Politicians Should Save Their Energy and Leave Prices Alone

D. J. Tice

      D. J. Tice is an editorial writer for the St. Paul Pioneer Press. This article is reprinted from the Pioneer Press.

      Economist David Friedman asks a revealing question in one of his books. Roughly, it is this: Who is in charge of making sure that Americans can usually find almost any product or service they are looking for-that everything from steel girders to disposable diapers are produced and distributed in generally correct amounts across this whole, vast continent? The incredible answer is that absolutely nobody is in charge of this amazingly complex undertaking.

      But a whole lot of people, it seems, think they should be in charge of prices. Everywhere one looks these days, politicians are seeking to improve on market prices-to make them fairer, or more socially reasonable, or something. In elements of his energy plan, President George W. Bush has proved price "fixing" is a bipartisan passion.

      At Minnesota's Capitol, lawmakers can blame a bit of their tardiness in finishing their work on all the time they've spent considering various price manipulations. They've pondered, among other things, a bill to control landlords' prices by prohibiting rental application fees; price controls on prescription drugs; and a mandate that diesel fuel buyers use "biodiesel," thus boosting, it's hoped, the price of soybeans.

      In California, politicians, especially Democratic Gov. Gray Davis, are still struggling to maintain retail electricity price caps for most customers. Above all, they're struggling to blame the state's energy disaster on somebody else. They have denounced Bush for failing to put federal caps on wholesale prices charged by out-of-state power companies shipping electricity to the Golden-brown State.

      And then there is Bush himself. In an effort, perhaps, to improve his power politics more than his power policy, the president is proposing an array of tax credits and subsidies for fuel cell cars and solar homes and co-generation and other investments in new energy efficient technologies. These are simply devised to artificially reduce the net price of those technologies and thus improve the investment returns.

      This is all quite discouraging. Political manipulation of prices is a sure-fire proven technique for creating shortages and surpluses. If the price controlling craze goes on long enough, we'll be sitting in lines at gas stations; hoping a routine rolling blackout doesn't further prolong our wait; and wishing prescription drug firms would invest like they used to in developing new and ever-stronger anti-depressants.

      But America will have a larger surplus of soybeans than ever.

      It's not too much to say that the free movement of prices is the whole secret of prosperity. Price movements, up or down, tell producers to provide more or less of a certain thing, while telling consumers to use more or less of it. This ensures that the most essential goods (i.e., the goods fetching the highest price relative to cost are the most profitable goods) are quickly sent to where they are needed most (where people are willing to pay dearest for them).

      In California, it has been the failure to let all prices-retail as well as wholesale-move: to reflect the true imbalance of supply and demand that has produced the shortage. When Davis and other California dreamers complain about the outrageous prices now being charged by wholesale power generators, they are blaming the cure for the disease.

      Like many cures, high prices are, in the short run, somewhat distasteful. But the outlandish prices (and profits) a shortage will inevitably create in a free market are precisely what will encourage suppliers to send California what it needs, increasing energy supplies and in short order reducing prices.

      Meanwhile, Bush's energy plan, which raises many worthwhile issues, seeks in some dubious ways to relocate prices.

      The president recognizes that America is now beginning to pay the full price of the more stringent environmental protections it has enacted over recent decades. It's paying the price in the form of rising energy costs-and Bush thinks the price too high. He may be right; some reconsideration of the costs and benefits of some regulations makes sense.

      But Bush also proposes to shift part of the cost of conservation to a range of taxpayer subsidies for new energy saving investments.

      Why are taxpayer subsidies a better way of encouraging conservation than simply allowing energy prices to rise to reflect the cost of the environmental protection society decides to purchase? That way, alternative fuels and conservation technologies would naturally find a market as energy prices rose high enough to make the alternatives worth what they cost. This would also ensure, better than politically chosen subsidies can, that the most economically efficient alternatives are the ones that get used.
Politicians should save their energy and leave prices alone.