The scarcity problem: resources, and by extension the goods and services made with them, are more scarce at any point in time than the amount humans want. Therefore, stuff must be rationed. When the price system, for whatever reason, fails to work as a rationing system, something else must take its place.
With long gas lines persisting more than a week after Superstorm Sandy, New York imposed a gasoline rationing plan Thursday that lets motorists fill up every other day.
Police will be at gas stations Friday morning to enforce the new system in New York City and on Long Island. Gas will be available to drivers with license-plate numbers ending in an odd number or a letter on Friday. On Saturday, drivers with license plates that end in even numbers or zero can fuel up.
Andy Morriss and Don Boudreaux explain the consequences of the fragmented market for gasoline in the United States (gated):
For most of the 20th century, the United States was a single market for gasoline. Today we have a series of fragmentary, regional markets thanks to dozens of regulatory requirements imposed by the federal Environmental Protection Agency (EPA) and state regulators. That's a problem because each separate market is much more vulnerable than a national market to refinery outages, pipeline problems and other disruptions. ...
The role of regulators in fuel formulation has become increasingly complex. The American Petroleum Institute today counts 17 different kinds of gasoline mandated across the country. This mandated fragmentation means that if a pipeline break cuts supplies in Phoenix, fuel from Tucson cannot be used to relieve the supply disruption because the two adjacent cities must use different blends under EPA rules.
To shift fuel supplies between these neighboring cities requires the EPA to waive all the obstructing regulatory requirements. Gaining permission takes precious time and money. Not surprisingly, one result is increased price volatility.
Another result: Since competition is a key source of falling gas prices, restricting competition by fragmenting markets reduces the market's ability to lower prices.
While most of the fuel standards were adopted in the name of the environmental protection, many are actually the result of special interest pleading. Producers of various products, ethanol in particular, sought fuel content mandates or performance requirements that would benefit their particular product. (I detailed part of this history in “Clean Fuels, Dirty Air,” in Environmental Politics: Public Costs, Private Rewards (Greve & Smith eds. 1992).) Worse, some of the content requirements are irrelevant for new cars due to modern pollution control equipment. Federally imposed boutique fuel requirements have outlived whatever usefulness they ever had.
The market for gasoline is often characterized as a Bertrand oligopoly because of the standardized nature of the product. In Bertrand markets, because there is no product differentiation, firms compete in price, driving price down to marginal cost. That's a good approximization when we're talking about local/state gasoline markets, but not when we have a market that's fragmented because of regulatory differences between states that results in product differentiation. Because of the fragmentation, gasoline providers between states are not selling identical products and that reduces the price competition in the market. We would expect to see the biggest difference in prices between gasoline stations near state borders, especially with wildly different regulations that result in a lot of product differentiation.
My family and I travel to northern Iowa a lot, and it is always the case that gasoline prices in stations in Iowa are a dime to fifteen cents cheaper than across the border in Minnesota (I'm going from memory here). Part of that is no doubt due to tax differences, but it could also be due to differences in regulation.
From the New York Times comes a story describing the end of the ethanol tax credit in the US.
The tax break, created more than 30 years ago, had long seemed untouchable. But in the last year, during which Congress was preoccupied with deficits and debt, it became a symbol of corporate welfare. Fiscal conservatives joined liberal environmentalists to kill it, with help from a diverse coalition of outside groups.
In the United States, most ethanol is produced from corn. The demise of the subsidy is all the more remarkable because it comes at the peak of the political season in Iowa, where corn is king.
Is it really all that remarkable?
The higher prices have “created additional income for corn producers” but also appear to have increased costs to meat and poultry producers, big food companies, grocery shoppers and federal food programs, the Government Accountability Office said.
While the poultry industry is dominated by large-scale producers, cattle and pigs are grown by your typical farmer. These farmers also grow acres and acres of corn, so the corn producers and meat producers are largely the same group. The ethanol supports, therefore, have simultaneously increased farmer income and costs. My guess is that the average farmer's costs have increased more than his revenues from these supports.
While this is a step in the right direction, there are still two more types of government support propping up the ethanol industry: the tariff on imported ethanol and ethanol mandates. As I've written before, a product that needs this much government support probably isn't all it's cracked up to be in the first place. Let domestic ethanol, foreign ethanol, and plain old petrol compete on the same plane, and let consumers make their decisions about which type to use.
The ethanol industry says that rising gasoline prices have helped make its product competitive with regular gasoline. Score one for standard economic theory, which said long ago that ethanol could become more attractive, without government-imposed distortions, if the price of petroleum rose high enough.
Researchers investigating how large dams can affect local climates say dams have the clear potential to drastically alter local rainfall in some regions.
A study by researchers at Tennessee Tech University, Purdue University, the University of Colorado and the University of Georgia, Pacific Northwest National Laboratory and Hellenic Center for Marine Research concluded that artificial reservoirs can modify precipitation patterns. The study—published in Geophysical Research Letters— marks the first time researchers have documented large dams having a clear, strong influence on the climate around artificial reservoirs, an influence markedly different from the climate around natural lakes and wetlands.
..."We know a lot about how climate change affects reservoirs, but what we didn't know a lot about was what a reservoir could do to the local climate," he said. "We just reversed our thinking by saying that a reservoir and the activities it supports are just as important a player for climate as the larger climate is for the reservoir. Basically, it's a two-way street."
Many years later I was wearing a different hat. I was on the ‘buy-side’. Investing in (very) distressed assets. Venezuela was in the crapper at the time and EDELCA bonds (owner of Guri) were trading at 30 cents on the dollar with 5 years of interest coupons attached for free. So I took a look. I noticed that the MW production was substantially below what had been projected. I asked a guy I knew at the World Bank about it:
BK:Where’s the juice at Guri?
WB: Bad question to ask. The rainfall that historically fed the region has changed its pattern and annual flow. There are some who think that the enormous lake that was created changed the way the rain fell. Less water, less electicity.
BK:Incredible! Has this been proven? It would create a big stink if this were to come out.
WB: There will be no study. The dam has been built. No one wants to hear any bad news about this project. There are too many others like it being built around the world. The World Bank is promoting hydro power. We don’t want to tarnish what we build.
From Bjorn Lomborg, who understands the concept of opportunity costs:
Biofuels were initially championed by environmental campaigners as a silver bullet against global warming. They started to change their minds as a stream of research showed that biofuels from most food crops did not significantly reduce greenhouse gas emissions – and in many cases, caused forests to be destroyed to grow more food, creating more net carbon-dioxide emissions than fossil fuels.
Some green activists supported mandates for biofuel, hoping they would pave the way for next-generation ethanol, which would use non-food plants. That has not happened.
Today, it is difficult to find a single environmentalist who still backs the policy. Even former U.S. Vice President and Nobel laureate Al Gore—who once boasted of casting the deciding vote for ethanol support—calls the policy "a mistake." He now admits that he supported it because he "had a certain fondness for the [corn] farmers in the state of Iowa"—who, not coincidentally, were crucial to his 2000 presidential bid.
It is refreshing that Gore has now changed his view in line with the evidence. But there is a wider lesson. A chorus of voices from the left and right argue against continued government support for biofuel. The problem, as Gore has put it, is that "it's hard once such a program is put in place to deal with the lobbies that keep it going."
John Whitehead wonders if the demand curve for gasoline is kinky at $4 a gallon.
Is the demand for gas kinked at $4?
Gasoline prices soared again Thursday in Charlotte and across the country, and motorists were grumbling again at the pumps.
But it appears as if $4 a gallon might be the point where the price of fuel makes a major difference in our lives.
Possibly, because the $4 barrier - in nominal terms since people don't think in real terms - is one that hasn't been reached on average in the US since mid 2008. But let people get used to it for awhile and the kink, if it's there, will smooth out.
Then there's also the elasticity of demand, which for every good, including gas, is lower in absolute value terms in the short run than in the long run.
"People still need to drive to work, they still need to take their kids to school, they still need to do all the things they did before so people are still going to use the same amount of gas," he explained. "It's just going to cost them more and that means they have less money to spend on other goods and services."
But high gas prices - actual and expected - leads to people (pursuing their own self-interest, of course) to help others save gas. To wit.
Ordinarily, you want a GPS navigation system to show you the quickest way to get where you're going. But with gas prices over $4 a gallon in some cities you might rather know the way that uses the least gasoline.
Some new navigation systems can now do that.
What other technologies will be widely-employed to help drivers save gas?
It looks like Congress is keeping the three-headed monster, which I dub Cornzilla, alive cuz we know that ethanol is simply a wiz-bang product that's going to be hugely profitable. This is why it needs government to 1. subsidize it, 2. protect it from foreign competition, and 3. force people to buy it.
Private investors? We don't need no stinkin' private investors! Who needs private investors when we've got politicians willing to keep Cornzilla alive?