Gas price caps in Hawaii, good deal or bad?
You have probably heard by now that the State of Hawaii has started setting price caps for the prices of wholesale gasoline. In the short term it could lead to somewhat lower gas prices, or at least prevent too much of an increase, but long term its unlikely to do much good and may even make the situation worse.
Very seldom do price caps actually do what they are intended to accomplish. In this case, if the caps are set too low, and reduce refiners profits, you might see refineries reduce their supply or even leave the market altogether. Past experience with price controls (remember rent controls under Nixon, they did not work too well) shows that they are seldom a good idea. I don't blame the state for trying as high as gas prices are, but such an action ignores the economic realities of the marketplace. By setting caps you discourage any other refiners from trying to enter the market, and possibly reduce supply. If you know anything about economics (I do, I have a minor in it), you know that if demand stays the same and you reduce the supply, you get higher prices. That is what is happening with gas prices all over the country. If you reduce the price that gas companies can charge, they logically may elect to supply less if there profits are too limited. Then if one refinery shuts down, the supply drops considerably, resulting in higher prices. If prices are artificially capped, the supply will likely drop, meaning shortages instead of higher prices.
I don't blame Hawaii for trying, but I don't think its going to have the desired result.
Check out this article on yahoo from ap if you want to know more:
http://news.yahoo.com/s/ap/20050902/ap_on_re_us/gas_cap
Very seldom do price caps actually do what they are intended to accomplish. In this case, if the caps are set too low, and reduce refiners profits, you might see refineries reduce their supply or even leave the market altogether. Past experience with price controls (remember rent controls under Nixon, they did not work too well) shows that they are seldom a good idea. I don't blame the state for trying as high as gas prices are, but such an action ignores the economic realities of the marketplace. By setting caps you discourage any other refiners from trying to enter the market, and possibly reduce supply. If you know anything about economics (I do, I have a minor in it), you know that if demand stays the same and you reduce the supply, you get higher prices. That is what is happening with gas prices all over the country. If you reduce the price that gas companies can charge, they logically may elect to supply less if there profits are too limited. Then if one refinery shuts down, the supply drops considerably, resulting in higher prices. If prices are artificially capped, the supply will likely drop, meaning shortages instead of higher prices.
I don't blame Hawaii for trying, but I don't think its going to have the desired result.
Check out this article on yahoo from ap if you want to know more:
http://news.yahoo.com/s/ap/20050902/ap_on_re_us/gas_cap
posted by bigalsbeans at 9:25 PM
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