Government Gouging in Action

Hawaii has attempted to deal with price “gouging” by capping the amount that gasoline refineries can charge for their product. Now it is estimated that Hawaiians are paying 51 cents more per gallon at the pump than they would without their government’s “help.”
The long term effects of this misguided government gouging are going to be even worse. There is no incentive on the part of refiners to improve or expand their facilites. And there is certainly no incentive to increase the supply of crude oil to the Islands. That means future prices at the pump will be even higher.
This silly cap encourages illegal behavior. There will be tremendous incentives to engage in fraud rather than innovation. Refiners have a limited amount of product and pump prices are much higher than fundamental economics would indicate. Look for some side payments and favors from gas stations to refiners as ways to increase their supply and thereby the profits of both.

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