Monday, September 29, 2008

Gas Shortage Becoming a Blood Shortage

I just got back from donating a triple unit of platelets. Earlier today the Kroger up the street had a fresh supply of gas so I waited in line for 30 minutes to get a tank full of gas for $3.79 a gallon. I was going to cancel my appointment because I didn't want to use my precious gas just to drive for a blood donation. It didn't take me long to rule out that idea.

As I was going through all the preliminaries I asked the girl at the Red Cross if the gas shortage had affected the number of donations. Unfortunately it had. They had 6 cancellations today and 7 yesterday. I felt even better about my decision to drive down and donate.

It's not much of a stretch to see that needless government intervention is now causing blood shortages.

If I have a company that sell widgets for $4.00 and I make a $.40 profit on each widget. I can make a pretty good business as long as there is still a market for widgets. Now suppose that the supply of widgets drops in my area but the demand has stayed the same. I will soon sell out of widgets. Since there is still a demand for the widgets I could FedEx some from another part of the country to sell. If I did I'd have to increase the cost to cover the additional cost of FedExing the widgets. The demand is still there so I could sell them all at the increased cost. Once widget supply got back to normal there would be no need to FedEx them in so competition would force the prices back down to pre-shortage levels.
Now suppose the government passed a law that you couldn't charge more than $4.00 for your widgets. I'm not going to spend extra money that I can recoup to increase my supply. So rather than sell them at a loss I'll let the shelves sit empty until I can get some widgets without having to pay the FedEx cost. If this goes on for too long any industry that relies on widgets will start to feel the effect of the government regulations on the cost of widgets. The supply could be increased, but government regulations make it not profitable so the effect of the legitimate shortage is exaggerated by regulation.

Does this sound familiar? This is exactly what is happening in Atlanta with the current gas crisis. The pipeline is below capacity, but anti-price gouging laws are preventing stations from charging higher prices. If they could charge a little more they could pay the extra cost for a truck to come in from another source. But since they can't the stations just wait for their normal sources and just sell it all out.
The government created shortage is now causing people to cut back on their extra travel. Unfortunately too many have decided that donating blood was one of their optional activities.

I'm not a fan of complete deregulation. Sometimes that can get us in just as much trouble. However too much regulation really gets in the way of letting the market work the way it should.

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