Wednesday, January 10, 2007
On this day:

Setting the Huntsville Times straight

It's a tough job sometimes, but someone's got to do it.

In Saturday's editorial, Times editor John Ehinger wrote: "If an argument can be made for gasoline price controls, it can be made more effectively for a ceiling, not a floor."

I disagree. Price ceilings and price floors are equally subversive to the workings of the free market. Although upper limits on prices may attract more public sentiment than lower limits (with at least one notable exception - the price of labor), both should be resisted. There are plenty of reasons for this; I'll try to outline a few:

1) The imposition of price controls rests on the false assumption that legislators and bureaucrats are more competent than the market to determine price levels. Now, despite my admiration for legislators and bureaucrats, they constitute a class that is generally incompetent when it comes to economic matters. Not incompetent as in "dumb," but incompetent as Webster's Collegiate Dictionary defines it in definition 3A: "lacking the qualities needed for effective action."

As a result of their small numbers with respect to the total number of participants in the economy (which is to say practically every man, woman, and child in the U.S. and in those nations with whom we trade), politicians and bureaucrats have very limited accessibility to the type of information that would be critical to any effective effort to control prices without adverse economic effects. In fact, even if the number of would-be government price-controllers were larger - much larger - they would still be constrained in that respect, since feedback from millions of individual micro-markets cannot possibly be accumulated and processed by any number of human beings, particularly by those whose chief concerns are political, not economic. Even if they were to lay aside all of their political biases and were assisted by all the computing power in the world, they still could not overcome the fact that markets are animated by human activity, constrained by the forces of nature, and entirely dependent on the interaction between the two.

The most "natural" way to regulate prices is through the free market; that is also the most effective mechanism for ensuring that prices are what they should be.

2) It is undeniable that government-imposed price controls have an adverse economic impact. They create shortages and surpluses where such maladies would not exist otherwise. When prices are set artificially high, suppliers tend to produce more and consumers tend to demand less, resulting in a surplus. Likewise, when prices are set artificially low, suppliers tend to produce less and consumers demand more, resulting in a shortage. Both surpluses and shortages involve misallocations of resources that can only be remedied through the imposition of additional restrictions in the form of quotas, either on production (in the case of surpluses) or on consumption (in the case of shortages).

3) The liberties that government assumes by imposing price controls and then by providing the "remedies" for the undesirable results which necessarily follow come at the expense of individual liberty. As the sphere of government power grows, the sphere of individual liberty shrinks.

Price controls say to the producer: "You cannot sell your goods or services at a price either above or below what the government has dictated." Likewise, they say to the consumer: "You cannot buy these goods or services except within the constraints imposed by government." To give government the power to control gas prices is also to give it the power to control the price of any other good or service imaginable. If there were a good reason to do so, such a surrender of individual liberty might be warranted...but there's not. See 1) and 2) above.

4) Alabama already has a ceiling, of sorts, on the price of gasoline and other commodities. It's called the Alabama Unconscionable Pricing Act (more commonly known as the "price-gouging law"), and although it is only invoked only when a state of emergency has been declared by the Governor, the arguments I made in 1) and 2) above still apply. Here's what the law says:
It is prima facie evidence that a price is unconscionable if any person, during a state of emergency declared pursuant to the powers granted to the Governor...charges a price that exceeds, by an amount equal to or in excess of twenty-five percent the average price at which the same or similar commodity or rental facility was obtainable in the affected area during the last 30 days immediately prior to the declared state of emergency and the increase in the price charged is not attributable to reasonable costs incurred in connection with the rental or sale of the commodity.

We only need to think back to last year to see how this particular law helped to make a bad situation even worse. After Hurricane Katrina, the Governor declared a state of emergency (statewide, I believe, due to the disruptions in gas supplies) and this law was invoked.

It's difficult to gauge "what might have been" had the law not been in effect, especially since its price caps are relatively mild, but I think it's safe to say that many of the shortages that followed in the storm's wake are directly attributable to the threat of prosecution that suppliers of gasoline, generators, ice, home repairs, tree-cutting services, etc. would have faced had they charged prices that the market would have supported at that time. There's little doubt that "price-gouging" laws inhibit businesses and individual citizens from delivering goods and services to disaster areas when they are most needed. Then, when the inevitable shortages occur, who is called in to "save the day," even though they are at least partially at fault? The government, of course.

Which brings me back to number 3) and a question: why is the idea of liberty such a hard sell these days?