Quote Originally Posted by Xiahou
edit: I'd be interested in hearing what backroom members think should be done about the high gas prices/shortages as a result of Katrina? Many politicians are beginning to talk about cutting fuel taxes temporarily or even legislating price controls. So as not to "poison the well" I'll hold my opinion for now.
Price controls would create a greater shortage, since they would artificially sustain demand. They would be counterproductive to maintaining supply. Might not matter if supply is restored soon enough though.

Cutting fuel taxes would have a very small impact, prices have already risen more in the past 72 hours than the average total federal and state fuel taxes. It would also be counterproductive to maintaining supply.

This comes down to whether we want to treat the symptoms, or face the problem. The problem is a bonafide shortage due to distribution and refining. Price is not the source of the problem, it is a symptom. Most likely we will treat the regional symptoms and effectively cap the price short term. Unfortunately, that drives demand in the wrong direction for dealing with a shortage. Hopefully, with the distribution being restored, the spikes will halt.

It does illustrate how inelastic gasoline consumption is in the short and even mid term (as of course does the run up in prices over the past two years or so.) It takes a lot of price movement to change gasoline use substantially.