production of distribution of gasoline, which will have an effect on prices,” said Governor Sonny Perdue. “However, we expect the prices that Georgians pay at the pump to be in line with the prices retailers are paying. We will not tolerate retailers taking advantage of Georgians during a time of emergency.”
Citizens are asked to report any suspected incidences of price gouging to the Governor’s Office of Consumer Affairs at (404) 651-xxxx or (800) 869-xxxx.
North Carolina joined the party too, according to this report:
Governor Mike Easley declared a state of “abnormal market disruption” under North Carolina law, which charges the Attorney General with enforcing the price gouging statute.
Easley issued the following statement concerning the situation:
“As a result of Hurricanes Gustav and Ike, oil refineries in Texas and Louisiana have temporarily interrupted some gasoline supplies to the pipelines that serve North Carolina…Today I have declared a state of abnormal market disruption under North Carolina law and charged the Attorney General with enforcing the price gouging statute. This statute prohibits the charging of prices that are unreasonably excessive under the circumstances.
And the harshest words came from Florida’s governor, as this story details:
Florida’s Gov. Charlie Crist has strong words for gas station owners after receiving more than 2,000 complaints of price gouging on gasoline across the state.
When news broke that Hurricane Ike could affect the oil refineries in Texas, some gas stations responded by raising prices.
“Some people are so damn greedy,” Crist said. “They want to take financial advantage of that.”
In the Tallahassee area, some stations were charging $5 a gallon.
“It’s outrageous. Enough is enough. We’re not going to take it anymore,” Crist said.
Four gas companies are now under investigation for raising their prices, Flying J, Dodge’s Gas Stores, Valero and Pilot Travel Centers.
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The Florida Attorney General’s Office said it has [referred] more than 1,800 complaints for review by its Economic Crimes Division. …
Meanwhile, state agriculture officials said they will serve 16 gas companies with subpoenas. Four more would be served by the Attorney General’s Office.
Businesses that engage in price gouging could face fines of up to $1,000 per violation.
If you suspect price gouging at a gas station, the state wants to hear from you. Call 800-HELPFLA…
Interfering With Market Prices Creates Shortages
The market price balances available supply with consumer demand. Hurricane Ike disrupted the supply of refined gasoline; there were fewer gallons to go around. The drop in supply should have led to an increase in price, because only at a higher price would consumers want to restrict their total purchases to the number of gallons Ike had spared. But when state attorneys general and other officials threaten retailers with “gouging” – or even if there is an implicit threat or fear of massive stigma – then the retailers keep their prices at a low price, which is now unrealistic.
At artificially low prices, consumers want to buy more gallons of gasoline than producers want to sell. Specifically, what happened in this case is that wholesale prices spiked, eating away the profit margin of independent retailers. Because anti-price gouging laws forbade them from raising their own prices just as sharply, some retailers decided it was better to shut down, rather than lose money with every gallon they sell.
Market prices serve an important function. Correct market prices transmit real information about supply and demand. When the government interferes with these prices, unintended consequences always emerge. In this case, politicians forced their citizens to wait in long lines at the pump. What motorists may have gained in the form of lower prices is more than offset by the uncertainty (“Where can I get gas?”) and time wasted in line.
