Thomas Sowell

HAS anyone ever pleaded with you not to buy a Rolls Royce? The argument might go like this: So much expensive materials and so many man-hours of highly-skilled hand labor go into producing a Rolls Royce that, if everyone had one, it would drain so many resources and so much labor from the economy as to lower our national standard of living.

It is a legitimate argument, but why have you never heard it? Because all such arguments are summarized in the price tag on a Rolls Royce. That price tag -- in the hundreds of thousands of dollars -- is far more convincing than any exhortations.

Look at it another way: What does it mean when politicians, the media and miscellaneous busybodies exhort you to do or not do something? Often it means that what they want you to do or not do does not carry a price tag sufficient to cause you to behave as they think you should. Prices are based on the actual supply and demand, while exhortations are too often based on fashionable notions, rather than hard facts.

Currently, Californians are being exhorted to conserve electricity. But the same people who are making these exhortations are opposed to letting the price of electricity rise to a level that would cover the cost of generating electricity -- and therefore make exhortations unnecessary. Last year, rising prices had already caused Californians to reduce their consumption of electricity by 9 percent, when the state legislature imposed lower electricity prices -- and electricity usage then rose.

Price controls almost invariably lead to consumers demanding more and suppliers supplying less. It is a guaranteed formula for creating a shortage. But, despite a worldwide history of such economic responses, politicians are often tempted to play the role of rescuers, despite the even bigger problems that can create.

One of the reasons for the rescue this time was that the average electricity bill of $68 a month in southern California had risen to $120. While that is a large percentage increase, $120 is about 10 percent of what these same people were paying to rent a two-bedroom apartment. But it was considered unfair because it was unusual.

Electricity costs more to produce than what California "consumer advocates" and politicians are willing to call "reasonable" prices. Some of the prices charged by out-of-state power generators who sell electricity to California when the local supplies are insufficient are much higher than the "normal" price charged for electricity, leading to angry accusations of price "gouging" or "exploitation." But the cold fact is that there is no such thing as "the" cost of generating electricity.

Thomas Sowell

Thomas Sowell is a senior fellow at the Hoover Institute and author of The Housing Boom and Bust.

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