Prior to his employment at Amoco, Mr. Johnston served as an economist with the RAND Corporation, the Institute for Defense Analyses, and the Secretary's Office of the U.S. Treasury. He served on the U.S. delegation to the United Nations Conference on the Law of the Sea.
Mr. Johnston's current research has focused on electric utility deregulation in Illinois and other states; pollution trading under the climate change treaty, Clean Air Act, and the RECLAIM system for the South Coast Air District; and a general theory of regulation, published in the Cato Institute's Regulation magazine.
Latest posts by Jim Johnston (see all)
- Price Controls, Whether For Labor Or Housing, Don’t Work - July 9, 2014
- Adding Economics to the Immigration Debate - May 20, 2014
- Encrypt Everything! - February 3, 2014
New Jersey Governor Chris Christie has just announced the gasoline rationing system imposed in the wake of the Sandy Hurricane is being shut down. Meanwhile New York Governor Andrew Cuomo is setting up a similar system on Long Island. The idea is motorists with an odd numbered license plate are permitted to line up at gasoline stations and purchase motor fuel on odd numbered days of the month. Those with even numbered plates line up on even numbered days.
Ostensibly, the objective is to reduce the lines at gasoline stations. But it will not work. Here is why. Assume that the average (mean) amount in a fuel tank during normal times is one-half. Next, impose a crisis like the Sandy hurricane when the availability of gasoline is suddenly restricted. Assume now motorists on average try to maintain their fuel tanks at a average of three-quarters full instead of one-half full. They do this in order to hedge the risk of running out on a day when they cannot refill.
The alternative of allowing the prices to rise is better public policy for two major reasons. It discourages hoarding and stimulates replacement supplies. However, it does not supply electricity to service stations. But the good news is that some stations, the ones owned by the parent companies of large independent oil companies were prepared with their own generators. By contrast, the stations leased from big oil companies have yet to have power restored, especially on Long Island where the supplier is the government utility, Long Island Power Authority.
This odd-even system was previously instituted in California in 1979 by then governor Jerry Brown. The threat was sharply higher energy prices worldwide in the wake of the Iranian revolution. Motorists rushed to refill their vehicles before the higher prices reached the pump. The result was a line at most gasoline stations. The odd-even rationing system was imposed by Governor Brown and it hampered the topping off of fuel tanks of motor vehicles. This, in turn, caused the lines to last longer than otherwise. But eventually the topping-off was accomplished and motor fuel consumption returned to normal, even though the fuel tanks were maintained at a higher than normal level. The irony was that the prices were not moderated. When one adds the time costs to the cash paid, the total price was much higher than was necessary to allocate the fuel during the emergency. However, the odd-even satisfied the political demands. When the tank topping was finished and consumption returned to normal, Governor Brown claimed credit for eliminating of the lines. He was reelected governor in the next year.
That must be what Governors Chris Christie and Andrew Cuomo are hoping will happen. However, the extent of the Sandy disaster in New Jersey and Long Island are more concentrated than the 1979 California case. In New Jersey and New York more homes are destroyed and electricity is still interrupted for millions of customers. Both the New Jersey and New York odd-even rationing will continue the long lines and serve to delay the disaster recovery.
In another development, Cato has just released its ranking of state governors. In the lowest, “F” graded states, all are blue, with Governor Pat Quinn of Illinois ranking dead last.
Apparently, there is a new version of Gresham’s Law. State government politics drive good economics out of circulation.