Supply, Demand and Prices

The Washington Times (Washington, DC), April 8, 2008 | Go to article overview
Save to active project

Supply, Demand and Prices


During the summer, television networks don't seem to discriminate in airing reruns. The miserable shows get re-aired along with the good ones.

Washington seems to have the same mindset on policy reruns. Failed policies are as likely to be reinstituted as successful ones. Case in point: petroleum regulation and the "windfall profits" tax.

In a ritual as predictable as Donald Trump firing an eager go-getter, Congress demands testimony from oil executives and threatens additional taxes and price regulations whenever petroleum prices rise. It's an old tradition and one based on economic ignorance.

Bowing to flawed thinking and the popular will, President Nixon (with Congress) instituted general price controls in 1973. It was a vain attempt to control inflation. After the predictable shortages arose, price controls were eliminated on everything except petroleum products and natural gas. Not eliminating those price controls created the energy crisis of the 1970s and the memorable gas lines.

Yes, the Arab oil embargo reduced world petroleum supply, and worldwide economic growth increased demand. However, rising demand and shrinking supply cause higher prices, not gas lines.

This isn't a mystery. Around Chapter 5 in every "principles of economics" class, the impacts of price ceilings are explained. They lead to shortages. The logic is clear, and the evidence is consistent and overwhelming. When Reagan eliminated petroleum price controls in 1981, the shortages and the gas lines disappeared.

Why would politicians use such tried-and-failed policies? Maybe because the public rarely understands who is actually at fault. Surveys in the 1970s about the energy crisis bear this out. Who did the respondents blame? Not Washington for its Byzantine price and allocation controls, nor even OPEC. They blamed "Big Oil."

In "The Myth of the Rational Voter," economics professor Bryan Caplan exposes the discouraging gap between popular conceptions of economics and economic reality. So it isn't surprising that the same 1970s-era surveys showing the energy crisis to be the biggest problem also showed the most popular solutions would amplify the very things causing the crisis. A large majority wanted more stringent price controls. A near majority even wanted to issue ration coupons.

Then as now, a weakening dollar and strong economies overseas led to higher petroleum prices.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Supply, Demand and Prices


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?