The Wrong Solution

By Duru

August 24, 2005

I just caught wind that Hawaii has passed a law placing caps on wholesale gasoline. Apparently, the proponents of the bill feel that Hawaii is being gouged because it is an isolated island. I say this is completely the wrong approach. Over and over again we have seen that attempts to regulate the supply of a scarce good in high demand ultimately fails. The companies refining gas for Hawaii have other markets they can sell into, and they are not obligated to supply Hawaii with gas if they feel they cannot get a fair or profitable price. I would have loved instead to here the legislators there implore upon their citizens to drive less, practice economical driving habits, take public transportation, etc… One sure way of bringing the price of a good down is to cool off the demand for it. Instead, Hawaii is choosing a path that risks the very supply of a good they absolutely need. So, the ironic effect is that if Hawaii's complicated price cap formula fails to appropriately compensate refiners for their product, Hawaii could see supply shortages and higher prices as the companies back out of unprofitable markets.

This is an event to keep an eye on because it marks one of the first truly bold steps - albeit in the wrong direction - to getting a handle on America's growing energy problem.

Here is an interesting link from that article that allows you to check on the latest average prices across the country: AAA Fuel Gauge Report.

And finally, the obsession with following every tick up and down on the price of oil continues. I saw the following headlines on Yahoo!Finance this morning posted back-to-back:

Stocks Move Higher As Oil Prices Drop AP
Oil Prices Rise After U.S. Supply Report AP

Please folks, the trend is up, up, and up….do not let the daily or even the weekly fluctuations fool you!

© DrDuru, 2005