I’m old enough to remember and that’s exactly what happened. You can’t force someone to lose money.
If you are too young to remember the shortages in the 70’s then you are also too young to have witnessed the latest power plant built in California. That state tried to play games with pricing and the utility companies simply stopped building new generating plants. I destinctly remember hearing in the news that they expected to have brownouts in following year and my first thought was that they would build peak-use generators as a temporary fix (it takes 6 months to throw one together because they built a bunch of them in my area). Nothing happened and the following year they had power shortages. I laughed when I saw the Governor standing in front of a peak-use generator 6 months after the crisis declaring they were building new power plants. To my knowledge, they still haven’t built full scale power plants. Mayber the Terminator can do better, don’t know. Pretty messed up.
Hawaii is forgetting one of the fundamental facts of capitalism; consumers are subject to the same free market that producers are. If Hawaii sets an unfavorable price, than the gas companies will simply choose to sell their product to another customer. Consumers or producers can mandate prices, but only in situations where they monopolize the market or where they band together.
It may be true that whoever is selling gas in Hawaii is price gouging. But setting a legal ceiling on the price of gas isn’t going to work if somebody else is willing to pay a higher price. If the Hawaiian state government thinks gas pricing isn’t competitive in their state, the solution is to promote some competition.
Little Nemo, your post assumes limited supply. If the gas companies are selling all that they can sell to the mainland US, and they can source more gas, then they may as well sell it (even if at a lesser profit) in Hawai.
There is only so much gas, of course, but for as long as there is enough production to keep the market far enough below what Hawaii caps it at so there is some profit in it, the gas will keep flowing.
Price controls don’t always fail. For example, in the early days, insurance companies reimbursed pharmacies for their usual retail price on prescriptions, less a small discount. Later, they moved to a cost-plus reimbursement system, where the “plus” was a lot less than the discounted gross margin had been. Basically, the insurance companies said, “if you want this business, you’ll take lower margins.” Some (mostly smaller) pharmacies dropped out of the insurance-reimbursed market, others (the majority) stayed in. In effect, Hawaii is saying something similar. It’s saying, “if you want to do business here, you’ll have to do it at the same prices you charge on the mainland.” What remains to be seen is whether (a) there is some as-yet-unidentified-in-this-thread reason why it won’t be profitable, in which event of course the producers won’t play and/or (b) even if the answer to the preceding is no, will the producers cut off supply anyway as a way of intimidating Hawaii into dropping the price controls.
BTW, I don’t like price controls, mainly because they’re difficult to administer fairly and effectively, especially in the long haul. (Anyone remember the Nixon-era wage-and-price freeze?) And they can have undesirable side effects, e.g., prescription price controls have become a tail that sometimes wags the dog of what drugs a doctor can prescribe. But, as I said, they don’t always fail.
But gas is a commodity whose use is dependent on its price. When gas is cheaper, consumers use more of it. So if they’re selling all they can in a market where the price is $2.50 they don’t have sell the excess to a different market at $2.00. They can just bring the price down to $2.45 and sell the excess in the original market.
A good example of what I said before. In some situations, it is the consumer who is in control of the market. But I don’t think this is going to be the case with Hawaii. Maybe if the United States, Western Europe, and Japan set a market price it might work, but even then you’d probably just see the oil going to China and India. Oil’s too important to too many markets for any group of consumers to fix a price.
Gasoline hardly comes to mind when one is trying to think of an example of an elastic good. People will drive where they want, when they want. If energy began to make up as great a proportion of household budgets as, say, rent, then I think you’d see a more elastic demand pattern emerge. But not now.
I believe Emerald Hawk is right. People just don’t believe the gas companies here operate in good faith. Stemming from the lawsuit the state filed against them and from the way our gas prices go. Namely they rise with the mainland (although usually by a smaller amount then in California) and then when prices fall back to normal on the mainland ours will drop a few cents or like last year, not at all.
We’ve got two refineries (see Wikipedia) and some gas shipped in. Lots of people here believe very strongly that they were gouged. Dealing with oligopolies is just a real bitch. Especially when you have a market that really can’t support any more competition.
Indecently right now analysts are saying that the cap will cause gas to rise in price when it comes into effect. Although I don’t suppose the companies will have to charge as much as they can but it seems like they will to show us.
Haven’t we (State of Hawaii) been maintaining controls over shipping costs for a very long time? Or at least don’t they have to apply to the state for permission to raise their fees?
Not that dependent. True, there are ways to use less gas, but it isn’t usually like, say, deciding to forgo seeing the latest movie or buying new (or expensive new) clothes. There’s only so much gas saving that most people can do–esp. in the short term. Yes, you may be able to carpool (but many people can’t–my wife lives 45 miles from her job, and she’s hardly atypical). You may be able to reduce excess car trips. But you still live X miles from work, and you still have to fill your car up for that trip. So the real solutions are long-term ones: Move closer to work (or get a job closer to home); move to a city with public transportation (much of the country doesn’t have public transportation … I know my area doesn’t); buy a new, Hybrid or tiny ultra-fuel-efficient car (assuming you don’t have more than one child in a car seat to fit into the car, and will never need a large vehicle to haul stuff). But these changes only respond to market forces in the long term, and the market inertia on these is HUGE. Again, it’s not deciding between Coke and Pepsi, it’s a decision that involves where you live, car financing, and thousands of dollars in investments, and there is only so much wiggle room for short-term savings.
Gasoline use is much more similar to, say, heating oil use. Yes, one can save on heating oil costs by turning the thermostat down, wearing more sweaters, taking shorter/fewer hot showers, running fewer loads of laundry, etc. But if you live in Minnesota, you still have to keep the furnace running at a certain temperature lest your pipes freeze and burst. There are certain minimum realities (that may not be that “minimal”). And yes, there are long-term solutions (move south; insulate your house better; design a new house that employs passive solar heating; etc.), but they are extreme, and usually involve either a large investment (which may not pay off in fuel savings) or a dramatic lifestyle change. More likely, we’ll instead see people paying a quarter or more of their income toward heating their house before they decide to move to Florida.
Yes, market forces always do act … but they don’t always act to the benefit of people or the nation.
Not to defend a potentially serious screw-up, but the answer to the above question is “it’s not arbitrary”. From the link:
When I lived in Hawaii (moved back to the mainland in 2001), there were serious rumblings about collusion (unproven, I might add, although the oil companies settled a lawsuit for $35M). Indications of these suspicions can be found, for instance, in the 2003 newspaper article Gas Goes Up, Stays Up:
Now, I’m not defending the price cap nor am I saying there aren’t acceptable reasons for pricing trends in Hawaii. I’m merely pointing out that not only is Hawaii a unique market, but that there have been monopoly issues concerning the oil companies in the past. I also like this quote from another Star-Bulletin article:
As I said, a unique market with (fairly) unique characteristics.
Perhaps due to Hawaii’s remote location and relatively small size there is somewhat of a constraint to the number of suppliers it can support? Therefore the situation would have some similarities to a natural monopoly.
Basically the belief of the supporters is that the gas makers in Hawaii are making a significantly higher profit per gallon here then on the mainland due to the fact that they don’t compete with each other and the entrance costs to this market are high enough to keep everyone else out. So they are trying to make a flexible, profit savvy gas price that allows the gas makers to turn a profit in line with other profitable producers on the mainland, just not the enormous one that they believe they already have.
Although with a Governor looking for reasons to cancel the cap I would imagine they’d arrange a shortage allowing Lingle to call the whole thing a failure quickly enough. It’s going to be interesting however to see what happens if California’s gas prices stays high enough long enough to keep the cap above what gas is selling for here already.