Tuesday, August 30, 2005

The Perfect Storm


Think about gas cap next time you vote

I'm a registered Democrat. However, the Democratic passing of the gas cap law really has me scratching my head. Is it arrogance or ignorance? Or is it both? I know our Democratic leaders are smart people. They were smart enough to get elected, right? To say they are looking out for the consumer's best interest, but at the same time ignoring time-proven market forces and basic economics, would lead me to believe it's simply arrogance on their part.

It's simple to inform the uninformed, but it's dangerous when arrogance leads. Let's think about this next time we vote.

Ernesto Jose

More Perfect Storm:


Rise in isle gas prices seen after Gulf storm

By B.J. Reyesbjreyes@starbulletin.com

Hurricane Katrina is expected to drive up gas prices nationwide, but some analysts warn that Hawaii could see a more dramatic spike because the state's price cap law ties isle prices to the Gulf Coast market.

Starting Thursday, maximum wholesale gas prices will be set each week in Hawaii based on an average of spot prices in the Gulf Coast, New York and Los Angeles. Katrina already has affected prices in two of those regions. Wholesale gasoline prices in the New York and the Gulf Coast soared by 25 to 35 cents a gallon yesterday, following reports that more than 8 percent of U.S. refining capacity had been shut down as a precaution ahead of the storm.

Although some refiners said damage at their plants appeared to be minimal, prices could go higher if things are revealed to be worse, analysts said.

"It'll be a bit before we know exactly what the extent of the damage was and, therefore, have a shot at understanding what the supply shortfall and the lost production was," said David Hackett, president of Stillwater Associates, an oil and gas industry consulting firm.

"It's hard to kind of know at this point, but clearly it's going to push gasoline prices nationwide up, especially in the Gulf Coast," he added.

Senate Consumer Protection Chairman Ron Menor, one of the key authors of the gas price cap, said he believes it is too early to forecast what will happen to prices in Hawaii. "If the federal government and private industries intervene to stabilize prices on the mainland in the aftermath of the hurricane, then there shouldn't be any impact in Hawaii's gasoline prices," said Menor (D, Mililani).

One analyst said pump prices nationwide would likely average more than $2.75 a gallon by week's end -- up from $2.61 a gallon last week, according to Energy Department data. Gov. Linda Lingle said she feared a similar spike in Hawaii prices.

"What happened is, because of the hurricane, oil production is going to be down in the Gulf, which means prices are going to be higher, which means the gas cap is going to be set higher," Lingle said yesterday in a speech to the Chamber of Commerce of Hawaii. "It highlights the problem of tying prices here with somewhere else."

Lingle said her administration was setting up hot lines for consumers, gas stations or industry officials to report any potential problems once the caps are in place. Wholesale price caps for Thursday through Sunday have been set already, so any increases are likely to be reflected in the price cap calculations being posted tomorrow and effective for the week of Sept. 5.

The current baseline price for wholesale gasoline is $1.87 a gallon, based on conditions in the three target markets from Aug. 17-23. Including taxes and assuming a 12-cent-a-gallon markup traditionally charged by dealers, the cost of regular unleaded on Oahu would be about $2.87 a gallon if oil companies charge the maximum allowed under the price-cap law.

That price is above the record $2.82 per gallon average in Honolulu reported yesterday by AAA's Fuel Gauge report. The statewide average for regular unleaded also was at a record $2.90 a gallon, according to the auto club.

John Tantlinger, a program manager in the Department of Business, Economic Development and Tourism, said Hawaii's gasoline prices probably would have been affected by the hurricane, but not as directly as it will be under the gas cap formula. "It transfers the volatility of prices of those markets directly to our prices," he said. Hackett said Hawaii prices might not have been affected by the hurricane at all. "Gas prices in Hawaii have nothing to do, at the end of the day, with California refinery performance or Gulf Coast hurricanes," he said. "Hawaii gas prices pretty much did what they do, which is come up slowly and come down slowly."

Stillwater was commissioned by the state to study Hawaii's gasoline market in 2002, after the administration of then-Gov. Ben Cayetano settled its $2 billion price-fixing lawsuit against oil companies for $20 million. The firm said it did not think price caps would work.

House Majority Leader Marcus Oshiro said the Public Utilities Commission should use this opportunity to determine whether the baseline markets are appropriate for calculating the price caps.

Under the law, the PUC has authority to adjust the price cap formula to more accurately affect the market. "The PUC will be tested by how it reacts to the affects of the hurricane on these markets," said Oshiro (D, Wahiawa-Poamoho). "They're monitoring the situation hour by hour, day by day. They're in the best position to make the most informed decision."

Star-Bulletin reporter Richard Borreca and the Associated Press contributed to this report.


At August 31, 2005 12:07 PM, Blogger Mike Hu said...

During the recent GET/rail testimonies, I suggested the solution to the transportation problem was biking and other forms of efficient personal transportation devices and initiatives (electric scooters, ride-sharing) -- which didn’t get a serious hearing then because the proposed rail system would solve our problems twenty years from now. Until then, I guess they intend to do nothing to educate and alter people’s behavior to adapt to the present crisis, and so people do nothing really because the government folks have promised to solve these problems in some distant future -- that gets more distant, the worse the problems get.

At August 31, 2005 12:41 PM, Blogger Mike Hu said...

A thoughtful discussion:


Katrina's Effect on Hawaii's First-in-the-Nation State Gas Cap, Set to Go Into Effect Sept. 1
Shoots from the Grassroot Institute of Hawaii - Aug. 31, 2005
By Don Newman, 8/31/2005 8:30:17 AM
It is rather ironic. Thanks to Hurricane Katrina, which over the weekend, decimated several parts of the South, including Louisiana, Mississippi and Alabama, there is going to be no objective way to determine what effect the gas caps will have on the market here in Hawaii.

The Hawaii first-in-the-nation state gas cap, set to go into effect Sept. 1, 2005, is tied to three price points on the U.S. Mainland, including the Gulf Coast, where the hurricane hit. The U.S. market is going to be so volatile due to the supply interruptions and that -- in addition to the cap on the market – will also affect prices here.

The attempt to cap gas prices is due entirely to an inadequate understanding of how free markets work and why prices for commodities vary from place to place. The typical view, due to literally decades of socialist envy of capitalist successes, is that every difference in price is due to the "greed" of corporation owners and managers. Despite endless failed attempts to prove such alleged price gouging the assertion remains.

The true nature of supply and demand and how this affects the volatility of markets is going to be made abundantly clear in the upcoming weeks and months. While the gas cap, poorly thought out as it was, was already clearly going to result in a rise in gas prices at the pump in Hawaii rather than the contrary, it will in no way be able to curtail the spike in prices that is coming due to the disruptions in supply occasioned by the hurricane. Nationwide the results are going to be evident, short supply will drive prices higher.

Of course there will be those who will lay the blame for the price increases on the greed of the corporations whose business it is to supply gas to the public but this is merely the ranting of those who don’t understand market forces. The fact is the government, in the form of taxes, will take a greater portion of the price paid by the consumer at the pump than the profit margin of everyone on down the line that supplies gasoline to that public, yet no one complains about that fact. (Well, except free market economists.)

To simplistically boil down the price of a given commodity like gas to the machinations of corporations is to utterly ignore the facts surrounding the situation. Sure, gas costs more here than on the mainland, so does lumber. So does almost every commodity and product that is sold here. So why is gas singled out as being too expensive? In this column a year or so ago the comparison was made between the price of milk and the price of gas versus the mainland and Hawaii. Milk won hands down as being far more expensive per unit sold than gas. This makes sense. So why doesn’t it make sense for gas as well?

All of these musings are just examples of how selective some consumers and most legislators are in laying blame for the high price of just certain items. Yet the same market forces drive prices no matter what the service or commodity is, while some are considered, for lack of a better term, "entitlements" and others aren’t. Low gas prices are considered such an entitlement, in defiance of all logic. Why should gas be any different than any other commodity?

As the gas caps mature there will be shortages. By artificially holding down prices, assuming the caps are successful, consumers will not be constrained by prices from driving more than they need to. That is the magic of free markets, prices modify behaviors. Lacking price increases people will have no constraint on their behavior and then indulge themselves in actions they couldn’t otherwise afford. Thus price caps will induce additional car usage that would otherwise be curtailed by higher prices.

This is yet another irony of gas cap advocates who are in many cases the same people who demand a reduction in automobile usage due to pollution and other reasons. The high price of gas would drive people out of their cars into public transportation if the price rose high enough but at the same time the same people castigate the oil companies for "gouging" the consumer, lament higher gas prices. So which is the greater evil, too many cars or too high gas prices? Can’t have it both ways.

The gas caps will ultimately fail. Hurricane Katrina has all but guaranteed that this will happen sooner rather than later, which in a certain sense is too bad. It would have been better for the failure of the caps to have been demonstrated on their own merits, or rather the lack thereof. But life isn’t perfect and not everything happens the way you want it to. Which is precisely why the gas caps will be eventually repealed, government cannot manage markets more efficiently than markets can manage themselves, no matter what politicians think.

Don Newman, senior policy analyst for the Grassroot Institute of Hawaii, Hawaii's first and only free market public policy institute focused on individual freedom and liberty, can be reached at: mailto:newmand001@hawaii.rr.com

This editorial is intended to provoke thought, discussion and an examination of issues. It does not reflect official policy of the Grassroot Institute of Hawaii. See the GRIH Web site at: http://www.grassrootinstitute.org/

HawaiiReporter.com reports the real news, and prints all editorials submitted, even if they do not represent the viewpoint of the editors, as long as they are written clearly. Send editorials to mailto:Malia@HawaiiReporter.com

At September 01, 2005 7:11 AM, Blogger Mike Hu said...

As much as people don’t want to hear it and are in denial, high fuel prices are not the problem; high fuel prices are the solution -- to traffic congestion, pollution, death and destruction by autos, the lack of exercise, etc. The usual healthy response when prices rise in any commodity, is to cut back on the consumption -- into alternatives, but instead, we see people more determined than ever to consume as much as they like -- as though they can run the table against a superior bankroll.

When people during the ‘90s started buying SUVs and Hummers without consideration for today’s present energy crisis possibilities, we were obviously headed for trouble. The only action that will moderate fuel price rises is to reduce demand -- in a world in which the worldwide consumption is increasing rapidly because of the emerging affluence of the major populations of China and India.

A rail system may sound like a solution twenty years from now but people need to do something today, right now, to solve the problem by switching to high fuel consumption alternatives -- like biking, walking, buses, car and van pools, electric scooters, etc., and if they do so now, there might not be a problem to solve twenty years from now. These panaceas promised at some distant time in the future undermines the will to solve these problems in the present moment -- and that changes the future.

Otherwise, we merely have leadership by wishful-thinking.

At November 10, 2005 1:10 AM, Blogger Antonio Hicks said...

I was just browsing various blogs as I was doing a search on the word poster, and I just wanted to say that I really like what you've done with your blog, even though it wasn't particularly related to what I searched for. I appreciate your postings, and your blog is a good example of how a blog should be done. I've only just recently started a Posters website - feel free to visit it when you get a chance if you wish. Much success, antonio.


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