Social engineering is working in California gas market

Thomas Lifson
One of the great priorities of the left is to get Americans out of their cars and onto public transportation. When the masses no longer have access to cars, it clears the streets for the limos of the nomenklatura, just as it did in the old USSR, and still does in North Korea.

The best way to accomplish this goal is to push up gasoline prices. Energy Secretary Steven Chu famously hoped that energy prices would double, and President Obama also admitted to wanting energy prices to rise, just not too quickly, lest the frog catch on the water is getting hot.

Due myriad regulations, California's gasoline market is cut off from supplies from other states. Unique blends of gasoline are required, and only the state's refineries are set up to produce them. And because it is all but impossible to build a new refinery, and expanding production at existing refineries runs into a regulatory blizzard, capacity is closely matched with demand, with little spare capacity in the event one or more refineries experience downtime or production shortfalls.

When accidents happen, as at Chevron's Richmond refinery (and a few days ago at Exxon-Mobil's massive Torrance refinery) and supply is constrained, prices soar.

Consumers, commentators, and politicians may complain that this is price gouging, but they ignore the reality of markets, which use price to allocate supply. The hard fact is that there isn't enough gasoline to go around if current prices remain static. There will be shortages if price controls are imposed, because there just isn't enough gasoline to supply all takers at the prices that prevailed before the refinery accidents.  When Jimmy Carter tried price controls, the result was lines at gas stations and closed gas stations, when supplies ran out. That is the alternative to higher prices, and it is a worse alternative/

The price mechanism forces consumers to make their own decisions, as I did over the weekend. I had to make a trip to a distant suburb in another part of the Bay Area that would have put close to a hundred miles on my car and would require me to fill up. It so happened that I was able to take a train, a Capital Corridor train in fact. These trains are operated by Amtrak under a contract with the California Department of Transportation, which has invested a lot of money in rolling stock (very nice double decker cars) and modern attractive stations.

I have taken this train before, and the passenger load on Saturday was much heavier than I have ever seen.  Clearly a lot of people made the same calculation that I did.

The same goes for San Francisco's BART system, where Saturday's ridership set a record, aided by a number of large events in the city. But the calculus about driving has changed when gasoline goes over $5 a gallon. Especially when drivers anticipate prices may be lower in a few days, and try to avoid a fill-up until the supply situation eases.

Governor Jerry Brown has taken action to allow the sales of "winter blend" gasoline, which normally wouldn't start for a few weeks. This will add to supplies temporarily, but will not change the overall situation. What would help would be to allow California to dump its boutique blend requirements and bring in refined gasoline from elsewhere. Also, allowing refineries to more quickly get permits for expanding their production would help, but that is not in the cards anytime soon.

One of the great priorities of the left is to get Americans out of their cars and onto public transportation. When the masses no longer have access to cars, it clears the streets for the limos of the nomenklatura, just as it did in the old USSR, and still does in North Korea.

The best way to accomplish this goal is to push up gasoline prices. Energy Secretary Steven Chu famously hoped that energy prices would double, and President Obama also admitted to wanting energy prices to rise, just not too quickly, lest the frog catch on the water is getting hot.

Due myriad regulations, California's gasoline market is cut off from supplies from other states. Unique blends of gasoline are required, and only the state's refineries are set up to produce them. And because it is all but impossible to build a new refinery, and expanding production at existing refineries runs into a regulatory blizzard, capacity is closely matched with demand, with little spare capacity in the event one or more refineries experience downtime or production shortfalls.

When accidents happen, as at Chevron's Richmond refinery (and a few days ago at Exxon-Mobil's massive Torrance refinery) and supply is constrained, prices soar.

Consumers, commentators, and politicians may complain that this is price gouging, but they ignore the reality of markets, which use price to allocate supply. The hard fact is that there isn't enough gasoline to go around if current prices remain static. There will be shortages if price controls are imposed, because there just isn't enough gasoline to supply all takers at the prices that prevailed before the refinery accidents.  When Jimmy Carter tried price controls, the result was lines at gas stations and closed gas stations, when supplies ran out. That is the alternative to higher prices, and it is a worse alternative/

The price mechanism forces consumers to make their own decisions, as I did over the weekend. I had to make a trip to a distant suburb in another part of the Bay Area that would have put close to a hundred miles on my car and would require me to fill up. It so happened that I was able to take a train, a Capital Corridor train in fact. These trains are operated by Amtrak under a contract with the California Department of Transportation, which has invested a lot of money in rolling stock (very nice double decker cars) and modern attractive stations.

I have taken this train before, and the passenger load on Saturday was much heavier than I have ever seen.  Clearly a lot of people made the same calculation that I did.

The same goes for San Francisco's BART system, where Saturday's ridership set a record, aided by a number of large events in the city. But the calculus about driving has changed when gasoline goes over $5 a gallon. Especially when drivers anticipate prices may be lower in a few days, and try to avoid a fill-up until the supply situation eases.

Governor Jerry Brown has taken action to allow the sales of "winter blend" gasoline, which normally wouldn't start for a few weeks. This will add to supplies temporarily, but will not change the overall situation. What would help would be to allow California to dump its boutique blend requirements and bring in refined gasoline from elsewhere. Also, allowing refineries to more quickly get permits for expanding their production would help, but that is not in the cards anytime soon.