This simple trick makes gas pipes grow exponentially

Photo credit: Richmond Times-Dispatch

by James A. Bacon

As panic buying sends Virginians to gas pumps to fill their tanks, Attorney General Mark Herring is encouraging citizens to report cases of price hikes.

“This ransomewear (sic) attack on the Colonial Pipeline could create disruption in the gasoline supply in the Commonwealth, and unfortunately bad actors could take advantage of it just to line their pockets,” Attorney General Mark Herring said in a press release. “Virgos shouldn’t 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.

It is the worst thing the state can do. Economy 101: During times like this, prices should to augment.

The Colonial Pipeline expects it to take about a week to restore service after its ransomware attack. The supply of gasoline in Virginia, as in several other states, will be severely limited. The panic buying set in. Rather than driving with half-full gas tanks on average, people panic and fill their tanks “just to be safe.”

There are approximately 3.2 million automobiles registered in Virginia. If the size of an automobile’s average gasoline tank is about 16 gallons, the implied unused storage capacity of the Virginia fleet is about 25 million gallons, more or less. Given that Americans consume about 390 million gallons of gasoline per day, we can estimate that Virginians, who make up about 1 / 40th of the national population, consume about 10 million gallons per day.

In other words, if everyone panics and keeps their gas tanks full, one to two days of gas mileage will be stored unused in people’s gas tanks. Panic-buying makes gasoline shortages worse, and people who really need gasoline – to, say, commute to and from work – often can’t get it.

A rational response to this temporary emergency would be to allow gasoline prices to rise. It would do things. First, it would increase the cost of “hoarding”. People who can put gasoline in their tanks for a week-long hiatus would think twice before keeping their gas tanks to the brim at $ 7 a gallon. That way, higher prices would free up the gasoline supply for people who really need it and are willing to pay extra for it.

Higher prices would have a second advantage. 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 per gallon instead of $ 2 per gallon (to choose numbers in a hat for illustration purposes), it might pay them to drive a gasoline platform in Virginia from West Virginia, Pennsylvania or Ohio.

Governor Ralph Northam has recognized the possibility of delivering gas by truck to his Declaration of state of emergency issued in response to the pipeline closure.

While current gasoline reserves in the Commonwealth are sufficient to meet immediate supply issues, a long-term pipeline disruption will require the transportation of fuel and other petroleum products via interstate and state routes.

According to the AG’s press release, predatory pricing implies the imposition of “ineligible” prices. “The basic test for determining whether a price is unreasonable is whether the post-disaster price greatly exceeds the price charged for the same or similar goods or services in the ten days immediately preceding the disaster. “

In our current situation, it does not make sense to remove prices. It is economic illiteracy on steroids. The sharp drop in gasoline prices will exacerbate shortages and intensify economic disruption.

About Wesley V. Finley

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