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Better Think Twice of the Message We Send

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By Lowell L. Kalapa

Last week’s column engendered quite a bit of feedback as some outraged motorists decried the high price of gasoline and how they thought a cap on the price would go a long way to making paradise a lot more affordable.
Well, this is certainly a hot button issue and that is why elected officials have seized upon it. They realize that no one likes to pay more than they have to for something as basic as gasoline and they realize they can garner the support of voters at the ballot box. Besides, they can make out the big bad gas companies as ripping off the consumer. However, what they don’t realize is that they are showing their ignorance of basic economics of the marketplace and at the same time putting Hawaii’s economic future at risk.
Let’s put it this way, what if government decided how much you could be paid for what you do – be you a clerk or a doctor? That is what the gas cap is all about. Government has decided how much this particular product will cost you at the pump. They rationalize this approach by tying the maximum price to other markets in the country which makes as much sense as saying a three-bedroom house in Hawaii should cost the same as a three-bedroom house in North Dakota. Either Hawaii starts growing its own trees for lumber or perhaps construction workers are willing to work for less or the state opens up all its lands for residential development – and just maybe we could find a house at that same price. Of course, that is not going to happen because we know that there are different cost considerations like the availability of land to develop, the higher cost of labor in Hawaii and the added cost of importing all the building materials.
Ah, but critics point out that one of those oil companies is making huge profits in Hawaii. But what do they say to the fact that the other oil company is losing money? And is it really a matter of that one company making a profit or making that “huge” profit as critics have decried?
Just what is a “huge” profit? Parents are willing to pay $50 for a doll that probably costs $5 to make in China. And, yes, there are other costs like shipping and marketing that go into the retail price of the doll. But what if we learned that the profit for that doll was 100% of all the costs, that is all costs totaled $25 and the maker took home $25 in profit. Would parents be up in arms that such a huge profit was made at the expense of their child? It is doubtful given the rush for such products as the Cabbage Patch dolls and the Elmo dolls a few years ago.
So you ask, what does the gas cap have to do with the economic future of Hawaii? Just put yourself in the place of a potential investor or business looking for a place to locate a new business and you come across Hawaii as one of your considerations. Hey, what a great place, great climate, access to the Asian markets, and maybe you can even get a tax credit or two. But wait, here is a state where the local government has dictated how much can be charged for gasoline. If that government can decide what the selling price will be for gasoline, will they someday tell me how much I can charge for my product?
Will, for example, lawmakers decide that the price of milk is too high? After all, when not on sale a gallon of milk is almost twice the price of a gallon of gasoline. Hey, milk is important to our growing kids and it helps the battle against osteoporosis, why shouldn’t the cost of milk be more reasonable. Let’s tie it to the cost of milk on the west coast. Does that sound familiar?
Sure we like to think that we deserve the same price that some consumer in some other state is paying, but costs are always going to differ and so are markets. The more competitors in the market the greater the potential for price wars as they compete for your attention and purchase. And if this market is so lucrative that such huge profits are being made, then one has to ask why no one else wants to enter the Hawaii market.
Imposing a cap on the price of gasoline will only reinforce the perception that Hawaii is not a place to do business. As was noted last week, it has been over three decades since President Nixon imposed price controls on a national level. And as history tells us, it took nearly two decades to recover from the dislocation caused by those price controls.
Dictating how much can be charged for any product sends a bad message to potential investors and businesses, businesses that we hope will create the jobs the people of Hawaii need in the future.

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