Jewish World Review May 16, 2001/ 23 Iyar, 5761
http://www.jewishworldreview.com -- THE Bush Administration is being attacked for promoting increased development of energy supplies and not conservation. Recently, the Administration has begun to waffle, giving lip service to conservation, but what they really need to do is educate the American public.
The economics of a shortage are fairly straightforward – either you have too much demand, too little supply, or a combination of both. In a free market, the proper amount of energy or any product is determined by the price level. The price is determined by constant and continuous interaction of buyers and sellers at the local level. The input from millions of consumers on the demand side, combined with the input from producers on the supply side, lead to a price that will “clear the market.” If the price is too low, producers will produce less, and if it is too high, consumers will buy less.
In other words, the higher prices people are complaining about will cause them to conserve. If higher prices are anticipated for the long run, it will also encourage producers of all type products to develop more energy efficient technology. The government does not need to force people to conserve; that is the role of the pricing system. In fact, the price system is the only system complex and “wise” enough to allocate energy on an efficient and equitable basis. And in a free society, it is the only moral system for allocating resources. Efficiency and morality – what a combination!
Now in this case the supply side is another issue. The federal and some state governments, at the behest of radical environmentalists, have severely limited the ability of producers to increase supply. As Thomas Sowell succinctly stated, “You cannot continue indefinitely pandering to the shrill voices of people who call themselves ‘environmentalists’ or ‘consumer advocates’ without reaching the point where the chickens come home to roost.” So the Bush Administration is acting properly when it strives to remove these artificial restrictions to allow the market to increase supply. To place price caps on energy will only create more shortages, as demonstrated in California. To prohibit oil drilling in a small area near the North Pole is putting a potential threat to Caribou (the real threat is nil) above the real needs of human beings. Regardless of the radical environmentalists’ claims that humans are no better than animals, most Americans would agree with Governor Jesse Ventura, “Everybody wants to protect the environment to a certain level… But until they can show me something else, we’re at the top of the food chain.”
As much as liberals would like to repeal the law of supply and demand they will never succeed. Liberals never understand how a market prices goods & services, because they cannot fathom how prices can be set without an enlightened person (like them) at the top determining the proper price. I would strongly recommend they read a new book, The Quantum Brain by Jeffrey Satinover, that will introduce them to the science of neural networks. (Beware, it is pretty technical.) They will learn that neural networks such as the human brain AND the market system are self-organizing systems where “…purely local, nonorchestrated interactions can, it seems, give rise to global order with seeming intelligence.” Free markets don’t need commissars or planners in Washington deciding how much to produce of any good or service. This relatively new scientific explanation for how markets probably work was anticipated many years ago by economist Friedrich Hayek’s concept of “spontaneous order.”
Another book liberals, or anyone interested in learning how economics really works, should read is Thomas Sowell’s Basic Economics: A Citizen's Guide to the Economy.. It is written for the layman without the jargon so often associated with economics.
The pricing system is the heart of how our free market system works, and the absence of a freely working pricing system was the inherent economic defect in socialist and communist societies. So one would think our modern schools would teach how prices regulate supply and demand in a free society. But they don’t! The knowledge level of economics in America is appalling. In fact, it is basically non-existent for the majority of Americans. The National Council on Economic Education (NCEE) surveyed American students and adults in 1999 to determine their knowledge and understanding of basic economic concepts. The results are frightening! Only 54% of adults and 23% of high school students “know that when the federal government’s expenditures for a year are greater than its revenue for that year, there is a budget deficit.” No wonder Al Gore received half of the vote.
The NCEE has developed an excellent set of Content Standards to be used in elementary and high schools. The first of their 20 standards is the underlying principle of economics and our physical life in this world: All resources are scarce and must be allocated. “Productive resources are limited. Therefore, people can not have all the goods and services they want; as a result, they must choose some things and give up others.” In the NCEE survey, only a small proportion of adults (37%) and high school students (41%) understood this or the underlying concept of “scarcity.”
Whether they know it or not, the famous words of Nobel Laureate Milton Friedman still apply: “There ain’t no such thing as
a free lunch!” And energy policies that ignore reality will only lead to more chickens coming home to roost. Mr. Bush, please
04/02/01: Senators, Tax Rebates, and the Nobel Prize