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Jewish World Review July 7, 2000 /4 Tamuz, 5760

Thomas Sowell

Thomas Sowell
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Consumer Reports

The high cost of demons -- SOARING GASOLINE PRICES in a handful of midwestern states have sent the politicians scrambling to find someone to demonize. Those old enough to remember the gasoline crises of the 1970s will recognize the game plan -- denounce the oil companies for "greed," for price "gouging" and for anything else that has big emotional impact and no real definition.

California has already been through all this more recently. It was not very long ago when California gasoline prices were the highest in the nation, for the very same reason that gasoline prices in the midwest are now the highest in the nation.

In the name of "clean air," California forced its oil refineries to put an additive into their gasoline, in order to make it burn cleaner. Since politicians have never accepted the economic principle that there is no free lunch, they claimed to be shocked when the price of gasoline went up.

California politicians' denunciations of oil companies were interrupted by some embarrassing facts. The new gasoline created its own new problems, including pollution. It leaked from storage tanks and got into the ground water. It leaked from automobile gas tanks and was blamed for an increase in car fires. Moreover, it didn't make the air any cleaner. Eventually, California politicians were forced to back off and phase out the new gasoline additive.

Now it was the federal government's turn to impose new costs with new environmental requirements -- which applied to precisely those states in which gasoline prices then shot up. Once again, the politicians blamed "greed" and "price gouging" by the oil companies. If politicians had said that the oil companies were greedy nationwide, that might at least sound plausible. But to claim that they were greedy in just a handful of states makes no sense -- especially when these were the very states where the Environmental Protection Agency has imposed special requirements.

Loud calls for an "investigation" of oil companies were the order of the day during California's gasoline price rise and the same game is now being played in Washington, in response to the midwestern gas price increase. In both cases, the purpose of an investigation was not to find out any new facts, but to point the finger of suspicion away from politicians and toward others who could be demonized.

The high cost of gasoline is nothing compared to the high cost of demons. Once you are committed to a moral melodrama, rational responses to the real problem can become almost impossible. The gasoline crises of the 1970s were a wholly unnecessary problem created by the demonization of the oil industry.

While many people believed that a reduction of petroleum supplies from the Middle East was what caused them to have to spend hours waiting in gasoline lines during the shortages of 1972 and 1979, the facts say otherwise. There had been a reduction in petroleum supplies from the Middle East in 1967, without any gasoline lines or any "crisis" atmosphere in the United States. What happened in the 1970s was the Nixon administration's imposition of wage and price controls. Such controls have been politically popular for centuries -- and economically disastrous. The price controls of the 1970s were no exception.

Nixon's announcement of price controls was hailed in the media and he was re-elected by a landslide. Soon, however, the shortages that have followed price controls for centuries appeared here. After they had served their political purpose, these controls were phased out -- except on oil.

Oil companies had been so demonized that no politician wanted to be regarded as knuckling under to Big Oil. Instead, motorists found themselves wasting an incredible amount of time looking for gas and sometimes running out of gas while waiting in line at filling stations. Yet the actual reduction in the amount of gasoline consumed was only a few percentage points, something easily handled by a minor price increase in a free market. But no one dared let the free market operate in the petroleum industry.

Neither Democrats nor Republicans in the White House dared to get rid of price controls on oil, until Ronald Reagan took over and wiped them out with an executive order. Immediately oil production rose and the price of gasoline fell. The "crisis" vanished.

Presidents Nixon, Ford or Carter could have done the same thing. The fact that they didn't -- and the needless problems created because they didn't -- were part of the high cost of demons. But we never seem to learn anything from history.

JWR contributor Thomas Sowell, a fellow at the Hoover Institution, is author, most recently, of The Quest for Cosmic Justice.


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© 2000, Creators Syndicate