Saturday, June 02, 2007

Deadly Price Controls

Fire of Liberty

Thomas Sowell has a good column on the dangers of price controls with regards to solving high gas prices. Here's a look:

As former House Majority Leader Dick Armey -- an economist by trade -- has put it: "Demagoguery beats data" in political battles.

The demagoguery in this case is that "price gouging" and "greed" explain rising gasoline prices -- and that price controls will put a stop to it.

It is an exercise in futility to try to refute words that are meaningless. If a word has no concrete meaning, then there is nothing that can be refuted. "Price gouging" is a classic example.

The phrase is used when prices are higher than most people are used to. But there is nothing special or magic about what we happen to be used to.

When the conditions that determined the old prices change, the new prices are likely to be very different. That is not rocket science.

How have conditions changed in recent years? The biggest change is that China and India -- with more than a billion people each -- have had rapidly growing economies ever since they began relaxing government controls and allowing markets to operate more freely.

When there are rising incomes in countries of this size, the demand for more petroleum for both industry and consumers is huge. Increasing the supply of oil to meet these escalating demands is not nearly as easy.

In the United States, liberals have made it virtually impossible, by banning drilling in all sorts of places and preventing any new refinery from being built anywhere in the country in the last 30 years.

Prices are like messengers carrying the news of supply and demand. Like other messengers carrying bad news, they face the danger that some people think the answer is to kill the messenger, rather than taking steps to change the news.

The strongest proponents of price controls are the strongest opponents of producing more oil. They say the magic words "alternative energy sources" and we are supposed to swoon -- and certainly not ask any rude questions like "At what cost?"

It would be nice if a lot of America thought more like Thomas Sowell and then they wouldn't let "muck-rakers" and demagogues in Congress intrigue them into a policy that makes us happy in the short-run but horrific to us further down the road. results in

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