WASHINGTON — Some folks are ignorant about economics but know some history. Others know some economics, but lack historical memory. Then there are politicians.
In response to rising gasoline prices induced by Hurricane Katrina, Rep. Louise Slaughter (D-N.Y.) has proposed “the Emergency Petroleum Allocation Act.” The letter begins:
Uh, oh. Anytime someone urges a return to the 1970s, sound the alarm. Slaughter goes on:
sets the maximum price at $2.50 per gallon
As any first-year economics student could tell you, price controls do not solve emergencies — they create new ones. When demand for a good rises, the price for that good will also rise. The rise in price is a signal to suppliers to put more resources into supplying that good. Price controls limit the ability of suppliers to do so, but do nothing to stem the rise in demand. With the demand unchanged, but the supply restricted, the result is a shortage of that good. That’s exactly what happened with gasoline in the 1970s. Or so I thought before reading Congresswoman Slaughter’s letter:
So were those gas lines just a figment of our imagination? When I asked Slaughter’s spokesperson Eric Burns about the price controls, he assured me that “use of this regulation would have to be judicious.” He noted that there are checks on the regulation, such as a one-year time limit.
When asked about the role of markets, Burns responded that markets “in the real world are infinitely more complex. Various factors influence them, such as the recent disaster.” But it seemed that Slaughter’s proposal involves a lot more than Hurricane Katrina relief. Burns claimed that gas prices had been “spiraling out of control for some time, hurting families and local businesses,” that there is an “excessive amount of profit in the oil industry,” and that Slaughter’s measure was “by no means a long-term solution.”
Burns is correct that markets are infinitely complex — too complex to be managed by government and political opportunists. Markets function on the basis of enormous amounts of information, which includes responding to changes in such information, as we are witnessing with the slow decline in gas prices now that the worst of Katrina has passed. Government intervention like that envisioned by Slaughter would only hurt those it most intended to help: long gas lines would slow the trucks moving supplies into New Orleans and elsewhere. Have we forgotten the lessons of the 1970s?
THE ANSWER APPEARS to be yes, if the Washington, D.C. Council is any indication. The council has wanted to stick it to the pharmaceutical companies for some time now, and thanks to efforts by Social Do-Gooder-cum-Councilman David Catania, it is very close to doing so. Catania’s bill would allow any D.C. resident (read “trial lawyers”) to sue drug manufacturers for “excessive pricing.” Excessive pricing is defined as the wholesale price of a drug being more than 30% over the price of the drug in Germany, Australia, Canada, or the United Kingdom. The bill seems to be little more than a back door to imposing price controls on prescription drugs. According to an article in the Washington Examiner, Catania maintains that the legislation wouldn’t be necessary “if the drug manufacturers would stop their price gouging.”
Of course, Catania doesn’t define “price gouging.” D.C. residents will soon find that the drugs they need will be in short supply at the local pharmacy, since the price control will undoubtedly induce pharmaceutical companies to limit what they supply to D.C.
In the wake of the absurd recent Vioxx liability ruling, perhaps they won’t want to subject themselves to another trail lawyer feeding frenzy. They can stop selling to D.C. pharmacies, safe in the knowledge that most D.C. residents can hop on the Metro to buy their drugs in the suburbs of Virginia or Maryland.
Perhaps none of this is anything to worry about. Slaughter’s proposal is going nowhere, and Catania’s damage won’t spread much beyond D.C. On the other hand, free markets and limited government don’t seem to be winning a popularity contest even among Republicans these days.
If there was ever any doubt, after President Bush’s speech last Thursday we know for a fact what “Compassionate Conservatism” means: spend lots of government money when you think you are in a political pinch. Two days earlier, Majority Leader Tom DeLay declared “ongoing victory” against government waste, suggesting that there was no fat left to trim in the federal budget. Thus, it’s not hard to imagine a point in the future when price controls are included in the definition of Compassionate Conservatism, and a member of the House declares victory in the GOP war against deregulation.
That gurgling sound you hear is the lessons of economics and history over the last 30-plus years going right down the drain.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
The debacle of this president’s administration is both a cause and a symptom of the decline of American values. Unless Congress impeaches him, that decline will go on unchecked. An eminent jurist surveys the damage and assesses the chances for the recovery of our culture.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
The American Christmas, like the songs that celebrate it, makes room for everybody under the rainbow. Is that why so many people seem to be hostile to it?
Was the President done in by the economy, or by the politics of the economy?