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Home | Mises Library | Price Controls, Again

Price Controls, Again

  • Paul_Krugman.jpg

Tags The EnvironmentGlobal EconomyU.S. EconomyInterventionismOther Schools of Thought

04/23/2001James Ostrowski

The online edition of The New York Times may be free, but that doesn’t mean it’s not costly.  Reading a Sunday column by Paul Krugman, who claims to be an economist, is accomplished only at the risk of filling one’s head with all kinds of economic nonsense.  I had heard Krugman was an economist, but after reading his article, I actually had to go to his Web site to confirm this.

The Krugman article in question today concerns the California energy crisis. Actually, it is about the People’s Republic of California’s sabotage of its electricity industry, but you would never know that by reading Krugman.  The point of his article is to blame the federal government for California’s problems.  He compares Curtis Hebert, head of the Federal Energy Regulatory Commission, to Marie Antoinette because he opposes "temporary price caps" on electricity.  

The term "temporary" is meaningless in the context of price controls.  New York City has been temporarily controlling the price of apartments for more than fifty years.  But Krugman is for "caps," not "controls."  The term "price control" is so harsh, so authoritarian, and so evocative of Russians waiting in line to buy toilet paper.  But the term "price cap" is nice and fuzzy-sounding, like safety cap, baseball cap or night cap.  

Krugman says "even free-market Republican lawmakers, like Senator Gordon Smith" are for price "caps."  I was puzzled at what he meant by "free-market Republican lawmakers."  Did he mean those whose votes are for sale in the free market for influence-peddling?  He couldn’t have meant senators who support laissez-faire.  There are no such people.  

I did not know much about Senator Smith, but in my heart, I knew he must be a statist.  I had planned to do extensive research to prove that.  I was disappointed, however, as soon as I went to his Web site.  I was to have no fun digging out all the gory socialist details.  Darn, all I had to do was look at the headlines at the top of Senator Smith’s main Web page:

The researcher in me was disappointed.  Any first-grader could have discovered that Senator Smith is a BGM (big government man).  He is a handsome dude, though.  I’d say he probably does well with the soccer moms, aka Bill Clinton Fan Club members.

Back to Krugman, unfortunately.  He says there just isn’t enough energy to get Californians through the summer.  Then he disparages the solution to the alleged shortage: "The scramble for power, unless checked, will send wholesale prices even higher than they are now."  Let’s hope so.  That way, consumers will conserve electricity, and those who most urgently desire electricity will be able to get all they want at the increased prices.  There will be no shortages and no brownouts.  The higher prices will encourage entrepreneurs to enter the market seeking high profits.  The increased competition will eventually reduce prices.  A free-market paradise; everybody wins!

But BGM Krugman wants politicians, not the market, to ration energy.  Why?  He doesn’t want out-of-state power companies to make "windfall profits" at the expense of millions of Californians.  People who produce no electricity use the term "windfall profits" to describe the activities of those who do produce it.  These out-of-state companies have invested their time, money, and energy in creating the excess capacity necessary to provide electricity to needy Californians whose politicians have destroyed their domestic power industry.  Rather than being decried, these far-sighted entrepreneurs should be cheered.

After the free market solves yet another economic problem caused by politicians, this B.A. in philosophy will have plenty of time to ponder the larger questions raised by this crisis, like why do Californians elect idiots to public office?; and how does a guy like Paul Krugman get a Ph.D. in economics?; and where the hell is the Klamath Basin?

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