Friday, August 1, 2008

Price signals and gas prices

Ed Glaeser has a great op-ed over at The Boston Globe on "the folly of 'fixing' energy price hikes". Nothing revolutionary, but he does a nice job of discussing how the high gas prices encourage people to use less gas/conserve energy and any attempt at lowering gas prices will only cause further problems. Prices act as a signal and the signal now is to use less.
But politicians sometimes react to high oil prices as if the Bill of Rights had bestowed on Americans the inalienable right to cheap fuel. Elected solons are now considering a Home Energy Affordability Tax Relief Act, which promises households a tax credit equal to one third of a home's energy costs up to $500. Some congressmen have called for restricting energy markets in an attempt to curb "speculation." Earlier in the election season, two presidential candidates came out for a temporary summer holiday for gas taxes.
Politicians seem to have an irresistible urge to intervene whenever voters start suffering from higher prices, but usually those interventions do more harm than good. Energy price controls were the clever idea of the 1970s, which only managed to give economists more evidence that you can't repeal the laws of supply and demand. Fixing prices below the market level, whether on oil or apartments, only produces shortages and long lines.

1 comment:

John Macek III said...

Ed Glaesar is a genius. This should be read by all.

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