Thomas Sowell

The obvious continues to make headlines in California. "Federal price limits backfire" read the big front-page headline in the San Francisco Chronicle. These price limits are the federally imposed "caps" on electricity prices that California Governor Gray Davis has been clamoring for, backed up by Congressional Democrats.

"Some generators withhold power rather than abide by rate caps" the news story said. Where there are high costs of generating or transmitting electricity, the price caps in western states can make selling electricity to these states unprofitable or even create losses for the electricity suppliers.

Although officials in both California and Nevada had urged the Federal Energy Regulatory Commission to impose price controls on electricity, they now concluded that "the newly imposed limits have had the unintended consequence of increasing a threat of blackouts in the two states." In other words, people supply less when you reduce the price they will be paid. This news is literally thousands of years old.

People withheld supplies when price controls were imposed in the days of the Roman Empire. George Washington's troops nearly starved at Valley Forge when price controls were imposed on food. During the French revolution, there were likewise price controls on food, with the result that "as soon as we fixed the price of wheat and rye we saw no more of those grains."

When President Nixon imposed controls on meat prices in 1973, much American cattle began to be exported, mostly to Canada, rather than being supplied to the U.S. market. Price controls on gasoline had motorists waiting in long lines at filling stations, sometimes for hours. But there have been no such gas lines for the past 20 years, since Ronald Reagan got rid of these price controls as one of his first acts after becoming president in 1981.

Price controls have had the same effect around the world, for centuries on end, among people of every race, color and creed, and under governments ranging from the most democratic to the most totalitarian. Why then is everyone so surprised that price controls on electricity in the western states seem to be reducing the supply of electricity there, creating rolling blackouts in Nevada and threatening more of the same in California?


Thomas Sowell

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

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