Why Price Caps Won't Work

Article excerpt

Did you see Tim Russert ask Vice President Dick Cheney on Sunday's "Meet the Press" why President Bush did not call for price caps to lower gasoline prices and other energy costs?

Mr. Russert kept returning again and again to the same hare-brained, left-wing idea, as Mr. Cheney patiently explained why government price controls have never worked, either to control inflation or to increase the supply of anything. On the contrary, price caps inevitably restrict supplies, boost demand and lead to higher prices.

While Mr. Russert seemed to be promoting the news media's party line that California's energy crisis was caused by deregulation, Mr. Cheney effectively and repeatedly argued that just the opposite is the case. The state's problems were caused by "a screwy regulatory scheme" that imposed rigid rules that prevented the energy industry from building power plants and buying and selling power at the cheapest price.

Journalists are supposed to ask probing questions to challenge officials to defend their policies. But when simplistic, dangerous ideas like price caps are so discredited, the news media has a responsibility to say why this is so, and why they have not worked.

Yet here was a major media star, once a top aide to former Democratic Sen. Daniel Patrick Moynihan of New York, pushing the idea that if greedy U.S. oil companies would just cut their profit margins, they could lower gas prices at the pump.

"But why not call in the oil companies" to the Oval Office, Mr. Russert said. "Why not lower your profit margins a little bit so we can lower the price of gasoline? This is the way the consumer sees it."

This presupposes that profit margins are driving up gas prices, when in fact the price is being driven up by increased demand and limited supplies. Limited, that is, as the vice president explained, by the failure to expand exploration and build new refineries in this country because of federal and state laws, rules, regulations and bureaucracies.

Mr. Russert brought in a number of liberals to plead the cause of price caps or government jawboning to accomplish the same thing. He ran a tape of Teddy Kennedy urging President Bush to call in the oil industry and order them to reduce their prices.

He quoted California Gov. Gray Davis saying Mr. Bush was "allowing the price-gouging energy companies . . . to get away with murder" without producing a scintilla of evidence to back up that charge.

Then Mr. Russert, unabashedly making the Democrats' case for them, said: "People in California, Mr. Vice President, pleading for price caps. Just don't let those profit margins be so high, cap the price short-term, so California can get some plants online and then have low-cost energy."

But if the government did limit the oil companies' profits, would that increase supplies and lower prices? …