Saturday, August 27, 2005

Politicians never learn; price controls do not work

Once again politicians are looking to easy but pernicious "solutions" to high gasoline prices. They woiuld be making a mistake as history and economic theory demonstrates. High prices serve as signals to the consumer to alter behaviour or seek alternatives. Intervention would make things worse. It's sending the wrong signals.


Mass. pols eyeing Hawaiian-style gas cap
By Jay Fitzgerald
Saturday, August 27, 2005

Gov. Mitt Romney and top legislative leaders are refusing to rule out the possibility of a gas-price cap in Massachusetts - just days after Hawaii announced price
controls in reaction to skyrocketing fuel costs.

"If the Legislature proposes one, we would carefully review it,'' said Romney communications chief Eric Fehrnstrom.

And at least one key Bay State lawmaker, Sen. Michael Morrissey (D-Quincy), thinks lawmakers should consider a cap to ``send a signal'' to oil companies and the federal government that states are fed up with spiking gas prices.

"Even if (a local cap) was pre-empted by federal law, so what? Let them take us to court,'' said Morrissey, co-chair of the Joint Committee on Energy, Utilities and
Telecommunications.

Other legislators said they've neither ruled in nor ruled out a gas cap, patterned after Hawaii's move to set a $3-a-gallon limit next month on wholesale prices on the isolated island paradise.

Ann Dufresne, a spokeswoman for Senate President Robert Travaglini (D-East Boston), said lawmakers are exploring a number of different short-term options to deal with high prices - including a possible cap or a cut in the state's 21 cent per gallon gas tax.

She emphasized discussions are preliminary and lawmakers aren't even sure if they have the power to impose a cap, possibly violating interstate commerce laws or other regulations.

A spokeswoman for House Speaker Salvatore DiMasi (D-Boston) suggested similar caveats.

"We would take a closer look at the Hawaii legislation,'' said DiMasi aide Kim Haberlin.

The refusal of free-market advocate Romney to rule out a cap would be particularly significant if lawmakers were to begin debate on the issue.

But in a twist, the liberal Rep. James Marzilli (D-Arlington) said a cap would distort market forces that are largely driven by national and overseas events. Marzilli, who owns two Toyota hybrid cars, said high prices are forcing people to reassess energy use.

Ron Planting, economist with the American Petroleum Institute, said any cap would harken back to failed energy policies of the 1970s, when fuel shortages occurred.



For once I agree with Jim Marzilli.

Meanwhile Jane Galt has a good primer on price controls and the Hawaii experiment.

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