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NRO defends high gas prices

by das monde Sat Sep 3rd, 2005 at 02:11:00 AM EST

The American conservative National Review Online writes this:

Gouge On
A defense of gas profiteering.
By Jerry Taylor
[How] should we ration our limited pool of gasoline? In a free market, scarce goods are typically rationed by price. People who value gasoline most are willing to pay higher prices than those who value it less. The former get the gasoline - the latter to some extent go without. Allocating resources to those who value them most is one very important reason why our economy outperforms economies where resources are allocated by political action.

It all sounds reasonable from libertarian point of view. But what happened to the argument that gas prices are crucial to the economy? In particular, that they are vital for small businesses and consumers? This argument suddenly disappeared... May suddenly troubled businesses and consumers drop dead?

Price controls, however, come at a cost. Lower prices result in more demand for fuel than do higher prices. That's why the first thing we notice about price controls is that they lead to shortages. Price to the left of the intersection of the supply-and-demand curve and you are guaranteed to vaporize whatever you are attempting to keep inexpensive. It happened in 1973 when President Nixon imposed price controls on oil - gasoline lines were the result. It happened in 2000/2001 when California Governor Gray Davis refused to lift retail price controls on electricity - blackouts soon followed. Empty shelves are the defining feature of markets where price controls are in place.
We may argue about blame proportions in the cited energy crises. For example, one may reasonably say that pure free market is not sufficiently good in anticipating or preparing for these crisises.

Once a crisis happens, we have a choice: do we try to control or influence the reigning chaos, or do we leave everything and everyone to fate's mercy.

On the long term, it is best to let the free market determine prices, there is no doubt here. But under sudden emergency, is it the most crucial thing to defend opportunities of the few disproportionally lucky? What is wrong in giving numerous people and enterprises a better chance to survive and adopt to new circumstances? Would it be the end of the world if we would have long queues for a week? Is temporarily shortage more terrible than ruined "American dream" lives?

We may not control all intentions and economic eagerness at critical moments, but it certainly seems tolerable to make moral appeal for solidarity from all sides, the vital supply side included. That may save many better lives, and may keep the economy more stable.

The "price control" issue has also the other side of keeping prices above the "natural" level. Then we have precisely the same arguments ("People who value gasoline most are willing to pay higher prices than those who value it less. The former get the gasoline - the latter to some extent go without, etc") that nothing is horribly wrong, even better, there are no terrible shocks. Or is the something horrible?

Of course, libertarians then probably get back to the "non-efficient economy" litany. But the efficiency has the price of short-sightness. It is even very ironic to require most efficient conduct and impulses from a "good" government when the same ideology says that no government can regulate economy efficiently. Perhaps we may agree that government should not worry about marginal efficiency. But government should have responsibility for anticipating, preparing and dealing with harsh crisises.

[Crossposted at Booman Tribune.]

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NRO defends high gas prices | 3 comments (3 topical, 0 editorial, 0 hidden)
Will be interesting to see what happens (none / 0)
The results of all this are going to be determined by how stupid people really are. The argument is complicated, because high oil prices are either good or bad depending on whether you're taking a short term or long term viewpoint.

  • Immediate short term: High prices bad because it's a sudden jump. People need time to react.
  • Medium term: High prices good because it encourages the migration to other energy supplies. People need to understand that we (and I include Europe in this  :-) ) are living in a dream right now.
  • Long term: High prices bad because there will be an impact on the global economy and living standards as the base price of energy rises. It will cost more to heat a house with electricity from wind power. (Although the Rocky Mountain Institute disagrees with this, and may be correct. http://www.rmi.org/sitepages/pid191.php
  • Really long term: High prices good because burning fossil fuel is simply a bad idea for the environment, global warming, soot, etc.

People have historically stopped thinking at the first step here, and simply pumped the gas or oil into the car. Perhaps this disaster will cause more consideration of the problem, even by dimwitted politicians. My suspicion is that the Democrats are tightly wedded to the "fuel must be cheap" argument while the Republicans can take up the "fuel must be expensive to Protect American" position. The situation here is not a slam-dunk "win" for left-central politicians.

People over here are pretty flexible, and I'm personally optimistic that we're going to have a sudden shift to small cars. Is Europe that flexible? Is there leeway in the system in Europe to cope with a sudden doubling of the consumer price of fuel?

by asdf on Sat Sep 3rd, 2005 at 10:23:26 AM EST
Push the logic to its extremes (none / 1)
  • make drivers pay tolls for ALL the roads they are using (or subsidise railway tracks and other such infrastructure to the same extent roads are, so that there is a "level playing field")

  • make drivers pay for the military which is mobilised in roles DIRECTLY linked to oil - most of the Navy (patrolling oil routes), a lot of the worldwide presence of US forces around the world - and ALL the presence in the Middle East

  • stop all subsidies to the energy companies (including indirect ones like letting them drill on federal lands at little cost)

  • enforce pollution standards - no emissions and full recycling of the vehicles at the end of their lifes

  • pay for the road police patrols, emergency services, and public health care costs associated with accidents.

Then we can let the market forces play a role. And we will see if people still pay so little to the underclass that clean their houses, man their restaurants and hotels, and do all the menial tasks we resquire of them while living in neighboroods very very far away and cannot afford the gas anymore - AT ALL.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sat Sep 3rd, 2005 at 11:08:51 AM EST
But otherwise (none / 0)
I agree that higher prices are the most sensible way to get us to use less oil. It would simply be better if that were done via higher taxes which can then be used to build alternative infrastructure, provide public transportation and help the poor live with higher transportation costs.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sat Sep 3rd, 2005 at 11:12:21 AM EST
[ Parent ]
NRO defends high gas prices | 3 comments (3 topical, 0 editorial, 0 hidden)


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