Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Thursday, July 07, 2005

High Oil Prices Do NOT Mean There Will Be Line-ups at Gas Stations

A recent article in the Christian Science Monitor attributes most of the oil price increases over the past two years to growth in demand.

The fact that the price of a barrel of light sweet crude has doubled from $30 to near $60 in less than two years is largely about demand, experts say.

Part of the increase can be attributed to a new batch of increasingly heavy fuel users, namely China and India. But perhaps most notable is that Americans seem to be thumbing their noses at the gas lines of the 1970s and saying - at least for the time being - they are not willing to cut their use as oil prices climb.
Unfortunately, the article goes on to imply that high oil prices will lead to shortages and lineups at the gas pumps.

Christina ... vividly remembers the "even- and odd-day" fill-ups during the oil embargo of the 1970s.

"Those were terrifying days," she says.

..."'s hard for people to get excited about it," says David Stewart, a professor of marketing and consumer psychology at the University of Southern California. "I, for one, am not going to go out of my way to save 10 cents a gallon."

That may change, however, if people are shown standing in line for fuel, as they were during the oil embargo.

"Right now, there is just not that sense of urgency," Professor Stewart says.

High oil prices do not mean there will be shortages and line-ups. The only thing that causes line-ups is a price set below the market-clearing price.

The shortages and line-ups of 1978-79 wouldn't have existed if gasoline prices had been allowed to increase to reflect changed supply and demand conditions. In that instance, the primary cause of the shortages and line-ups was the gubmnt restrictions on gasoline price increases.

And the only thing that will bring back the shortages and line-ups will be price controls. I hope the gubmnts responsible for those line-ups learned something from the experiences of the late 1970s and from the general economic failure of the soviet economies, where people were forced to waste hours each week, standing in line to purchase items for which the gubmnt set too low a price.

Cross-posted at The Western Standard.
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