This One Easy Trick Makes Gas Lines Grow Expontentially

Photo credit: Richmond Times-Dispatch

by James A. Bacon

As panic buying sends Virginians to the gas pumps to top off their tanks, Attorney General Mark Herring is encouraging citizens to report instances of price gouging.

“This ransomewear (sic) attack on the Colonial Pipeline could create disruptions in the gasoline supply across the Commonwealth, and unfortunately, bad actors could take advantage of this just to line their own pockets,” said Attorney General Mark Herring in a press release. “Virginians should not have to worry about paying exorbitant prices for gas and other necessary goods during this time.”

Herring encouraged Virginians to file complaints with the Department of Agriculture and Consumer Services.

This is the absolute worst possible thing the state can do. Economics 101: During times like this, prices should rise.

The Colonial Pipeline expects to take a week or so to restore service after its ransomware attack. The supply of gasoline in Virginia, as in several other states, will be severely constrained. Panic buying has set in. Rather than drive around with gas tanks only half full on average, people are freaking out and topping off their tanks “just to be safe.”

There are roughly 3.2 million registered automobiles in Virginia. If the size of the average automobile gas tank is about 16 gallons, the implied unused storage capacity of Virginia’s automobile fleet is about 25 million gallons, give or take. Given that Americans consume about 390 million gallons of gasoline daily, we can estimate that Virginians, comprising roughly 1/40th of the national population, consume about 10 million gallons a day.

In other words, if everyone panics and keeps their gas tanks topped off, one to two days’ worth of gasoline consumption will be stored unused in peoples’ gasoline tanks. Panic buying aggravates the gas shortage, and people who really need the gasoline — to, say, drive back and forth to work — often can’t get it.

A rational response to this temporary emergency would be to let gasoline prices rise. That would do things. First, it would increase the cost of “hoarding.” People capable of nursing the gasoline in their tanks through a week-long disruption would think twice about keeping their gas tanks filled to the brim at $7 a gallon. In that way, higher prices would free gasoline supplies for people who really need it and are willing to pay a premium for it.

Higher prices would have a second benefit. They would encourage the importation of gasoline from other states by means other than pipelines. If someone could sell gasoline at a wholesale price of $6 a gallon instead of $2 a gallon (to pick numbers out of a hat for purposes of illustration), it might pay him to drive a gasoline rig to Virginia from West Virginia, Pennsylvania or Ohio.

Governor Ralph Northam acknowledged the option of delivering gas by truck in his Declaration of a State of Emergency issued in response to the pipeline shutdown.

While current gasoline reserves in the Commonwealth are sufficient to address immediate supply concerns, a long-term disruption in the pipelines will require transportation of fuel and other oil-derivatives via interstate and state roadways.

According to the AG’s press release, price gouging entails the charging of “unconscionable” prices. “The basic test for determining if a price is unconscionable, is whether the post-disaster price grossly exceeds the price charged for the same or similar goods or services during the ten days immediately prior to the disaster.”

In our current circumstance, it makes no sense whatsoever to suppress prices. This is economic illiteracy on steroids. Jawboning gasoline prices downward will aggravate the shortages and intensify the economic disruption.

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19 responses to “This One Easy Trick Makes Gas Lines Grow Expontentially”

  1. What do you say to people who can’t afford those higher prices but still need tranportation for work, groceries, and emercencies?

    1. Stephen Haner Avatar
      Stephen Haner

      The reply is that if the dealers are told no price increases allowed, supply will be gone even quicker. Which it will. While I was out this morning it looked like the price had spiked to about $3 a gallon, not really enough to deter anyone who was actually needing gas or getting panicky. Sounds like the pipeline will be coming back on line in a matter of days. Plenty of stations I saw were out of fuel.

      In Richmond, with so many stations, real gouging is unlikely. In a previous pipeline disruption, when I was spending weekends in Nelson County, there some dealers there with no nearby competition who were getting creative. But it deterred me from pumping there, so it worked.

      1. So either way, those who are economically challenged are screwed. Sucks to be poor I guess.

        1. WayneS Avatar

          Indeed it does.

      2. PassTheBuckBureaucrat Avatar

        A significant cost in fuel is in transportation. There’s a freight cost per mile between the terminal and the station. That station in Nelson likely has to pay a lot more for fuel than the stations in Richmond (normally).

        Plus, it doesn’t get the volume of sales to spread-out its overhead / fixed costs. Those regulatory compliant dispensers and tanks cost a lot of money.

        With the Colonial Pipeline being down, Richmond stations are feeling the squeeze because their fuel is being trucked in from further distances. There is a legit cost increase to get that fuel to the station, and that cost has to be passed on to the consumer.

    2. PassTheBuckBureaucrat Avatar

      Increasing the price during short-term squeezes means you buy what you need, and no more… knowing full well that the price will eventually come back down.

      Hoarding will be penalized by buying too much at a high price. Hoarding is caused by pricing be too low. Price caps allow people to buy more than they rationally need.

      “Economically Challenged” folks had issues before this.

      1. Matt Adams Avatar
        Matt Adams

        Not to mention hoarding 10% ethanol isn’t going to help you. Ethanol infused gas goes “flat” between 1 to 3 months after its purchase. Not to mention if you run it in your small engines you’re killing the lifespan of that expensive mower you bought.

  2. Nancy Naive Avatar
    Nancy Naive

    Easily fixed with a time-dependent capital gains tax rate, and a progressive earned income tax rate with an appropriate definition of the two types of money.

  3. William O'Keefe Avatar
    William O’Keefe

    Herring and those who think like him are clever idiots. His is a political stunt. The only reason that stations are out of product is panic buying. Terminal storage should have been sufficient to get us through the distribution interruption. Anyone who was alive in the 1970s knows that the government made the effects of the embargo worse. Some people never learn; others have learned never to let a real or presumed crisis go to waste.

    1. LarrytheG Avatar

      So how is this much different than toilet paper?

      Is this a govt issue or a herd panic issue?

  4. Ronnie Chappell Avatar
    Ronnie Chappell

    Station owners reprice fuel every day so that it reflects the cost of replenishing their inventory. Make it impossible to pass on these cost increases and they soon go out of business.

    1. Matt Adams Avatar
      Matt Adams

      I don’t think the AG is aware how very little profit the station’s make selling gas. It’s all about drawing customers in for other services and goods.

      1. PassTheBuckBureaucrat Avatar

        He’s aware. His economically illiterate supporters are not.

  5. Nancy Naive Avatar
    Nancy Naive

    Time for another Reaganesque Windfall Profits Tax… can’t have an idiot CEO clicking on an email link and creating profits.

  6. Nancy Naive Avatar
    Nancy Naive

    Time for another Reaganesque Windfall Profits Tax… can’t have an idiot CEO clicking on an email link and creating profits.

  7. PassTheBuckBureaucrat Avatar

    The issue is how to suss-out those that really need fuel from those that feel they need fuel. Many of us believe the best method is through price signals.

    Some humans are rational before the fact, many rationalize after fact mainly by pointing their finger at others. Its easy to blame others, because you have no idea what their rationale is for doing whatever it is they are doing… you can only project your opinion or context upon them… many folks have highly limited life experiences and can’t fathom how someone else might have vastly different needs then they do (think dunning-kruger, you don’t know what you don’t know.)

    Larry, for example, will come up with some rationalization for why Nancy needs fuel for his yacht this weekend. But, that guy over there… we’ll call him Steve… he’s just a greedy hoarder… he doesn’t deserve that fuel, but Nancy does.

    We live in a world with limited supply and unlimited wants. The only way to get people to curb their unlimited wants is through price signals or thru guns… AG Herring clearly prefers guns!

  8. LarrytheG Avatar

    I actually agree with the demand/supply premise and yes, it sucks to be poor but having the govt get involved in setting prices won’t help the poor overall.

    What happens when prices increase is that people conserve, become more efficient, reduce unnecessary trips, and bundle trips, carpool, etc.

    If we had better bike/ped/transit connections, some folks would get that final push to make more permanent changes.

    AND, we pollute less also, you know that TCI thing!

    Works for other things also like payday loans and college tuition!

  9. James Wyatt Whitehead Avatar
    James Wyatt Whitehead

    Ethanol free gas in Marshall, Virginia was $3.20 a gallon. It was the only pump still running out 5 service stations. I loaded up. The jeep loves that stuff. So much better than the 10% crap.

  10. energyNOW_Fan Avatar

    We had to go to Pittsburgh and back, so we just filled up outside NoVA both ways, no problems once you get out of this crazy region.

    Gee I think station owners should be allowed to use free market and raise prices to extend supply etc. However, I am holding off until they have to lower the prices when supplies come back and nobody needs gas because they all filled up today.

    Nice thing about a hybrid (RAV4), a few gallons goes a long way.

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