An article in the Honolulu Star-Bulletin on Tuesday May 16, 2006 is a study in economics and the results of government interference in the marketplace. Detailing the shortage of asphalt the article reveals that government is, in fact, the cause of the shortage.

The problem is that there are only two oil refineries in Hawaii and one of them, Chevron, has stopped producing asphalt. The reason given for this is that “the federal government is requiring refiners to produce gasoline and diesel that have a lower sulfur content” so Chevron has switched to a lighter type of crude oil.

Tesoro, the company that owns the other refinery in the state, is waiting for a shipment of the proper type of crude to then produce the needed liquid asphalt. In the meantime the city of Honolulu has stopped repairing potholes and several projects around the state are on hold. Companies dependent upon asphalt for their products are closing and employees are being laid off.

In addition, the total capacity for producing asphalt by Tesoro is only about 55 percent of the demand so there is going to be an asphalt shortage for the foreseeable future. This will no doubt bring those ignorant of the economic facts surrounding this issue out of the woodwork to blame the oil companies. One such letter to the editor appeared on the same day May 16, 2006 in the Honolulu Advertiser.

A single sentence demonstrates the point: “Oil industry companies have made windfall profits with gas, but they can't divert enough to keep our roads paved.”

The rest of the letter is rambling accusation that the oil companies are holding the people “hostage” by being profitable at the moment. (Oil companies often go long periods of time when they lose money but no one cares about them then.)

No doubt the letter writer is also a person that would laud the government requiring oil companies to use lighter forms of crude to protect the environment but then never puts together that such laws have economic repercussions. This is why in economics it is called “the law of unintended consequences.” But to blame the oil companies is a mistake, they are just following the law. The shortage is the result.

What the letter writer also ignores is the fact that government gets far more in the form of taxes that all the profit that “big oil” makes. Taxes are significantly higher percentage of the end user prices of petroleum products that the companies’ profit margin, so shouldn’t we call these “windfall taxes?” And then government turns around and passes laws that make it increasingly difficult, if not impossible for oil companies to produce their products. This is what happened to asphalt here.

With only one asphalt producer and a huge demand there is no doubt that the price of asphalt will climb. Commodities like steel, copper and concrete are already at record highs. (So much so that thieves stole copper wire from the lighting along the H-2 freeway recently.) This will only add to the problem.

As long as the American people refuse to see the connections between the regulations they demand the government impose on business and the economic repercussions of those regulations things will not change much. Everything has its price and demanding that government excessively regulate business will inevitably result in outcomes such as the asphalt shortage. In that case, nobody has any right to complain.

References:

http://starbulletin.com/2006/05/16/news/story03.html http://tinyurl.com/oxbkf http://starbulletin.com/2006/05/13/news/story01.html

Don Newman, senior policy analyst for the Grassroot Institute of Hawaii, Hawaii's first and only free market public policy institute focused on individual freedom and liberty, can be reached at:mailto:don@grassrootinstitute.org