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By Nicole Gelinas

After The Fall: Saving Capitalism From Wall Street--and Washington

Eye on the News

Nicole Gelinas
Gas-Guzzling Sandy
Why not use economics to help people get fuel?
November 9, 2012

Thursday afternoon, Mayor Michael Bloomberg and the executives of Nassau and Suffolk Counties followed New Jersey governor Chris Christie in imposing gasoline rationing. In launching a system by which drivers will line up on alternate days based on license-plate numbers, the mayor acknowledged that the fuel “shortage” will last for “the next few weeks.”

The problem isn’t a lack of oil or gasoline, as it was in the seventies, the last time Americans saw gas rationing. Rather, it’s getting the oil and gas to where it needs to go in the wake of Superstorm Sandy. First, shipments by water suffered delays because the Port Authority of New York and New Jersey’s ports were shuttered for a few days after the storm. Second, refineries that make oil into gas suffered damage or power failures. Third, the distribution centers that receive the finished product and send it on to gas stations went off line for the same reasons. And finally, many gas stations don’t have power to pump gas. Add it all up, and it means hours- and even days-long waits for even half a tank of gas. Further stressing the system is that people, seeing gas lines, panic and hoard fuel, adding to demand and reducing supply.

Forcing people to wait in line at open gas stations or to come back the next day, though, is inefficient. A livery-cab driver, who needs gas to make a living, must wait behind someone who could put off her driving for a few days but has extra time to wait.

Facing such inefficiencies, people invariably resort to free-market economics. New York’s attorney general, Eric Schneiderman, is already investigating reports of New Yorkers’ trying to resell cans of gasoline at high mark-ups amid other stories that taxi drivers are paying people to wait in line for them.

Rather than force people to create their own black-market economy, why don’t public officials allow price to weed out those who really need gas and those who don’t? Instead of using their emergency powers to refuse some customers at any price, New York and New Jersey officials should set the gas price at $5 a gallon—about 25 percent above today’s “market” price. If $5 doesn’t shorten lines, the government could raise the price to $7 or $10. (The city could allow cabdrivers to pass the extra cost on to their customers.)

Local officials should take a similar approach to future traffic bottlenecks. Last week, with mass transit down and car tunnels closed, drivers waited for hours to get over bridges into Manhattan, pushing Bloomberg to impose carpool rules. Instead of levying a waiting tax, state and local officials should have doubled the tolls on tolled bridges. (One problem, of course, is that the East River bridges are free, unlike the Hudson River bridges and other crossings into Manhattan—a market distortion that causes traffic problems even on good days.) People would howl about a temporary tax on drivers, but how much is their time worth? People can pay unpredictably in the form of lost time and unfulfilled demand or pay predictably in the form of a higher price.

More important, though, is that using price to determine the value of a suddenly scarce resource—whether it’s gasoline or space on a bridge interchange—would alleviate the need for police resources at gas stations and bridges. Ever since the storm hit, blacked-out neighborhoods and intersections without traffic lights have sorely needed a police presence. But the city has instead deployed officers to gas stations to keep the peace and, during last week’s carpool restrictions, also sent officers to river crossings to count car passengers. The price of gasoline or a bridge crossing should include the cost of a burglary that happens because the officer who could have prevented it was playing line monitor at the gas station.

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