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By Robert Rapier on Nov 5, 2012 with 14 responses

“As Important as Food and Water”

When Hurricane Sandy was forecast to make landfall on the East Coast, I advised people to top off their automobiles with fuel. There were a number of reasons for that, and some people in New York and New Jersey are learning those reasons the hard way.

When a hurricane hits an area, it can damage refining infrastructure, fuel terminals, and service stations. Prolonged electrical outages can make fuel deliveries next to impossible, which has been the case around New Jersey since the hurricane hit. Any of these conditions can lead to fuel shortages. CBS News reports:

Gasoline situation increasingly dire in days after Sandy

Gas is being rationed in parts of New York and New Jersey. The pumps are running on empty — and so is patience. According to the motor club AAA, 60 percent of the gas stations in New Jersey and 70 percent on New York’s Long Island are now closed.

One fuel buyer said, “This is crazy, it’s like post-apocalyptic scenarios, you know with this gas. It’s as important as food and water to people. It’s a dogfight out here.”


I am often amazed at how we take our energy supplies for granted. Ask someone about the basic necessities of life, and few would mention gasoline. But once you are forced to do without it, it becomes pretty clear that modern life for most Americans is utterly dependent upon gasoline.

Fear of being accused of price-gouging has exacerbated the problem. In situations like this where fuel supplies are scarce, one of three things can happen. 1). Prices rise in response to scarce supplies; 2). Prices are frozen and the scarce supplies quickly run out; or 3). Prices are frozen and fuel is rationed.

If prices are allowed to rise in response to scarcity, then people who don’t really need fuel — but are making matters worse by buying fuel “just in case” — are discouraged from buying fuel. People who really need fuel will have to pay more, but more availability will be assured.

If prices are not allowed to rise, then retailers will simply run out. This was in fact the case as retailers were afraid to raise prices due to fear of being penalized for price gouging. This led to widespread gasoline shortages because there was no price signal that would ordinarily stem demand for a scarce resource.

The shortages eventually led to the only other option for keeping prices from rising while ensuring that supplies don’t run out:

N.J. residents experience mixed results on first day of gas rationing rules

Gov. Chris Christie’s implementation of 1970s-style gas rationing rules appeared to shorten lines slightly. Under the rules, vehicles with license plates ending in even numbers can fuel up on even-number days; odd-number plates can fill up on odd-number days.

I fully understand the sentiment behind laws against price gouging, but there is no free lunch. There are consequences from tampering with the rules of supply and demand. This situation reminds me of the time a liberal arts professor of mine expressed outrage that medicine I took for migraine headaches cost $9 a tablet. I told him that if my alternatives were no medication, or paying a lower price but then not getting enough medication to treat all of my migraines, then I would gladly put up with what he considered price gouging by a pharmaceutical company. I suspect some in New Jersey and New York feel the same way about gasoline.

Link to Original Article: As Important as Food and Water

By Robert Rapier

  1. By Ann on November 5, 2012 at 11:58 am

    If prices are allowed to rise in response to scarcity, then people who don’t really need fuel — but are making matters worse by buying fuel “just in case” — are discouraged from buying fuel. People who really need fuel will have to pay more, but more availability will be assured.

    Wrong.  If fuel prices are allowed to rise, then poor people are discouraged from buying fuel.  People who already have surplus wealth will have to pay more, but availability will be assured (to them only).

    The free market can’t possibly determine who needs the fuel more.  It only determines who has more money to spend on fuel.  It lets the rich hoard gas for unimportant things, while the poor freeze to death.

    The correct response is rationing, not price gouging.  Use human brains to ensure that available fuel goes to emergency vehicles first, then to the general public, with limits to prevent them from hoarding more fuel than they actually need.  The free market can’t do this, it’s just a dumb algorithm that finds one local optimization to one variable.

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    • By Robert Rapier on November 5, 2012 at 1:49 pm

      Wrong.  If fuel prices are allowed to rise, then poor people are discouraged from buying fuel.  People who already have surplus wealth will have to pay more, but availability will be assured (to them only).

      If fuel prices rise, everyone is discouraged from buying fuel. It won’t discourage the wealthy much, but that’s going to always be the case with wealthy people.

      The correct response is rationing, not price gouging.

      That is going to depend entirely on who you ask. If you ask someone who needs more gasoline than is being rationed, they are going to prefer to pay the higher prices. In the case of rationing, what you have is people taking gasoline even when they don’t need it, and then turning around and selling it on the black market.

      My point is this: There really isn’t a “right” answer. There are answers that aren’t going to be appealing to some, and unappealing to others. Rationing might be the solution that has the most appeal to the most people, but it isn’t without consequence.

      In fact, I have suggested that rationing is probably the fairest way to allocate resources if oil supplies became scarce. But a black market will certainly arise.

      RR

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      • By GreenEngineer on November 5, 2012 at 6:35 pm

        In all seriousness, the dynamic you are describing (rationing, plus a black market at absurd prices) really gets you the best of both worlds.  Rationing ensures that everyone gets at least some access, so they can get by.  The black market ensures that anyone who really needs/wants more than their ration can get it, but it’s going to cost them.  People who have, by whatever means, reduced their need to less than their ration amount can profit by their thriftiness.

        This is not dissimilar to the idea of a carbon feebate, where everyone pays per unit of carbon/energy they use, and then everyone receives a fixed per-capita rebate later.  High users wind up with a net cost; low users wind up with a net profit.

        The only real problem with the ration+blackmarket arrangement is that there is no transparency, oversight, or regulation.  So gas sold in the black market may well be adulterated, diluted, or otherwise compromised.  Also, a few private individuals capture the black market markup; if the scheme was being done formally by  the government, the market markup could be used so that the high users effectively subsidize relief efforts for everyone else.

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    • By TimC on November 6, 2012 at 5:05 pm

       

      “The free market can’t do this, it’s just a dumb algorithm that finds one local optimization to one variable.”

      Couldn’t be more wrong, Ann.  As Hayek showed, free market prices are remarkable packets of information that condense hundreds of variables from the beginning to the end of the supply chain, and communicate this information to consumers in a single concise number.  Price controls and rationing are very effective ways to limit that flow of information, that’s why dictators love them. 

       

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  2. By mac on November 5, 2012 at 5:18 pm

    Uh, well……. errrr ….. hmmmmm

    Ever hear of natural gas ?  For which there is a well-established infra-structure.

    Go right ahead…………….. and starve and freeze to death in the dark depending on gasoline, diesel and fuel oil alone.

    Oil is a precious as water and food ?…….., only because we have allowed it to become so……

    Buy an electric space heater……. simple……..

     

     

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    • By Clee on November 5, 2012 at 8:19 pm

      Buy an electric space heater?  Not very useful if you are one of the millions of customers still without electricity.  Of course the lack of electricity to pump gasoline at over half the gas stations in New Jersey and Long Island is contributing to the gasoline shortage.  Hurricane Sandy flooding the Phillips 66′s Bayway refinery in NJ, the second largest refinery on the East coast, as well as other refineries and distribution terminals leaving them without power doesn’t help either.

       

      Back when I lived in NJ and LI, I resided almost entirely in apartment buildings where I would not be allowed to install PV or run a natural gas backup generator.  At least they had switched from oil to natural gas heat.

       

      But Robert was talking about gasoline as a transportation fuel.  Those NYC marathon runners volunteering to distribute supplies aren’t enough.  Emergency vehicles need refueling.   Petroleum products account for 90% or more of all transportation fuel in the US and I agree diversification is needed.  However, with the electricity out at over half the fueling stations in NJ & LI, I doubt they’d be able to pump compressed natural gas (CNG) or electrons either.

       

      Oil alone may not be as necessary as food and water, but energy in its various forms is.

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  3. By mac on November 5, 2012 at 5:38 pm

    Why even bring up the subject of “rationing” ?

    There is no need to ration anything. if we diversify our fuel choices.

    This bird-brained assumption that we are forever chained to oil is nonsense.

    Oh yes,  this particularly moment in time (Hurricane Sandy) just points out that we ought bot to rely on oil alone.

    You’ve got that right…..

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  4. By Tom G. on November 5, 2012 at 7:04 pm

    The loss of life, destruction and difficulty of living without electricity is clearly evident from this storm and my heart goes out to the people affected by Sandy.  It is devastating to lose a loved one and almost as difficult to lose some material possession like a home.

    It is also refreshing to see so many residents taking measures into their own hands and realize that the government is not going to take care of them.  When natural disasters occur, government agencies are overwhelmed and unable to help everyone.  It is important that everyone realize that government agencies should be considered a backup to your own plan for survival. 

    From the pictures shown on TV, it is apparent that many homeowners have decided to purchase and operate their own generators.  The problem with generators as highlighted in this article is that most of them take fuel to operate.  In most cases, that fuel is gasoline and that will most likely not be available unless you planed ahead.  There are of course, generators that run on natural gas and in many cases when a natural disaster occurs; the underground gas lines are unaffected and most will still be in service.

    Here are a couple of things I would have if I lived in an area subject to hurricanes, tornadoes, freezing rain or high winds capable of causing interruptions in utility services.  All of the suggestions can be quite expensive; can take things like building permits and complicated installations to complete; but they can become real life savers when storms like Sandy hit.     

    1. A must for me would be a natural gas/propane powered generator or better yet be a combined heat and power [CHP] unit.    

    2. If the money was available I would have solar PV installed.  The way the building codes are written; these systems have even survived hurricanes if the panels aren’t hit by flying debris.  It doesn’t take very many solar panels to run your refrigerator, freezer, charge your cell phone and top off some rechargeable batteries to put into an LED lantern.  It is of course true that solar only works in the daylight but the point is they do work and can provide emergency power when needed. They will NOT however keep you warm as night.  It is also true that during the day your solar system could provide enough power to operate your furnace assuming your natural gas supply was still available.  At night you would need to run your natural gas/propane generator or your CHP unit.

    If we haven’t learned anything, we SERIOUSLY need to think about putting ALL of our utilities underground in America.  Overhead power lines surrounded by trees and buildings subject to natural disasters are an open invitation to power loss.  While the cost to provide underground utilities can vary from $2.000 to $20,000 per home; communities with underground utilities suffer far fewer and less frequent power losses.  This is of course a very long term solution but we need to start thinking – SOLUTIONS instead of just fixing BROKEN stuff after the fact. 

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    • By Russ Finley on November 7, 2012 at 10:34 pm

      Good points, Tom

      Having natural gas or propane for heat/hot water is a good backup for loss of electricity. The blower motor on a gas forced air furnace can be powered by a generator, which ideally, would also be powered by natural gas or propane. Lots of homes have a big propane tank to heat their homes. One does not  need access to natural gas lines to have gas heat/cooking.

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  5. By notKit P on November 5, 2012 at 9:06 pm

    “real life savers when storms like Sandy hit. “

    The force exerted by  water is what kills the unprepared.  If you add them all up, I suspect more died on a last 4th of July in water accidents.  

    If you are well prepared doing without power and gasoline is not a problem.  Think of it as camping.  

     

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  6. By Ed Reid on November 6, 2012 at 8:33 am

    Some very good points here: http://knowledgeproblem.com/2012/10/30/price-gouging-can-economics-justify-a-price-cap/#comment-36403

    See particularly second comment by Andrew Garland.

    Also, some brilliance, as usual, here: http://knowledgeproblem.com/2012/11/05/thomas-sowell-on-price-gouging/

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  7. By Marathon Energy on November 6, 2012 at 3:12 pm

    being prepared is the best thing you can do for yourself in case of a disaster.

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  8. By mac on November 7, 2012 at 7:52 pm

    As someone who has been through several hurricanes here on the Texas Gulf Coast,  I cannot help but find the Hurricane Sandy situation in New Jersey  somewhat amusing.

    Down here go through this with fair regularity .  I was in Houston for Katrina.  And so on…..

    No lights.  No electricity.  No gasoline.  No groceries. No hot water.  In fact….. no water period. Meat spoiling in the fridge and of course no way to even cook the spoiled food.

    My heart goes out to the victims of Sandy.

    “From 1980 to the present, at least 69 tropical or subtropical cyclones affected the U.S. state of Texas. According to David Roth of the Hydrometeorological Prediction Center, a tropical cyclone makes landfall along the coastline about three times every four years, and on any 50 mi (85 km) segment of the coastline a hurricane makes landfall about once every six years.”

    mac

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  9. By pole on November 8, 2012 at 4:06 am

    thanks

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