THE last time so many people were as bedeviled as the people of California are today by electrical blackouts was back in 1979, when motorists in cities across the country were lined up for hours at filling stations, waiting to get gas. Both shortages had the same cause -- and the same refusal to acknowledge the cause.
Both crises were wholly unnecessary and produced by similar actions of politicians. The amount of gasoline sold in 1979 was higher than in any previous year in the history of the country, except for the record-breaking year of 1978. So it was not a lack of gasoline that had Americans desperate to find a filling station that was open. It was price control.
Artificially low prices cause the public to demand more than they would otherwise and suppliers to supply less. Therefore there is a shortage. This is straight out of Economics 1.
After Ronald Reagan became president in 1981, one of the first things he did was get rid of price controls on petroleum. There were great outcries that this would lead to skyrocketing prices for gasoline. But, with price controls gone, suppliers supplied more and we have not had to wait in gasoline lines stretching around the block in the two decades since then. With more petroleum being supplied after price controls were abolished, the price of gas fell within a few months and eventually reached an all-time low in real terms. But we have learned nothing from this episode -- or from similar episodes in countries around the world.
The end of rent control in Melbourne in the 1950s led to housing being built for the first time since World War II. Similarly later in Sweden and still later in Massachusetts.
Price controls have a record of causing shortages going back at least as far as the days of the Roman Empire. Price controls on food have produced shortages, malnutrition and even starvation. Rent control has produced housing shortages from New York to Paris to Hong Kong. But no politician wants to admit that price controls have produced an electricity shortage in California.
When the price of electricity rose to 21 cents per kilowatt hour in southern California last year, the state's Public Utilities Commission voted unanimously to reduce that to less than 7 cents per kilowatt hour. The state legislature then stepped in to control prices charged consumers throughout California -- at rates lower than the utility companies were paying to buy electricity.
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