Gas prices need to be a lot higher right now

An AP story headlined “As gas stations go dry across central NC, pipeline works to send more fuel” reports: “AAA Carolinas said the average price for a gallon in North Carolina was $2.16 – up from $2.05 last week.”

Gas stations going dry following the Colonial Pipeline leak means that a mere 11-cent increase in the per-gallon retail price of gasoline is too little.

It’s an uncomfortable fact, but if we want to have gasoline available to those with serious need of it, then it needs to be more expensive. Here’s why.

We don’t have the ability to judge people’s individual needs in order to determine who has serious need of gasoline.

Individuals know their needs in comparison with their other wants and needs. If their need for gasoline is serious enough, then they will be willing to sacrifice other wants and needs for gasoline.

This sacrifice is most efficiently done through the pricing system. Relative prices of things let individuals gauge their needs and wants and pick the balance that best works for them.

When gasoline is in a limited supply, its price needs to rise. Nothing has changed about people’s general need for gasoline, so if the price doesn’t change, nothing will change about people’s decision to buy gasoline in the same amount they have been buying gasoline.

What has changed, however, is that the amount of gasoline available to people is much, much less right now.

What has to happen — in order for gasoline to remain available to those with more critical needs for gasoline —is the price needs to rise, and likely a good deal more than it has.

Why? Because nothing has changed about people’s general need for gasoline. So we need some way of having them reconsider how gasoline fits among their wants and needs right now when it costs a lot more.

Such as: Would you still buy a full tank of gas this week if it means you have to give up a night of eating out? How about two? Maybe hot dogs instead of family steak night? No bowling this week? Friday nights at the theater will have to go on hold? Maybe buy generic at the grocery store? Put the weekend beach trip on hold? Lunch at your desk all week? Maybe telecommute?

A higher price in a time of greater scarcity would cause people to face these kinds of choice individually. It causes them to ration gasoline voluntarily. Conservation happens naturally.

People will dislike the choice, of course. Higher prices are unpleasant. No access to gasoline at all, however, is much more unpleasant.

Right now, however, retailers are fearful of the attorney general’s office fining them for raising the price of gas under the charge of “price gouging.” Which is based on the belief that retailers seek to “take advantage” of people in a time of crisis by raising the price of, e.g., gasoline “unfairly” in a time of short supply.

Which is apparently solved by forcing retailers to price gasoline to run out completely, at which point there’s no gasoline left and we’re overcome with joy that we are all equal in our inability to access fuel, regardless of how much more critically some people needed it than others.

Jon Sanders / Research Editor and Senior Fellow, Regulatory Studies

Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As director of regulatory studies at the John Locke Foundation, Jo...