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Category — 1970s price controls

Energy Price-Control Lessons for ObamaCare (remembering a classic WSJ editorial from 1979)

[This MasterResource post from February 2011 is reprinted for its relevance with the start of ObamaCare today. An uncomfortable question must be asked: what will happen in the health waiting rooms given what happened in the 1970s gasoline lines?]

For decades I have enjoyed the opinion-page editorials of the Wall Street Journal, both the unsigned editorials and the guest opinions. During the 1970s energy crisis, and today amid climate alarmism and the futile crusade to regulate carbon dioxide, the Journal has been a bastion of sound economic thought.

I was recently reminded of perhaps my favorite WSJ energy editorial of all, “Buffer of Civility,” published during the dark days of energy rioting in summer 1979 (yes, the U.S. experienced fuel riots from federal price controls that caused energy shortages).

What brought this to mind was another WSJ editorial,Sebelius’s Price Controls,” which reported on a 136-page price-regulating rule under ObamaCare–and this message to state governors from HHS Secretary Kathleen Sebelius

urging them “to prevent unjustified and excessive health insurance premium growth.” Apparently, “unreasonable” means rate increases that exceed 10% next year, except when it doesn’t. If an insurer crosses this arbitrary threshold, “The review process would then determine if the increase is, in fact, unreasonable.” So that’s cleared up.

The Journal added: [Read more →]

October 1, 2013   2 Comments

Energy Policy Myopia: George P. Shultz Remembered (Republicans have been bad too)

[Ed. note: George P. Shultz has long been an errant voice on energy and climate issues. A leading Republican climate alarmist, Shultz's energy views from decades ago, still held, are the subject of the post below.]

“Shultz writes: ‘The president requested service stations to voluntarily suspend the sale of gasoline on Saturdays and Sundays. The 90 percent compliance with his request resulted in long lines at gas stations on weekdays.’

Hogwash! The ‘long gas lines’ were the result U.S. government central planning with respect to oil. Notice how often those long gas lines have returned since controls ended in the 1980s.”

When it comes to energy policy, President Obama seems to have learned nothing from the past. His ideas closely resemble the grandiose, failed policies of the 1970s.

But such historical ignorance knows no party.  Republicans are just as likely to exhibit the same.

Case in point? An essay published in the Hoover Institution’s Defining Ideas by Nixon administration cabinet member (labor and then treasury) George P. Shultz.  His article shows that even with the benefit of time, he has learned nothing about policies he helped make 40-plus years ago.

When he came to Washington in 1969, Shultz was put in charge of a task force to reconsider the Eisenhower-era oil import quota policy.  The Mandatory Oil Import Program (MOIP) was a mess. Ostensibly created for national security reasons, (reasons that no one could credibly articulate), it was soon encumbered with favors to numerous interest groups.

Shultz boasts that the task force urged “a sharply improved management system.” But the recommendations of the task force were beside the point. The only solution for MOIP was its termination not its transformation. [Read more →]

September 20, 2013   1 Comment

Milton Friedman on the Energy Crisis (and ObamaCare to come)

July 31st is the birth date of one of the great intellectuals of the freedom philosophy. Milton Friedman (1912–2006) would have been 101 today.

Friedman Legacy Day is being celebrated at 144 events: 90 in 44 states and Washington,D.C., and 54 events in 25 countries abroad. Here in Houston, a “Milton Friedman Rocks” party is tonight.

Friedman was more than a technical economist and early Nobel Laureate in this field; he was a popularizer of the case for free markets. His shorter tracts and biweekly column for Newsweek covered a variety of in-the-news issues, including energy. And he became more libertarian and appreciative of Austrian School economics (market-process economics), the rival to his Chicago School of economics, as time went on.

Friedman’s insight into the distortions from government intervention shortages are timeless. Consider this from Milton and Rose Friedmans’ classic, Free to Choose (1979: p. 219):

Economists may not know much. But we know one thing very well: how to produce surpluses and shortages. Do you want a surplus? Have the government legislate a minimum price that is above the price that would otherwise prevail…. Do you want a shortage? Have the government legislate a maximum price that is below the price that would otherwise prevail.

Still the major example of our time is the 1970s energy crisis in the United States–the result of price and allocation controls by the Department of Energy. But get ready for a new chamber of economic horrors.

With ObamaCare’s use of price and allocation controls–and the growing problem of Medicare today–shortages and strife are upon us in the all-important health care field. The Wall Street Journal article, More Doctors Steer Clear of Medicare, said as much this week: [Read more →]

July 31, 2013   3 Comments

Call for Energy Price Controls: Has the 1970s Experience Been Forgotten? (hidden perils of a $3.50/gallon federal price cap)

[Editor note: Tomorrow, economist Michael Giberson will critically assess government 'price gouging' laws.]

As an economist, whenever I hear the word “shortage” I wait for the other shoe to drop. That other shoe is usually “price control.”

- Thomas Sowell, “Electricity Shocks California,” January 11, 2001.

Like Bill Murray’s weatherman character in the movie Groundhog Day, the American public is obliged to relive certain bad ideas again and again (and again).

Like the movie the idea of price controls for energy keeps coming back, but will we, like Murray’s weatherman, reexamine what leads us to relive such unworkable concepts? The latest contestant in this march of folly was posted recently in the Atlantic Monthly’s business blog.

The idea–called a buffer fund–is to establish a target price for retail gasoline (diesel, too, though they seem to have forgotten that part of the fuel supply) and use taxes or subsidies to maintain the target price over time.

Price Controls – Back by Popular Demand

The response from the readership was immediate, never mind how any of this would work, whether it has everworked as planned elsewhere, or what would happen to the economy if it were implemented. This is a great idea!  Stick it to Big Oil!  Let somebody else pay for my gasoline!

A sample of some of the comments on the Atlantic article includes the following gems:

· Normal market operations concentrate too much money in the oil industry

· Oil companies never put their earnings back into the economy

· We consume too much oil and only rationing can cure the disease (at least this one acknowledges that price controls accomplish nothing)

· It all stems from allowing (!) people to live in single family houses

· Speculators are behind all the problems!

This time the justification for a buffer fund and price controls is that every time the economy gets rolling, energy prices rise and snuff out the recovery in the crib.

Really, I am not making this up. [Read more →]

October 3, 2011   2 Comments

Jimmy Carter’s ‘Malaise Speech’ of July 15, 1979: An Energy Moment to Remember

[Editor Note: Carter's April 1977 energy speech was also reproduced and commented upon at MasterResource.]

Thirty-two years ago today, President Carter and his energy advisor James Schlesinger got it all wrong in an emergency television address to the nation. Their neo-Malthusian, government-as-engineer moment should never be forgotten but stand as timeless warning about the anti-market, anti-energy mentality.

In the summer of 1979, many Americans were stuck in the gasoline lines. There was a lot of lost time and nervousness. There was fighting and worse. The market as a buffer of civility was gone. Americans were not used to such a predicament and had the common sense to know that something was very abnormal and not to be tolerated. They were mad.

Here is the background of his energy speech, considered as the most important speech of his presidency:

On June 30, 1979, a weary Jimmy Carter was looking forward to a few days’ vacation in Hawaii, as Air Force One sped him away from a grueling economic summit in Tokyo. He had earned it. Two weeks earlier, Carter had successfully concluded the SALT II arms control negotiations with Soviet Premier Leonid Brezhnev in Vienna, the latest in a series of foreign policy achievements since the dramatic Camp David summit the previous September.

Aboard the plane, the phone rang. It was Carter’s pollster, Patrick Caddell. “I remember getting on the phone and saying, ‘You people have got to come home now,’” Caddell recalls. “We were all saying the same thing: ‘You have no idea how bad it is here.’”

The so-called malaise speech and crisis of confidence speech, Carter’s fifth address on energy to the nation, was different from the rest. As explained in the Wikipedia entry on Carter:

When the energy market exploded — an occurrence Carter tried to avoid during his term — he was planning on delivering his fifth major speech on energy; however, he felt that the American people were no longer listening. Carter left for the presidential retreat of Camp David.

For more than a week, a veil of secrecy enveloped the proceedings. Dozens of prominent Democratic Party leaders—members of Congress, governors, labor leaders, academics and clergy—were summoned to the mountaintop retreat to confer with the beleaguered president. His pollster, Pat Caddell, told him that the American people simply faced a crisis of confidence because of the assassinations of John F. Kennedy, Robert F. Kennedy and Martin Luther King, Jr.; the Vietnam War; and Watergate.

Where was Milton Friedman or just about any economist worth his or her salt? The gasoline shortages of early 1974 and the natural gas shortages in the winters of 1971/72 and 1976/77 came from the same cause: federal price and allocation controls that did not let supply and demand mesh.

—————————THE SPEECH————————–

Good evening. This is a special night for me. Exactly three years ago, on July 15, 1976, I accepted the nomination of my party to run for president of the United States. [Read more →]

July 15, 2011   4 Comments

Jimmy Carter’s Energy Speech of April 1977 (Is President Obama going Carter’s way?)

The oil and natural gas that we rely on for 75 percent of our energy are simply running out.… World oil production can probably keep going up for another 6 or 8 years. But sometime in the 1980′s, it can’t go up any more. Demand will overtake production. We have no choice about that.”

“To some degree, the sacrifices will be painful—but so is any meaningful sacrifice. It will lead to some higher costs and to some greater inconvenience for everyone. But the sacrifices can be gradual, realistic, and they are necessary.”

“We must not be selfish or timid if we hope to have a decent world for our children and our grandchildren.”

- Jimmy Carter, Energy Address to the Nation, April 18, 1977

Will Obama and his ilk learn the lessons of history?

One such lesson is don’t count conventional energy out. In the 1970s, oil and gas shortages experienced in many parts of the U.S. were erroneously blamed on resource exhaustion rather than government price and allocation controls.

These shortages can be traced back to two presidents who made damning decisions that cost their country plenty. President Eisenhower fathered the natural gas crises of the 1970s when he unexpectedly vetoed a natural gas wellhead decontrol bill in 1956 (1); President Richard Nixon fathered the oil crisis with his wage and price control order of August 1971.

Peak oil, peak gas? The speech below is just another data point of warning against those who are wed to the fixity/depletion view of minerals rather than open-ended resourceship.

——————————————THE SPEECH————————————–

Tonight I want to have an unpleasant talk with you about a problem that is unprecedented in our history. With the exception of preventing war, this is the greatest challenge that our country will face during our lifetime.

The energy crisis has not yet overwhelmed us, but it will if we do not act quickly. It’s a problem that we will not be able to solve in the next few years, and it’s likely to get progressively worse through the rest of this century. [Read more →]

July 13, 2011   5 Comments

Remembering the Birth of Conservationism (Part II: Amory Lovins’s “Soft Energy Path”)

[Editor note: Part I on energy conservationism examined Richard Nixon's price control order of August 1971 as the birth of peacetime conservationism , with shortages leading to mandatory allocation law.]

A tract for the energy-shortage times was a 1976 essay in Foreign Affairs by Amory Lovins, the 29-year-old energy representative of the U.K. environmental group, Friends of the Earth. In “Energy Strategy: The Road Not Taken?” Lovins coined the term soft energy paths to differentiate energy conservation and decentralized renewable technology from the “hard” path of central-station power plants fueled by oil, gas, coal, or uranium.

Neo-Malthusians such as Paul Ehrlich and John Holdren sang his praises, and the article became the most reprinted piece in the history of Foreign Affairs. Lovins was soon testifying before the U.S. Congress and advising President Carter on the proposition that the least-cost energy option was not to produce energy, but to save it.

Unlike S. David Freeman of the Ford Foundation Energy Project (see post yesterday), Lovins, an Oxford don, specialized in the technical minutiae of energy and wrote, footnoted, and argued his opponents into despair, never mind how hypothesized and obscure his engineering-grounded pontifications were from demonstrated market preferences. Lovins became the most talked about energy guru in the world during the crisis period, with a deceptively simple message that less was more. To critics, however, Lovins was “selling a dream without presenting the bill.”

Lovins held a deep-rooted suspicion—even phobia—about the energy market. “It is hard to think of any current energy technology in extensive use that does not hold the potential for serious long-term environmental risks—risks which may today be wholly unsuspected,” he warned. From this premise came his worldview, later dubbed whole systems thinking, that saw current energy usage—thus production—as a massive market failure. “We must devise a science and a technology of energy impact analysis so that we can make energy a critical variable in all policy decisions, rather than leaving it to emerge de facto from decisions taken on other grounds,” he wrote in 1975. “Boundary conditions on the energy inputs are now needed.” This message was new to the United States energy debate, although the “small is beautiful” theme of E.F. Schumacher was already popular in Europe.

Lovins’s first order of business was to push for a short-term phase-out of nuclear power—a signature issue for Friends of the Earth. Lovins feared that the rapid depletion of oil and gas would segue to super-abundant coal and nuclear—a bad transition and worse long-run lock-in to him. Lovins wanted “transitional technologies that use fossil fuels briefly and sparingly to build a bridge to the energy-income [energy-renewable] economy of 2025.” However wrong this would turn out to be, Lovins would fare better with his second aim: full-scale deployment of conservation technologies to reach a “realistic long-term goal” of “modest, zero, or negative [energy] growth” per unit of output. [Read more →]

May 3, 2011   7 Comments

Remembering the Birth of Conservationism (Part I: President Nixon’s price controls, not Arab OPEC, produced energy crisis, demand-side politicization)

[Editor note: Part II on energy conservationism tomorrow examines the energy conservation faddism of Amory Lovins.]

Richard Nixon (1913–94) got on the wrong side of economic law three years before his Watergate-related resignation from the U.S. presidency. In August 1971, in a surprise decision, Nixon imposed the first peacetime wage-and-price controls in American history.

Businessmen reined in their surprise to pragmatically offer support. John Kenneth Galbraith and Paul Samuelson offered quick congratulations. There was public approval of the ‘temporary’ action that was intended to just quell inflationary expectations (as if the problem was psychological and not the inherent consequence of expansionary money). The inflation rate was then running at about 4 percent per year.

Free-market economist Milton Friedman, knowing that shortages lay ahead, lambasted the move. So did Ayn Rand in the Ayn Rand Letter. Murray Rothbard was fiercely critical (“on August 15, 1971, fascism came to America,” he wrote); he had seen price controls and shortages before.

Nixon’s edict disabled the market process responsible for coordinating supply with demand and allocating resources to their most profitable use. Predictably, oil shortages developed, which resurrected long dormant depletionist thinking and pointed policymakers toward conservationism. After all, if price controls did not allow prices to rise and “regulate” demand to available supply, then government had to—at least according to the majority of policymakers and neo-Malthusians whose worldview dovetailed nicely with public sentiment against the energy industry.

Birth of Peacetime Conservationism

The oil crisis, contrary to popular remembrance, did not begin with the Arab Embargo of October 1973. It began with petroleum product shortages that arose in late 1972 when price controls became constraining. In February 1973, Senate hearings on fuel shortages demonstrated, in the opinion of committee chair Henry Jackson (D-Wash),

One, there has been an unprecedented breakdown in our energy supply and distribution system;

Two, the fuel shortages now being experienced are far more extensive than anticipated;

Three, more severe shortages of fuels, particularly gasoline, are in the offing. [Read more →]

May 2, 2011   No Comments

Energy Price-Control Lessons for ObamaCare (remembering a classic WSJ editorial from 1979)

For decades I have enjoyed the opinion-page editorials of the Wall Street Journal, both the unsigned editorials and the guest opinions. During the 1970s energy crisis, and today amid climate alarmism and the futile crusade to regulate carbon dioxide, the Journal has been a bastion of sound thought.

I was recently reminded of perhaps my favorite WSJ energy editorial of all, “Buffer of Civility,” published during the dark days of energy rioting in summer 1979 (yes, the U.S. experienced fuel riots from federal price controls that caused energy shortages). What brought this to mind was another WSJ editorial, “Sebelius’s Price Controls,” which reported on a 136-page price-regulating rule under ObamaCare–and this message to state governors from HHS Secretary Kathleen Sebelius

urging them “to prevent unjustified and excessive health insurance premium growth.” Apparently, “unreasonable” means rate increases that exceed 10% next year, except when it doesn’t. If an insurer crosses this arbitrary threshold, “The review process would then determine if the increase is, in fact, unreasonable.” So that’s cleared up.

The Journal added:

This discretion is typical of the vast ad hoc powers that ObamaCare handed to regulators, though Ms. Sebelius’s true goal is to punish the insurance industry for rising health costs that the new entitlement is already turbocharging. Like so much else in U.S. health care, no one seems to find it odd that the government is decreeing how much businesses are allowed to charge for a product that consumers want to buy, regardless of the economic reality.

Economic reality: maximum price controls cause shortages, and shortages cause social strife, even violence. This brings us back to June 1979 and a plea to recognize the real virtue of the free market,  our buffer for civility.

Here is the classic editorial. [Read more →]

February 2, 2011   4 Comments