Kevin Bae

Non-Social in a Socially Networked World

There is one simple reason why there was a gas shortage… and it’s not the pipeline

They used to teach microeconomics in college. I don’t know if they do anymore and if they do are they teaching basic supply and demand? The simple reason why there was a gas shortage is that gas stations were not allowed to “price gouge”. Price gouging, as it is known and derided, is a mechanism by which a short supply is able to meet current demand. Plain and simple.

People say price gouging harms poor people. But, if you stop and think for just a moment you’ll see it actually helps poor people. If the price of gas when the pipeline was shut down was allowed to shoot up to $5.00 or $6.00 per gallon how many people would you see at a gas station with 50 gallon drums in the back of a pickup hoarding gasoline? Maybe some. How about if it was allowed to shoot up to $10.00 per gallon? Probably not many.

This doesn’t happen at $10.00 per gallon

Some people might say that poor people can’t afford $5.00 or $6.00 a gallon for gas, let alone $10.00. True. It’s a high price. But how much gas do they need to get to work over the next several days? Maybe instead of filling up they buy 5 gallons to get them through the next few days while waiting for the pipeline to resume service. A higher price keeps people who already have the means from purchasing more than they need during a time of decreased supply.

The shortage was artificial in any case. Anyone paying attention and not prone to panic knew there was no real shortage of gas. There was only a supply distribution problem. The gas was there but with the pipeline shut down there was no way to move the gas around efficiently.

If we remove the emotion from the problem anyone can plainly see that so-called price gouging can actually be a good and necessary thing.