Like starting over: price controls are new again

On January 28, 1981, when freshly sworn-in President Ronald Reagan abruptly lifted federal price controls on gasoline, the No. 1 song in the country was the late. John Lennon's "(Just Like) Starting Over." On September 1, 2005", it was just like starting over all over again, when the state of Hawaii became the first American jurisdiction in a quarter century to adopt the long-discredited policy of placing bureaucrats in charge of petroleum prices.

This wasn't just an isolated case of Island Fever. With Hurricane Katrina disrupting oil flows along the refinery-rich Gulf Coast, unrest in the Middle East throwing access to future reserves in doubt, and demand in the developing world continuing to outpace supply, prices at the pump topped [S.sub.3] a gallon nationwide, giving politicians a unique opportunity to demonstrate their economic ignorance or cynical opportunism.

Legislators in at least four other states are mulling bills like Hawaii's; attorneys general in at least 30 states have made preliminary noises about investigating gas "profiteering"; governors from both major parties have promised to prosecute what Massachusetts Republican Mitt Romney calls "white collar looting"; and President George W. Bush himself has condemned "price gouging." Sen. Byron Dorgan (D-N.D.) called for a windfall profits tax on oil companies; the Department of Energy placed a Gas Price Hotline link prominently on its homepage; and Sen. Maria Cantwell (D-Wash.) proposed building a bridge to the 1970s by reintroducing Richard Nixon's dreaded price controls.

Severin Borenste, director of the University of California Energy Institute, says he and other resource economists have been fielding calls from reporters all summer. Still, he says, "It's not stopping politicians from doing stupid things on both sides of the aisle."

That's at least partly because price controls never stopped being popular. The Pew Research Center released a study in mid-September showing that "Almost seven in 10 want the government to establish price controls" on gasoline, despite the fact that price controls caused shortages in the '70s. "I don't think the public as a whole ever made the connection," Borenste says.

So is central planning making a comeback in academia as well? "Where there's a true scarcity and you control prices, you cause shortages," he says. "Among economists who are not rabid right-wing or rabid left-wing guys, everyone understands."

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