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Jewish World Review June 6, 2001 / 16 Sivan, 5761

Thomas Sowell

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Consumer Reports

State stealing -- A READER in Michigan says that he has been living in retirement on $15,000 a year -- about $5,000 from Social Security and about $10,000 from stocks he owns in Southern California Edison. But now that the California government has forced Southern California Edison to sell electricity for less than it paid to buy it, there are no more profits from which to pay dividends, and the value of the company's stock has plummeted.

The Michigan retiree is by no means alone. All across the country there are people who have invested their savings in public utilities that supply electricity to Californians. What California politicians have done is steal these investors' money to pay for electricity that Californians want to use but are unwilling to pay for in full. Politically, it is a clever strategy to steal from people who can't vote in California, in order to gain the favor of people who can.

Long before there was any such thing as electric utility companies, governments used their power to confiscate the wealth of some and distribute it to others whose support was more important to them. The men who wrote the Constitution of the United States were well aware of that, which is why they included property rights in the Bill of Rights. For most of the history of this country, courts would not have allowed either state or federal governments to force someone to sell anything for less than it cost, because that amounts to confiscation of property without compensation.

In more recent times, unfortunately, clever people have gotten judges to evade the clear words of the Constitution by putting property rights on a lower plane than other concerns that are more politically fashionable. Law professors and others have managed to depict property rights as a special privilege of the affluent and the wealthy, something to be sacrificed on the altar of the greater good of others.

Neither these law professors nor the courts regard freedom of the press as just a special privilege of journalists. They understand that freedom of the press is an essential part of the larger political process. But they have yet to see that property rights are an essential part of the larger economic process. Without property rights, politicians have control of the whole economy within their reach, to the economic detriment of all, quite aside from the injustices they can commit against individuals.

What has allowed California politicians to get away with thefts of billions of dollars' worth of other people's property has been their ability to demonize those they are robbing and depict themselves as rescuers of Californians who are victims of "price gouging." The public's and the media's utter ignorance of economics has made this possible.

The medieval notion of a "fair and just price" seems to underlie the current notion that prices which rise above levels that people are used to are unreasonable and unconscionable. But rising costs of the fuel needed to generate electricity have to be paid for by somebody. Rising demands for electricity by people in other parts of the country compete with demands for that same electricity by Californians -- and this reality underlies the rising prices that are condemned as "charging what the traffic will bear."

While utility companies that supply electricity to the public are heading into bankruptcy, the companies that supply electricity to the utilities have rising profit rates. There is nothing mysterious about this. Shortages usually cause rising prices and rising profits. These rising profits then attract the investments which end the shortage. This has been happening for centuries.

Prices are not arbitrary things. They convey a reality that is not going to be changed by price controls, whether state or federal. Prices are like readings on a thermometer. When someone is suffering from a fever, you can always lower the reading by putting the thermometer in ice water. But that does not change the reality of the fever.

The enormous costs of the current political charade in California are ultimately going to be paid for by Californians in many ways for many years ahead. Businesses disrupted by power blackouts are looking for greener pastures -- or rather, states that are not so green, in the sense of environmental extremism that prevents power plants from being built. Besides, who is going to invest in building power plants in California, when existing power plants are being threatened with confiscation? Certainly not our Michigan retiree or others like him across the country.

JWR contributor Thomas Sowell, a fellow at the Hoover Institution, is author of several books, including his latest, Basic Economics: A Citizen's Guide to the Economy.


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© 2001, Creators Syndicate