Life, Liberty and the Pursuit of Self-Service Gas

Let's suppose that for some reason you expect the whole issue of self-service gas in Oregon to be brought up again in a public forum.  It might be best, then, to be prepared for some blowback.

So, though I have written extensively about self-service gas here in the past let me take a moment to summarize my take on the issue.

I think that the banning of self-service gas is an unnecessary regulation and a costly one: it costs every Oregonian in time and money.  But even if you think I am wrong about the material gains to allowing self-service gas, there still is little justification for the policy.

The main argument I hear is that the policy "creates jobs" and by allowing self-service gas you will send gas station attendants to the unemployment line.  First, would it were so easy to solve the unemployment problem: just mandate that all businesses employ more people!  Every grocery store must have a checker and a bagger, no more ATMs - every bank must only use people for transactions and so on...  Hopefully you can see the logical fallacy - costs for businesses rise causing prices to rise, demand for their goods and services fall which lowers revenue causing businesses to cut back on overall staffing and soon you find that instead of increasing employment, you have caused it to rise.  Rigidities in labor markets create inefficient distortions - they raise prices and and lower employment.

But you say, we are just talking about a small segment, surely there won't be any overall affect on the economy.  To which I respond, why not?  What is exceptional about gas?  In fact, I think retail gas is one of the most influential products around because it represents a significant cost for so many other businesses.  Every extra penny in the price of a gallon of gas, every extra minute you spend waiting at the gas station is a drag on the economy - the effects are widespread and small on an individual level for sure but when you start adding them up they become quite large.

Let's do a little basic back of the envelope calculation from some numbers provided to me by Josh Lehner of the Oregon Office of Economic Analysis.

Using Washington as a comparison and extrapolating from the extra employees per station or the extra employees per population and using the average wages paid per gallon of gas, you get the extra cost of these additional workers per gallon of gas as 3 to 5 cents per gallon.  Now there are MANY caveats here, there are general equilibrium effects that would happen that I am ignoring as well as the fact that Washington has a higher minimum wage and so on.  But a few other numbers jump out - notice that there are fewer gas stations per volume in OR than in WA, suggesting to me that the added costs of the extra employees depresses the number of stations overall.  This suggests slightly lower price competition which is very important in keeping retail gas prices down.

What of the time cost?  Well suppose it takes an average of only 30 seconds more to get gas in Oregon than it does in Washington.  No big deal right.  Well with 915 stations serving an average of, what, 100 customers a day, this adds up to roughly 750 hours a day or 278,000 hours a year of lost time. Again all very rough but you get the idea at least.

There are other defenses from the granny argument - some people need it - to the environmental one - more expensive gas is good.  To which I respond, you can still mandate service on request and if you want to make gas more expensive for environmental reasons, you can do better with a Pigovian tax and then you can use the revenues to offset the damage done.

In the end, it is quite obvious this is more about emotions than anything else: I hate waiting at a gas station for what I consider an unnecessary reason, just as others enjoy it as a little Oregon quirkiness.  But it is not like I lie awake worrying about this.

Econ 101: Myth-Busting Self-Service Gas

MYTH 1: Eliminating Gas Station Attendants Will Just Lead to More Profits for the Owners and No Lower Prices for Consumers.

In the comments section of the previous post on the self-service gas poll, Kari Chisholm, an enormously intelligent guy for whom I have lots of respect, gets one terribly wrong. He argues that if gas station attendants were to disappear, gas station owners would just pocket the excess profits. I am sorry Kari but this is just bad economics - and wrong.

Excess profits, or 'rents' in the economics parlance, come from market conditions. Usually rents come from some sort of market concentration (monopoly or oligopoly) that can either be 'natural' (high fixed costs prohibit potential competitors from entering), or 'created' (regulation, patents, strategic entry deterrence, etc.). Now it may be true that gas stations do capture some rents because of special regulations covering the storage of potentially toxic fuel, among other things, but I doubt it is much. You see, it doesn't take very may gas stations to make a competitive market. The reason for this is that gas is, for the most part, a completely generic product and price information is posted very visibly, so consumers are extremely price sensitive and thus to attract them you have to compete fiercely on price. [For you economics students, this is a pretty good example of Bertrand price competition, in which only a few firms will drive the price to marginal cost] Most studies have found the market for retail gas to highly competitive.

Regardless of how competitive they are, however, the real key to why Kari's suggestion is in the fact that the market conditions do not change if you eliminate attendants, so any rents that exist after the elimination of attendants would be there before as well. The only thing that will change is the marginal cost of providing gas to consumers, and this cost savings will be passed on to consumers by force of competition. [And, by the way, when John Corzine proposed the change for New Jersey, the only other state that forbids self-service, it was the gas station industry group itself that was most instrumental in killing it - which should tell you that they did not expect to make higher profits with the switch]

MYTH 2: National Average Gas Prices are a Good Counter-Factual.

No. Local gas prices are determined by, among other things, state taxes, state regulations and especially, distance to pipelines and refineries. Just saying that Oregon's gas prices are consistent with other states prices where self-service gas is allowed tells us nothing. (But, by the way, Oregon is 4th highest in the continental US for regular gas prices according to the latest data from AAA) The true counter-factual is what would happen to prices at your local gas station if the labor costs were reduced - it doesn't take an economist to figure it out. But seeing as I am an economist, here is the basic econ 101 graph of supply and demand in retail gas with two supply curves, one that includes the extra cost of attendants and the other that does not. Note that when you include attendant cost, price goes up.



MYTH 3: Full-Service is a Good Way to Boost Employment and Reduce Driving, both Noble Goals.

If you buy my argument about gas prices, you may say, but wait, don't we want higher gas prices to discourage people to drive and and thus limit the carbon that is released into the atmosphere? To which I would answer, if that is true then you can increase the tax on gas and achieve the same thing, but the difference is government captures the revenue and can then spend it on things like: lower state college tuition for the types of people that would work as a gas station attendant, investments in public transportation, etc.

Also, full-service gas, as mentioned in previous posts has ambiguous effects on overall employment. There will likely be fewer gas stations with full service and high gas prices affect other industries by raising their costs which will also raise supply curves and lower output and employment. It is quite likely that this will actually lower overall state employment, not raise it, which is why we don't mandate employment in general.

But, by the way, none of this really matters, you can keep everything they way it currently is and still give me the right to pump my own gas (while the attendant watches). Surely you can't argue against that? What I would propose, however, is that each gas station must be able to provide the service upon request, but otherwise people would be allowed to pump their own.

Introduction to the Mind of an Economist

When I think about public policy as an economist, my first instinct is (of course) that a market-based solution is usually the first-best alternative. Unfortunately, this is where many poorly-trained economists (or worse, well-trained economists who should know better) stop. I next think about the potential for market failures: un-realized goals or inefficiencies due to aspects of the market that don't match the textbook version. Market failures always exist - the job of a good economist is to identify them and figure out, one, how important they are, and two if the additional inefficiencies that will arise from government intervention are outweighed by the potential gains from such an intervention.

It is from such a lens that I am often either bemused or delighted by public policy in Oregon (and sometimes both). One of the most visible policies that I find bemusing is the ban on self-service gas in the state. First let us dispense with a number of obvious canards about self-service gas: it is not 'dangerous,' it does not lead to increased environmental damage from sloppy customers pouring gas all over the place, it does not reduce automobile insurance in Oregon, it is not less-efficient. So why do we have this policy? Let me try offer some reasonable arguments for and against. For: the elderly and disabled self-service gas can difficult; it creates jobs for a segment of the population that often has trouble finding employment. Against: it is slow and inefficient; it raises the price of gas; employees (who are often teenagers) are exposed to potentially harmful vapors. Are there any others I have not thought about?

Each of these arguments has an element of truth, so how important are they? Well, I think that they are all fairly unimportant save for the first argument about the elderly and disabled - I'll come back to that in a minute. I have seen a figure of about 7,600 persons who are employed as gas pumpers in Oregon. My guess is that this includes a large-portion who are part-time and for whom the income from their job is not what they live on (i.e. teenagers living at home) , so I think that the real impact on the well-being of Oregonians is minimal - these are simply lousy jobs. Besides if this is good public policy, why don't we mandate employment for many other business (no self-service car washes!, no self-service Laundromats!, etc.)? We don't do this because it dissuades investment in new business. As for the arguments on the other side, I believe it is slower and that gas prices are slightly higher. I don't think either is that important. Perhaps this helps achieve another policy goal of reducing slightly the miles driven, but there are much cleaner ways to do that (to wit, a gas tax). I do not know if there is credible evidence to suggest that teenagers are being harmed by fumes, until there is I shall assume the libertarian stance. So in the end, I think this policy fails the pointless test. I cannot see any good reason for government involvement and, therefore as an economist that believes in limiting government intervention in areas in which it is unnecessary, I think this policy stinks.

Now let me return to the one cogent point I put off. I do think that the elderly and disabled argument has merit, because if you have been to our neighbor states recently, I defy you to find anything other than self-service gas. So I can imagine a case for mandating at least the option of having gas pumped for you. However, again, since this does not seem to be an issue in the other 48 states the do not prohibit self-service gas, I would not be in favor of this amended policy solution until I were convinced that it was necessary.

Other policies I hope to comment on soon: bottle bill, payday loans, sales tax.

Oregon Self-Service Gas Poll Open Again

I have reopened the poll, why?: lots of new readers, election coming up, because I want to...

See here for discussion if the issue.

The Oregon Self-Service Gas Petition!

Do you support allowing self-service gas in Oregon?  Let me know by signing the on-line petition which, if successful, I hope to send to state representatives in Salem.

To support this effort, go to the petition, it is simple and direct.

The People Have Spoken - Self-Serve Gas Now!

The readers of The Oregon Economics Blog, who are without a doubt a representative sample of the entire State of Oregon, have by 2/3 rds majority vote come out in favor of allowing self-service gas! Well done! I have never been more heartened by an empty victory in my life.

Score one for liberty... and take that Sara Gelser! It is clear that 2/3 rds of the state of Oregon want self-service gas, who are our government representatives to deny us our smelly hands and dirty pants? I smell initiative - perhaps I should get Bill Sizemore on the job...

Gas Stations: A Theory of the Gains from Banning Self-Service

Since in New Jersey, there seems to be this belief in some circles that self-service would lead to higher prices, I tried to come up with an economic model that would generate such an outcome. This is the best I could do (if anyone else has a better idea or more specific information that would inform the model, do share):

Suppose that self-service stations rely more on non-gas retail operations (mini-marts) for their revenues. [This makes some sense, once you are out of your car, you are more likely to wander to the mini-mart, or perhaps you have to go in to pay in cash.] Banning self-service gas therefore reduces the importance of these retail operations in stations’ revenues.

Now assume that building and stocking retail operations requires a large up-front expenditure (what we would call a fixed-cost investment), and that independent gas retailers are more capitally constrained than are Big Oil operated gas stations.

In this case, moving from a ban to allowing self-service could benefit Big Oil more than independent retailers. Big Oil could emphasize more the mini-marts and outspend the independents.

Mini-marts may also benefit from advertising, something that Big Oil stations could do more efficiently because of economies of scale.

If independent/unbranded retailers provide the heaviest price competition on gas itself, losing these retailers could lead to price increases.

Thus, in this model, self-service bans make independent gas stations more competitive by keeping people out of the mini-marts, thus more independent gas stations exist and price competition is heavier so lower gas prices result.

Question that need to be answered:
Are independents really more price competitive? (some evidence to suggest that they are)
Are independents really that much more capitally constrained? (most certainly)
Could not big oil compete in other ways (refinery pricing, more advertising, bigger stations, faster service, etc.) with a ban on self-service? (yes, they could)

So this is the best I can do, but I don’t think it is enough to really hold up, basically because of the third question. There are so many ways Big Oil could compete against independent retailers, I don’t think self-service or not makes much difference. But perhaps…

UPDATE: Perhaps the model is all wrong. This story suggests that being unbranded allows stations to shop for the cheapest gas - giving them a comparative advantage in gas. So I am still puzzled by the idea that self-service matters in all of this.

Self-Service Gas: More Thoughts

This self-service gas poll has been an interesting exercise and it is instructive for me to learn how opinions are formed and how beliefs are entrenched. I want to reinforce a key point that seems to be getting lost: I have no wish to deny anyone their full-service gas and I am quite happy with a mandate that says gas stations must provide the service upon request. All I am asking is to be allowed the right to decline the service if I wish. What can possibly be wrong with that?

My motivations have also been questioned, so let me be explicit about them. When I reflect I think there are three main motives in my head.

1. The first is purely impatience on my part. I am generally quite a patient person (aided by an extended stay in India in the late 80s - nothing teaches patience like India Rail), but I do get impatient at gas stations. I think this is mostly because it is something I could do myself so easily. Waiting around 2-3 minutes for an attendant to pull the hose out of my car is just plain annoying to me. It is also true that as a kid and a young adult in Oregon, it never used to bother me that much, it is only after years away and then returning has it started to irk. But then my life is much more hectic so I am not sure if it is the experience of how quick an easy self-serve is or the fact that my time is more precious that makes me wish for self-serve.

2. This gets to the second motivation - I don't like having others do for me what I can do myself. I have two good friends, recently married, who live in Sao Paulo, Brazil. He is Brazilian and she from Spain. When they got an apartment together, he wished to employ a housecleaner/cook. He said not only is it normal but it is a responsibility of relatively well-off Brazilians to employ those less well-off. She said having someone in their house working for them made her feel uncomfortable and exploitative. I share her discomfort with having someone do something you can do yourself. I am sure it has a lot to do with my upbringing - we changed the oil and repaired our cars ourselves, we did household repairs ourselves, etc. In fact I can hardly remember anyone ever in our house to fix things. As an economist this does not make sense - it is inefficient. Surely my comparative advantage is not in construction: I am slow, inexperienced and make mistakes. And yet a few years ago, I devoted a good portion of my summer do finishing part of my basement. I no longer fix my car myself (except for routine things like changing the battery) and I have my oil changed but when it comes to pumping gas, I don't think I am any less efficient and since time sitting in my car is basically wasted the real opportunity cost is the total time I spend parked at the station, so making that shorter by pumping myself is efficient.

3. The last reason, and the most important reason, is that I am often an advocate of government intervention in cases where there are externalities, public goods, market concentration, etc. But as an advocate of such interventions, I think it is critical that we are also consistent about areas in which government intervention is not well justified. This is really a big point of this blog. So while it may seem a trivial matter, I don't think it is. We need to be clear and consistent about situations in which government involvement is necessary and we need to carefully justify that intervention. Otherwise, I do believe that the default should be free markets. I believe this not only as an economist in the market sense, but also as a political philosophy. So here is a case of a completely unnecessary government intervention in a market and an infringement on my personal liberty and I think these should be eliminated as much as possible.

Finally, I'll say it once more, if you think that banning self-service is good for jobs, prices, competition, consumer welfare, whatever...then there are much BETTER policy responses to these issues. Banning self-service gas is just not a good way to deal with any of this. If, however, most of you are like Jeff Alworth and admit that you just like it because it makes us different, and that is something valuable to you, then it is quite possible that banning self-service gas makes overall welfare in Oregon higher. I am unconvinced that this is such a state treasure to most Oregonians that they are willing to waste time and money for it, but we'll see what the poll says.

N.B. A commenter has noted correctly that I am using the term "full-service" loosely. I am generally referring to anything that is not self-serve.

New Poll! Self-Service Gas?

Readers of my blog may already know, as I have posted on this previously, but there are few things things that get under my skin as much as the prohibition on self-service gas in Oregon.

I find the arguments supporting the prohibition wanting:

Consumer safety? I don't believe that there is a rash of fires, explosions and injuries in the other 48 states that allow self-service gas.

Mothers with babies? (Why is it always mothers, what about us dads?) First, the many times when I was living in Colorado, schlepping babies and getting gas, I never once had a problem. Second, you could still mandate at least one full-service pump, though I think demand will be so weak that this will end up being mostly unused - which is why you rarely see full-service anymore in the self-service states.

Important for employment? You have got to be kidding, right? Oh, no? OK, well you can still tell gas stations they have to employ so many people per pump, etc. Sound absurd? It is! And no different than the prohibition on self-service gas. Why not tell all retail outlets that they have to employ a minimum number of people and eliminate all unemployment in Oregon?! Why did anyone think of that? Because doing so with either force wages down or (especially with a high minimum wage) eliminate some employers altogether likely lowering overall employment.

I am sure most of you are much more level headed than I about this issue, and perhaps I have it all wrong and this, in fact, is a precious quirk of Oregon that you all cherish. State Rep for Corvallis Sara Gelser seemed to think so when I asked her to please introduce legislation to change the law (she refused saying something crazy about mental health care and child welfare being more important - what is more important than letting me pump my own gas?).

So let me know what you think - vote!