Hawaii Puts Cap On Gas Prices

Name · 08-25-2005, 02:56 PM

Quote:

Originally Posted by scaeagles

My post was in reference to Name's post on how he saves money on fuel because he rides a motorcycle. Not very practical in a family with three kids, but it works for him.

Obviously never been to Spain, where they transport three kids, wife, groceries, and a dog on a moped (at the same time, and yes, I have seen that)

Alex · 08-25-2005, 04:05 PM

Price controls rarely have the desired effect. Tagging the control to a larger geographic area should help dilute it, but I would be surprised if it is effective in the long run. The government agency responsible for administering this program is on record saying it is a bad idea.

In the face of rising global demand for oil, pockets of price caps in the United States will just divert more oil away from here. Sure, Chevron might as well send oil to Hawaii as they do to California, New Orleans or New York City since the price is allowed to be the same. But what about when New York City decides it doesn't like a free-floating oil market and caps prices to the cost in Duluth, South Dakota, and Ketchican, Alaska?

Interestingly, in the short term is likely to raise prices as much as 0.20 cents since a capped market price almost always ends up also being a minimum price. In order to hedge against the risk of future articifially low prices, current prices will almost always get pegged at the maximum.

On top of all of this, gas is still relatively cheap. As a percentage of annual household expenses it remains remarkably low, and adjusted for inflation a gallon of gas still costs less than in 1983. Gas simply isn't that expensive, we're just used to it being godawfully cheap. If we really wanted to bring down gas prices we would create a national fuel composition standard so that refineries would not have to create different finished products for dozens of different areas. Instead every state and municipality creates their own fuel standards and it drives competition out of the area and jacks up prices through reductions in economies of scale. Not to mention that refineries are constantly retrofitting to accommodate rules that change over time (MTBE in everything, no never mind let's try ethanol, but ethanol is a boondoggle let's put 2% of a prayer in every gallon).

But Hawaii is a weird place and the marketplace is manipulated in all kinds of unusual ways. Maybe it'll work as intended. But when balancing the opinions of econimists and other experts against an inflamed public certain that they're getting reamed and demanding something be done about it I'm going to tend towards the experts.

08-25-2005, 04:05 PM	#2
Alex . Join Date: Feb 2005 Posts: 13,354	Price controls rarely have the desired effect. Tagging the control to a larger geographic area should help dilute it, but I would be surprised if it is effective in the long run. The government agency responsible for administering this program is on record saying it is a bad idea. In the face of rising global demand for oil, pockets of price caps in the United States will just divert more oil away from here. Sure, Chevron might as well send oil to Hawaii as they do to California, New Orleans or New York City since the price is allowed to be the same. But what about when New York City decides it doesn't like a free-floating oil market and caps prices to the cost in Duluth, South Dakota, and Ketchican, Alaska? Interestingly, in the short term is likely to raise prices as much as 0.20 cents since a capped market price almost always ends up also being a minimum price. In order to hedge against the risk of future articifially low prices, current prices will almost always get pegged at the maximum. On top of all of this, gas is still relatively cheap. As a percentage of annual household expenses it remains remarkably low, and adjusted for inflation a gallon of gas still costs less than in 1983. Gas simply isn't that expensive, we're just used to it being godawfully cheap. If we really wanted to bring down gas prices we would create a national fuel composition standard so that refineries would not have to create different finished products for dozens of different areas. Instead every state and municipality creates their own fuel standards and it drives competition out of the area and jacks up prices through reductions in economies of scale. Not to mention that refineries are constantly retrofitting to accommodate rules that change over time (MTBE in everything, no never mind let's try ethanol, but ethanol is a boondoggle let's put 2% of a prayer in every gallon). But Hawaii is a weird place and the marketplace is manipulated in all kinds of unusual ways. Maybe it'll work as intended. But when balancing the opinions of econimists and other experts against an inflamed public certain that they're getting reamed and demanding something be done about it I'm going to tend towards the experts. Last edited by Alex : 08-25-2005 at 04:26 PM. Reason: 0.20 percent should have been 0.20 cents
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