Don Boudreaux’s recent Letter to the Editor of the Atlanta Journal-Constitution (see below) reminds me of our good fortune. Gas prices are up but policymakers have not reacted with their old tools from the 1970s, namely price controls. Instead, market prices are free to reflect the scarcity of oil that currently exists worldwide. Moreover, Congress is trying to reduce some of the barriers that limit supply. Why such a change in 30 years?
Many Americans still have some recollection of the effects of price control and know that it was not a good solution. The public is also more aware today that gas prices are not determined in the US, but on world markets. What price controls would achieve is creating shortages in the US without having any impact on world prices. Americans by and large seem to believe (rightly so) that policies aimed at expanding supply (even just US supply) stand a better chance of reducing gas prices (for everyone, not only Americans) than policies that would control US domestic prices.
Have Americans become more acquainted with economics in the last 30 years? Probably not, however, there is nothing like living through changes in policy to learn something about economics. For instance, many of my fellow friends from New Zealand have become more conservative than they used to be as a result of the reforms in the 1980s and 1990s. In the 1970s, the Berlin Wall was still up and the West still entertained the idea that economic planning was good policy. True, there is still plenty of economic planning in policy today, but there is much less in rhetoric. People have come to realize the limits of price control. What the public saw as good policy in the 1970s is now deemed irrelevant. Really? Well, time will tell. If gas prices continue to climb up, it may come with a rising demand for price control.
Here is Don Boudreaux’s letter:
21 July 2008. Editor, Atlanta Journal-Constitution
I disagree with Cynthia Tucker's claim that "Carter deserves credit for his energy smarts" (July 20). The price controls enforced during Jimmy Carter's presidency - ones within his power to lift - were responsible for fuel shortages.
I well remember in July of 1979 my father driving to a gasoline station at midnight only to wait in line. He waited in that line until 6am, when I (having walked the mile and a half from our home) relieved him. The station finally opened at noon. It allowed each motorist in line to buy a maximum of five gallons of gasoline. I bought the five gallons and drove home - without, of course, turning on the air-conditioner, for to do so would have burned too much of the precious elixir. As we lived in New Orleans, these sorry recollections of the consequences of misguided government intervention are seared especially hot into my memory.
Donald J. Boudreaux
Chairman, Department of Economics - George Mason University