Well, wonder of wonders. After a natural disaster there is a severe gasoline shortage in New Jersey and New York. I am assuming here that most of our members have read my white paper on the reasons that gasoline prices are much higher than need be and supply disruptions are impossible to fix. The governor of New Jersey, Chris Christie, who surely knows better, has threatened to prosecute and jail any gas station operator who sells fuel at prices more than 10% higher than those that existed before this crisis. John Wayne once said that life is hard, and it's harder when you're stupid. Well Chris Christie is stupid, seriously stupid. With power out in many areas, tank farms damaged, two of the areas major refineries completely shut down, and with many service stations trying to keep their doors open and employees paid without any fuel to sell, the brain trust in that state capital thinks that an increase in prices more than 10% is price gouging and small businessmen guilty of that offense should be put in jail. The cost of doing business also skyrockets during a disaster but somehow those businesses are supposed to keep retail prices the same as when supplies are unlimited, transportation unfettered, and conditions are normal. Really?!?! Fuel is available and could be in the gas tanks of New Jersey and New York residents if it were not for the counterproductive posturing of politicians more interested in scoring political points by taking cheap shots and threatening the only people who can solve this problem. Like many areas of the country, New Jersey requires all service stations to sell a boutique blend of gasoline that is not used in surrounding areas and has made it illegal to sell any other type of gasoline. Both Gov. Christie and Barack Obama acknowledged this week that this requirement is one of the reasons that fuel is not being shipped into the affected areas and they both made pronouncements suspending the blend requirement. But as of right now there is no fuel flowing into the affected areas and it may take weeks for oil companies to receive written acknowledgment from all necessary governmental agencies before they will risk ruinous prosecution for the unforgivable crime of shipping the wrong blend of unleaded fuel into New Jersey. As they have previously in many areas of the country these idiotic boutique blend requirements put every area requiring them in serious jeopardy every time there is a supply disruption or natural disaster. It has happened time after time but our political leaders refuse to learn these obvious lessons of history.
When these blend requirements are effectively killed by getting written acknowledgment into the hands of oil company distributors there still will not be any fuel flowing to the affected areas because of New Jersey's "Price Gouging" laws. The higher shipping rates necessary to lure supply trucks from other areas of the country in addition to a myriad of other higher costs that would be incurred in diverting fuel into these areas would certainly result in fuel prices exceeding New Jersey's 10% price increase cap. Tens of thousands of New Jersey residents would certainly rather pay $10 a gallon and be able to pull in and buy fuel right now and get on with their lives than sit in a line for six hours with a 5 gallon limit. But the state of New Jersey has made it illegal to ship higher cost fuel into the state. Without these moronic laws and Gov. Chris Christie's very public threatening of both oil companies and service station operators, Adam Smith's invisible hand would be well on its way to solving New Jersey's fuel shortage already. Every New Jersey resident willing to pay substantially higher prices from service station operators who took extraordinary steps to ship in high-cost fuel would not be sitting in the lines for cheaper fuel and thus would make it easier for everybody to buy gasoline. But when the market is prevented from working by elected officials who substitute their own political self-interest for the economic self-interest of business and the basic needs of their constituents, the results are predictably disastrous and that is what we see playing out today.
The free market is the only system that will keep all products available at a price at all times, will allocate scarce resources in the most effective and efficient manner possible, quickly solve supply disruptions caused by accidents and natural disasters, and bring prices back down to normal levels as soon as possible. Any political interference in the market mechanism will make every situation much worse than it needs to be.
I have dealt with supply disruptions that shut my fuel stations down for over a week. I sold the limited amount of fuel I had left at prices more than double what they had been before the disruption. When customers complained I told them that my cost of operations were not going down, that my property taxes were not being reduced, my employees still expected to be paid, State, County and City taxes still had to be paid, and I am expected to stay in business without any source of supply because of the idiotic actions of government regulatory agencies. Complain to them because I don't want to hear about it. The Arizona State Atty. General threatened to prosecute me for price gouging even though there is no price gouging law in Arizona. Imagine that. I was threatened with prosecution for breaking a law that does not exist. Talk about political posturing. Well, New Jersey does have a price gouging law and New Jersey residents are paying the price for that statutory stupidity. I suppose we genuinely do get the political leaders we deserve as all of these men and women were voted into office. There is no substitute for education and economics are no longer taught in our schools.
There are only two ways to allocate scarce resources. 1-With a price or..... 2-With a line. If the market is allowed to work prices will rise high enough to reduce demand to match the supply and new supplies will flow into the effected area lured by those high prices. The shortage will quickly be eliminated and prices will start to fall back to normal levels. Those people willing and able to pay the price can buy the fuel they need, when they need it, without waiting. If the market is not allowed to work and prices are kept at below market rates using the coercive force of law, demand will greatly outstrip available supply and long lines will form resulting in a loss of productivity for the entire community. No new supplies will flow into the effected area because the cost of doing business there is higher, shipping costs are higher, logistics are more difficult, and after paying these higher costs the retail price dictated by those Price Gouging Laws would result in lower profits or more likely a loss. Now, only those people willing and able to stand in a line for hours can buy a limited amount of gasoline. Is that better??? The shortage will last much longer because new supplies are not drawn in by temporarily higher prices. Time is money and the overall cost of trying to keep prices artificially low is much higher than the cost of letting the market work.
John Wayne was right. Life is hard. It's harder when you're stupid.
If I've offended anybody here I'm sorry but my blood was literally boiling when I heard Gov. Christie in one breath threaten to prosecute any service station operator or fuel distributor who dared to let the market mechanism work, and then that crybaby whined and moaned about how badly New Jersey needed supplies of gasoline. How can a smart, articulate guy be so completely clueless.