Thomas Sowell

One of the beauties of an economy coordinated by price movements is that nobody has to understand it in order for it to work.

If vast new iron ore deposits are discovered tomorrow in Timbuktu, 99 percent of the people on this planet may be wholly unaware of it -- and yet the prices of everything from paper clips to automobiles would begin to decline, from Singapore to Seattle.  Moreover, people around the world would adjust their behavior in response to this event that they know nothing about.

Many people who were not sure about buying a new car might decide that they could now afford one at the new lower prices. People who were thinking of buying wooden desks could begin to reconsider, when they discovered that steel desks had become much cheaper than they expected.

In short, the whole world would adjust their economic behavior in response to a discovery that most people were wholly unaware of.

This economic benefit of price-coordinated markets is also its biggest political vulnerability. If people don't understand what is happening, politicians can tell them anything -- and get their support to take actions that look good, even when the consequences will be counterproductive.

Political responses to the current high price of gasoline are a classic example. World demand for oil has risen out of all proportion to the amount of oil supplied. That is the problem and prices are a symptom of that problem.

Politicians have long been known for seizing upon immediate symptoms and ignoring underlying causes and consequences. Back in the 18th century Adam Smith wrote of "that crafty animal" the politician, who is preoccupied with "the momentary fluctuation of affairs."

Politicians are still crafty in the 21st century and still have their eyes on fleeting opportunities to make political hay. The high price of gasoline is the opportunity du jour.

Nothing is easier than to blame high prices on whoever charges those high prices, regardless of what the underlying cause is. It doesn't matter whether you are talking about Big Oil or little stores in poor, high-crime neighborhoods that charge higher prices growing out of the economic consequences of poverty and crime.

In these and other cases, the economics behind the high prices is of far less interest politically than denouncing the sellers for "greed," "exploitation," "gouging" and the whole political vocabulary of undefined rhetoric and unsubstantiated notions.
Much is made of the fact that gasoline prices go up before the higher priced oil is turned into gasoline. What something cost is history, what it is worth now is economics.

Thomas Sowell

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

Creators Syndicate