Ed note: The extract below from a Joint Economic Committee Staff Report briefly describes the end of oil price and allocation regulation in 1981, righting one of the worst energy fiascos in U.S. history. This experience has taken price controls off the political table ever since with petroleum, including today with the Iran War. [“President Reagan’s Economic Legacy,” Section C: Energy Shortages and Regulatory Failures]
In the 1970s, OPEC (the Organization of Petroleum Exporting Countries) was temporarily successful in driving up energy prices and hitting consumer wallets worldwide. OPEC’s manipulations of oil supplies were turned into a full-scale energy crisis in the United States because of price controls in energy markets.
Rising oil prices hurt consumers, but long lines at gas stations and shortages of heating oil were the work of bad policy, not of markets. The energy shortages of the 1970s drove home the folly of excessive regulation, and generated support for deregulating energy and other heavily regulated industries in the late 1970s and early 1980s.
The impact of deregulation can be seen by comparing the oil shocks of the 1970s to more recent episodes. Energy economist Robert Bradley notes that the shock to the supply of oil during the Persian Gulf War of the early 1990s was actually greater than during the 1973 and 1979 shocks caused by OPEC and the Iranian revolution. [9] But whereas in the 1970s, increases in the world price of oil resulted in shortages of gasoline and heating oil in the United States, nothing of the kind happened in the 1990s.
The reason was that in the 1970s, price controls prevented markets from adjusting efficiently. The Reagan Administration’s very first executive order, in February 1981, decontrolled oil prices. When the Gulf War oil shock came, markets were able to allocate oil free of the bureaucratic hindrances that had caused disruptions in the 1970s.
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[9] Robert L. Bradley, “What Now For U.S. Energy Policy? A Free Market Perspective,” Cato Policy Analysis, Cato Institute, January 1991.
“Buffer of Stability” (Beware price and allocation controls) (October 20, 2023)
Ayn Rand on Energy Disruption (Arab Embargo Turns 50) (October 18, 2023)
False Alarm: Today–and Back in the 1970s (January 15, 2022)
Energy Price Caps, Please (Satire from Professor Boudreaux (May 19, 2020)
Ayn Rand on Energy Disruption (1970s message to Bernie and Bloomberg) (February 12, 2020)
The Craziest Regulatory Episode in US History: The 1970s Oil Reselling Boom (April 25, 2018)
Nixon Price Controls and Exiting Paris: A Bad Analogy (June 13, 2017)
President Reagan: Radio Address on Oil Decontrol (January 11, 2017)
“The Energy Crisis of the 1970s: Looking Back, Looking Ahead” (Econ 101 needed at RFF seminar) (October 4, 2016)
Jane Mayer on Energy Policy: Some Corrections (February 11, 2016)
Call for Energy Price Controls: Has the 1970s Experience Been Forgotten? (hidden perils of a $3.50/gallon federal price cap) (Donald Hertzmark: October 3, 2011)