Q&A Friday #38: Will We Have Gas Lines?

Question: “With Venezuela rattling around, Iran looking to become an issue, and the 06 hurricane season right around the corner, do you envision 70s style gas lines?” — jasamc

Answer: Prices may continue to go up, but we’re not going to have 70’s style gas lines unless we make the same mistake they made in the 70’s — instituting price controls. Because the government artificially increased demand by forcing prices to be lower than the market dictated, demand outstripped supply and you ended up with lines to buy gas.

So no price controls equals no gas lines.

*** Update #1 ***: Naturally, on the very day that I posted about what causes gas lines, there was a freaky, once in a lifetime exception to the rule that undercut what I was saying:

“As if rising prices weren’t enough, the tanks have run dry at some Philadelphia-area service stations in the last few days as the refining industry stumbles through a change in the formulation of gasoline.

Oil refiners are phasing out a petrochemical that makes gasoline burn cleaner but which also has been found to contaminate groundwater. Refiners are switching to corn-based ethanol.

The changeover is creating supply-chain bottlenecks because much work must be done at fuel terminals and service stations to handle ethanol.”

This is a temporary problem, confined to a particular area and if you’ll notice, it’s also caused by monkeying with the market, but on the supply side in this case:

“The conversion to ethanol was prompted by the federal Energy Policy Act of 2005, which left refiners vulnerable to groundwater contamination suits and mandated greater use of renewable fuels. The use of ethanol forced gasoline retailers to clean their tanks, remove all water from them and install extremely fine filters on their pumps.”

In a prosperous country like the US, if you see a long-term shortage of any product that is desired by the public, government interference with the market is almost always at the root of the problem.

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