How this bizarre New Jersey law makes gas prices higher

Pumping Gas (Flickr : Jenn Durfey)

(Flickr / Jenn Durfey)

In the old days, gas stations used to staff attendants that would come to your car and fill up your car for you – at least until they realized this was an entirely unnecessary expense. But one state has retained full-service gas stations for the last 60 years, and it’s all thanks to a textbook example of the government mandating higher prices for consumers.

In 1949, New Jersey’s legislature passed a ban on self-service gas stations, requiring stations to have attendants on duty at all times. Stations that allow customers to pump their own gas face fines of hundreds of dollars from the government.

Shockingly, this law was passed after a man opened a self-service gas station in 1949 and charged 3 cents less per gallon than the current prevailing price that had been set by colluding full-service gas station owners.

The gas station owners lobbied legislators and eventually got their way, convincing the politicians to force consumers to pay the higher price. The anti-competitive law has been in place ever since.

In every other state, consumers are not forced to subsidize a service that has become obsolete. Full-service gas stations often take longer (you have to wait for the attendant to come to you). With gas stations often in brutal competition to charge a few cents less per gallon, it’s safe to assume that every station would instantly drop the unnecessary cost of full service if it weren’t for the government forcing them to require it.

Undoubtedly, some still do prefer the convenience of sitting in the car while an attendant pumps for you. But for those who are perfectly happy to pump their own gas, why not give them the choice?

Supporters of the self-service ban often point to New Jersey’s low gas prices to demonstrate that full-service doesn’t add any cost. But this is completely illogical. If there wasn’t an additional cost to provide full service, then stations would offer it on their own. The state’s cheap gas is a result of lower gas taxes and a position as the #1 importer of gasoline. It’s fair to assume that as cheap as New Jersey gasoline may already be, it would be several cents cheaper if not for the ban on self service.

Keeping an attendant on duty means that he must be paid whether there are cars filling up or not. That’s really where the extra cost comes in. When companies are not allowed to make their own decisions about which costs they should incur, consumers pay the price. Because every gas station is required to provide full service, each one can pass on the full cost to consumers without any competitive repercussions.

Others argue that the ban should be left in place because it creates jobs. But this violates the fundamental “broken window fallacy” brought up by political philosopher Ludwig von Mises. Essentially, Mises said that breaking windows creates jobs for glass repairmen, but that doesn’t mean we should break more windows.

When jobs for gas station attendants exist solely because of government mandate, a market distortion is created. “The labor of the attendants is thus devoted to generating economic waste and could be spent productively elsewhere rather than in promoting economic inefficiency,” wrote economics professor Daniel Hamermesh on the Freakonomics blog.

Though the debate was brought up again last May in the New Jersey state legislature, the Democrat-controlled body is unlikely to repeal the ban anytime soon.

So why is the New Jersey state government still forcing citizens to pay higher gas prices? That’s the question New Jersey voters should be asking their legislators this year.

Published on Opportunity Lives