Planet Money: The Planet Money Indicator: NPR



SYLVIE DOUGLIS, BYLINE: NPR.

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PADDY HIRSCH, HOST:

This is THE PLANET MONEY INDICATOR. I am Paddy Hirsch.

ADRIEN MA, HOST:

And I’m Adrian Ma. Lithuania announced this weekend that it will no longer buy natural gas from Russia. Until now, it bought about a quarter of its gas from a company called Gazprom. But now it is the first country in the European Union to say it is quitting Russian gas.

HIRSCH: Now all eyes are on Germany, which is far from energy independence from Russia. Half of Germany’s 40 million homes use natural gas for heating, and 40% of that natural gas comes from Russia, which means that if the flow of natural gas from Russia stops because of the war in Ukraine, then Germany is in trouble.

MA: All this leads the German government to think about an emergency plan – in particular rationing.

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HIRSCH: Rationing – when a government or organization allows people to have only a fixed amount of a product. On today’s show, we look at how rationing happens, why it happens, and what the unintended consequences can be.

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MA: Most people in the United States, when they think of rationing, think of World War II, and that’s when the supply of almost every basic commodity was cut. But Americans have repeatedly faced rationing since then.

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UNIDENTIFIED PERSON #1: This is unreal. Isn’t that disgusting? Why is no one contacting the president? Why does he let this happen to us?

HIRSCH: It’s the voice of a woman speaking to the New York television station WPIX in 1979. She was sitting in a long line of cars, waiting to refuel her vehicle. It was a scene that unfolded in every city across the United States that summer as people flocked to gas stations, often queuing before dawn and queuing for hours to make full.

MA: The cause of this race for gasoline – a shortage of oil following the revolution in Iran earlier that year. Global oil supply hasn’t fallen much – only about 4%. But the markets reacted negatively. They hated it and oil prices skyrocketed. And at one point they more than doubled to nearly $40 a barrel.

HIRSCH: President Jimmy Carter’s administration expected it. Carter himself had warned of the possibility that the American people would make sacrifices almost as soon as he came to power, when he drew up a list of proposals to deal with the energy crisis.

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JIMMY CARTER: Many of these proposals will be unpopular. Some will cause you to put up with inconveniences and make sacrifices. The most important thing about these proposals is that the alternative may be a national disaster.

HIRSCH: In the spring of 1979, there was a movement on Capitol Hill to enforce nationwide gasoline rationing. Carter himself wanted to do it, but he couldn’t get enough support among representatives or economists, for that matter.

MA: Yeah. Most economists hate the idea of ​​government-mandated rationing because it distorts the market. And, you know, what happens is that people can’t get as many rationed goods as they want, so they spend the money that they would have spent on that good on other things – things that otherwise wouldn’t have sold. And that’s market distortion.

HIRSCH: Yes. And economists also hate rationing because they believe it encourages hoarding. I mean, remember those empty shelves in the toilet paper section of the supermarket during COVID?

MA: I mean, who among us, Paddy, hasn’t been desperately looking for toilet paper? But I mean, I kind of thought hoarding was already happening before stores started to, you know, ration what customers could buy.

HIRSCH: Yes, absolutely. It was. I mean, hoarding came first. And then because of the hoarding, they’re like, oh, my God, we have to ration ourselves. So the rationing came later, and then everyone panics about the rationing. It’s a bit like a chicken and the egg.

MA: Vicious circle.

HIRSCH: Yes, indeed. Anyway, let’s go back to 1979, when the governors of several states decided to impose gasoline rationing.

AWI FEDERGRUEN: Well, rationing is not easy to execute. It’s easy to talk about, but it’s not easy to do. And it is certainly painful.

HIRSCH: It’s Awi Federgruen. He is a professor of management at Columbia Business School. He has spent a lot of time studying supply chains and logistics over the years. He said the way the government rationed during World War II was to issue ration books, which told you how much of a certain good you could buy in a given period.

MA: But a ration book system takes a lot of time and resources to set up. So in 1979, when state governors decided they had to ration gasoline, they opted for a different system. Awi Federgruen says they called it even-odd rationing.

FEDERGRUEN: Cars could only fill their tanks on specific days, which were prescribed by their license plate number. Cars that have an even-numbered license plate could be driven on, say, Mondays, Wednesdays, and Fridays. And those who had an odd number could continue the remaining days.

HIRSCH: The idea was pretty good in principle. But Awi said it only made things worse.

FEDERGRUEN: A lot of people reacted by constantly filling their tanks and actually creating more congestion than there normally would have been and more demand for gasoline than there normally would have been.

HIRSCH: He calls it the boomerang effect. As soon as people hear about rationing, whether it’s eggs, toilet paper or gasoline, they panic.

FEDERGRUEN: The gas lines are getting longer and longer. The shortages are getting bigger and bigger. People are getting more and more scared and panicked, whereupon they say, we have to get it now, or we won’t.

MA: Another unintended consequence of what was happening was that the long lines actually caused Americans to consume more gasoline. Just understand this – the average American car at the time burned an enormous amount of gasoline while idling – something like, between a half and three quarters of a gallon per hour. Thus, the researchers estimated that Americans were wasting up to 150,000 barrels of oil every day by waiting in line with their engines running to refuel.

HIRSCH: Now, the worst thing about the rationing in 1979 was that it was not administered – like at all. Governors just issued warrants. And as we all know from our COVID experience, mandates are difficult to enforce. They expected consumers to simply follow the rules. They also depended on retailers monitoring those rules, and not all retailers were comfortable with that, like this gas station owner in Queens, NY, who was interviewed for the MacNeil/Lehrer report.

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UNIDENTIFIED PERSON #2: You’re telling that fucking governor he has to watch this fucking gas situation. I won’t take the blame for this thing. I won’t put up with the shit and harassment from these customers. Now let him police or stop selling gasoline.

MA: Whew (ph). He’s an angry business owner.

HIRSCH: He was pretty hot, that guy.

MA: Yeah. And so quickly, until today, the German government still has a long way to go before having to impose natural gas rationing. But if he decides to do so, he has the advantage of controlling the distribution networks that deliver gas to homes and businesses, right? That way people can’t just go out and start hoarding natural gas like they would with toilet paper, right? You can’t just buy it at the store and pile it up in your garage.

HIRSCH: My God, can you imagine?

MA: I mean, just call the fire department on the speed dial.

HIRSCH: (Laughter) Anyway, if there’s a gas shock in Germany, the government pretty much holds all the cards. And that means, says Awi, that he has to be very careful about how he handles the ration program. It must signal the need for careful rationing to get the German people on board, ready and willing to live on less. And he needs to make sure he does everything he can to make a rationing program as short-lived as possible.

FEDERGRUEN: Efforts should be made to – very quick efforts should be made to get alternative gas supplies rather than rationing. It already comes, to some extent, from the United States, and there are other countries that could be suppliers. We are talking about the intervention of Israel and Cyprus, which is not far from it.

MA: The German government seems to have a plan. It is already reported that, should the worst get worse, industry will be the first to be rationed, while households and medical establishments will be the last to be rationed. And that makes sense because the government can protect the industry with loans and other types of support, as it has done during the pandemic.

HIRSCH: And the timing is a bit as fortuitous as it could be for Germany, under the circumstances. If it was October and we were heading into the cold months, the situation would be much worse. But Germany has little time. The country’s economy minister recently estimated that it would take until 2024 to completely wean itself off Russian gas. But the Germans can do a lot in the short term to approach it: switch to other suppliers, reduce their consumption and build up reserves. Winter is still far away, but it is coming.

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MA: This episode was produced by Nicky Ouellet with the help of Isaac Rodrigues. It has been verified by Corey Bridges. Our main producer is Viet Le. Kate Concannon is editing the show. And THE INDICATOR is an NPR production.

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James R. Rhodes