A New York City police office directs traffic around a gas station as long lines form to buy gas on City Island November 1, 2012 in New York. Residents are still feeling the effects of Hurricane Sandy. (Image credit: AFP/Getty Images via @daylife)
With power still down in many cities and towns in New York and New Jersey, state and local governments are struggling to ease the gasoline shortage with mandates like rationing. Yonkers mayor Mike Spano signed an executive order rationing ten gallons per customer. On Friday, New Jersey Governor Chris Christie ordered the odd-even rationing system to take effect in twelve affected counties.
While some people cheered the move, others are skeptical. What do economists say?
As a rule, economists are against rationing, as it distorts consumer choices, fosters underground markets, and nurtures corruption. But the alternative — the market solution — may be ugly. It will quickly cut the length of lines as gasoline prices skyrocket, but will penalize low-income people, who still need this basic product to drive to work or take other necessary trips.
Obviously, rationing may be the lesser of two evils, especially in the current gasoline shortage situation — where the problem is the limited number of sales points rather the limited supply of the product.
But should government set the rationing rules, or leave this task up to customers and gasoline stations? I believe the second solution is better than the first, simply because government doesn’t have full information for each local market—the participants do.
A gas station in Paramus NJ, being in a better position to know how quickly they run out of supplies, can set its own best rationing amount. People in Garden City, Long Island, know better whether they should wait three hours on a Friday evening than on a Tuesday morning.
The bottom line: Governments should create the conditions that accommodate trade; and let business and consumers determine the parameters of the trade.
Also read:
Does the Long Island Power Authority Have Its Priorities Right?
