Great Moments in Bad Economic Policy

This article on bad bipartisan energy laws and regulations from Master Resource brought back some old memories of the 1970s.

Folks who are at all economically literate understand the role that government price controls (specifically price caps) had on gasoline shortages in the 1970s.  When there was a supply shock via the Arab oil embargo, prices were not allowed to rise to match supply and demand.  As in the case of all such price control situations, shortages and queuing resulted.

It is too bad in a way that most folks today can't really remember the gas lines of 1973 and again in 1978.  It was my job in 1978 as the new driver in the family to go wait in line for gas for all the family cars.  I wasted hours and hours sitting in gas lines. I wonder if anyone has every computed the economic value of the time lost to Americans sitting in gas lines because politicians did not want the price to rise by 20 cents.

A number of my friends who knew my dad was an Exxon executive were surprised at my waiting in lines, and wondered why we didn't get some sort of secret access to gas.  But my family waited in lines like everything else.

Well, almost like everyone else.  Because of my dad's position, we did have a bit of information most people did not have, at least in the first shock of 1973.  It was not a secret, it was just totally unreported in the media.  The key was the knowledge of a piece of Congressional legislation called the Emergency Petroleum Allocation Act of 1973.  It had an enormous impact on exacerbating the urban gas lines, but either out of a general ignorance or else a media/academic desire not to make government regulation look bad, it is as unknown today as it was unreported in 1973.

What the law did was this -- it mandated that oil companies distribute gasoline geographically in the US in the same proportion that it was sold in the prior year.  So if they sold x% in area Y last year before the embargo, x% must be distributed to area Y this year after the embargo.  I can't remember the exact concern, but Congress had some fear that oil companies would somehow respond to price signals in a way that caused gasoline allocations to hose someone somewhere.

Anyway, the effect was devastating, probably even worse than the effect of price controls.  The reason was that while Congress forced gasoline supply distribution patterns to remain the same as the prior year (in classic directive 10-289 style), demand patterns had changed a lot.  Specifically, with the fear that gas might not be available over the road and looming economic problems, people cancelled their summer long-distance driving trips.

Everyone stayed home and didn't drive the Interstates cross-country.  So there was little demand for gas at the stations that served these routes.  But by law, oil companies had to keep delivering gasoline to these typically rural stations.  So as urban drivers fumed sitting in gas lines for hours and hours, many rural locations were awash in gas.  Populist Congressmen berated oil companies in the press for the urban gas shortages and lines, all while it was their stupid, ill-considered laws that created a lot of the problem.

So this was the fact that should have been public, but was not: That instead of sitting in urban gas lines for four hours, one could drive 30 minutes into the countryside and find it much easier.  Which is what we did, a number of times.

By the way, it was about this time that I read Hedrick Smith's great book "The Russians."  It was, for the time, a nearly unique look at the life of ordinary Russians under Soviet communism.  I wish the book were still in print (I would love to see one of the free market think tanks do a reissue, at least on Kindle).  Anyway, about 80% of the book seemed to be about how individual Russians dealt with constant shortages and ubiquitous queuing.  It seemed that a lot of the innovation in the general populace was channeled into just these concerns.  What a waste.  Dealing with the 1970s gas lines and shortages is about the closest I have ever come to the life described in that book.

  • Matthew Slyfield

    There is no situation so bad, no disaster so great, that the government can't make it worse.

  • Canvasback

    We lived in a rural area in '73. We never had any problem getting gasoline, but I remember seeing gas lines on the evening news. It was just one more reason to avoid the cities - people lived like rats in a cage.

  • Joe

    Hedrick Smith's great book "The Russians." It was, for the time, a nearly unique look at the life of ordinary Russians under Soviet communism. I wish the book were still in print (I would love to see one of the free market think tanks do a reissue, at least on Kindle). Anyway, about 80% of the book seemed to be about how individual Russians dealt with constant shortages and ubiquitous queuing.

    Interesting comparison with the 1993 Hillary Care proposal. Hillary Care was an attempt to copy the canadian health systems as best they could. As with all health care systems, there are good points and bad points.

    The Hillary care designers were fully aware of the problems created under the Canadian health care system such as the shortages, queing, etc. Hillary care embraced those problems by not only retaining those features, but made what the canadians did to circumvent those problems by enacting negative incentives to circumvent those problems including such things as banning mamograms for women under age 50.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    -- it mandated that oil companies distribute gasoline geographically in the US in the same proportion that it was sold in the prior year. So if they sold x% in area Y last year before the embargo, x% must be distributed to area Y this year after the embargo.

    This is exactly how socialism/communism works.

    When I was traveling through East Germany by overnight train back in summer of 1988, there were a bunch of glowing embers visible throughout the trip, so I asked one of the [West German] car stewards “why are they burning fires in the middle of summer?”

    They had to exhaust their coal supply, otherwise they would get a smaller allotment next year from the central authorities.

    Ah, economic planning (and environmental damage) at its finest.

  • joe

    Same is true of most government agencies with their spending and budgets.

  • Sam L.

    I remember the "73, but not the '78, which must be because in '78 I lived in a small town in a rural area--or because I was buying gas on a military base.

  • obloodyhell

    }}} Hedrick Smith's great book "The Russians." It was, for the time, a nearly unique look at the life of ordinary Russians under Soviet communism. I wish the book were still in print

    Ummmm. There is, as I write, about 450 copies of it available new and used on Amazon. Starting at about 1 penny plus handling....?

    Not exactly a new printing, but... who cares?

  • obloodyhell

    LOL, I recall my boss coming back to the university office with about a dozen ribbons for a then-fancy letter-quality printer that we probably used up one ribbon on in the course of 2-3 years before it was obsolete.

    Had to use up all the funds in the budget or we'd get less money next year.

    Planning? Resource requests? Budgeting based on needs each year? Whut dat?

  • Scottvan949

    I recall gas lines too. The other problem was everyone was afraid that they would be driving somewhere and be unable to find gas, so every American car went from having half a tank of gas to a full tank. 50 million cars times eight gallons of gas per car that's 13 million barrels of gas increase in demand overnight.