Stop the Presses!
The Law of Supply and Demand Works
OCTOBER 01, 2001 by SHELDON RICHMAN
This just in: The law of supply and demand works.
That seems to have come as a surprise to many people. Back in July, at the height of the summer driving season, the gasoline prices that had everyone so upset were—falling! As Associated Press reporter Lisa M. Collins wrote on July 17:
Dire predictions of $3-a-gallon gasoline this summer haven’t materialized, with many parts of the country seeing lower prices at the pump than a year ago. The reason: an unexpected abundance of supply as the oil industry rushed to cash in on the high prices. [Emphasis added.]
Let me make sure I understand this. Is the AP saying that gas prices fell because the greedy oil companies took advantage of high prices? Consumers benefited from the lust for profit? Say it ain’t so! Next they’ll be reporting that somewhere a dog bit a man.
Notice the word I highlighted in the quotation above: unexpected. Unexpected by whom? I have a feeling that the larger supply and falling prices were not unexpected by the readers of this magazine. Nor should they have been unexpected by anyone with even a passing acquaintance with the law of supply and demand. What could be less newsworthy than a rising price luring entrepreneurs to bring more product to market, with the ensuing competition driving down prices? If the AP writer didn’t expect that to happen, perhaps her supervisor should bring this up at her next salary review.
You’d think that the falling prices would exonerate those perennial villains, the oil companies. When prices spiked, politicians of both parties had a heyday accusing them of engaging in a conspiracy against the public. It turned out there was no conspiracy. (See Ben Lieberman’s article in this issue.) So they are good guys now, right?
Not so fast. The oil companies may be engaged in a more insidious plot. Bringing down gas prices threatens to . . . derail the Bush administration’s energy strategy. As the New York Times reported in mid-July: “As the Bush administration begins a campaign-style push to drum up support for its energy plan this week, the sense of crisis that had propelled the plan forward has receded while energy shortages ease and fuel prices fall, at least for now.” Oops.
But the Bush plan is thought to be just a big favor to the oil companies. So why would they want to derail it? There are two possibilities. Either Bush’s interventionist plan isn’t to the companies’ liking after all, or they just can’t help lowering prices under competitive pressure. I’ll leave it to the wise folks in Washington to figure it out.
* * *
The rise in gasoline prices earlier this year led to a variety of explanations, including collusion among the oil companies. What was really behind the spike? Ben Lieberman has the scoop.
The irony of the price rise is that many of the complainers in the public-policy world favor higher prices, through taxes, to discourage the use of gasoline. Roy Cordato dismantles their claims that higher gasoline taxes would boost the price to its “correct” level.
Discussions of race nearly always rest on the premise that black Americans cannot progress economically until racism is eradicated. If so, asks Andrew Bernstein, how did the great black entrepreneurs of an earlier period make it?
Sometimes economic wisdom is found in the unlikeliest places. Ralph Hood provides an example.
“Public” libraries are taken for granted. But Chris Cardiff wants to know if that is really a proper function of government. Does your auto insurance policy cover intentional collisions? That would make as much sense, writes Ross Levatter, as another kind of insurance most people have.
The government assumes the role of champion of the defenseless whenever a business can be even remotely implicated in an ailment perhaps caused by a poisonous substance. But how good is the state in owning up to its own toxic offenses? Not very good, says Bruce Benson.
Critics of classical liberalism inevitably argue that individual freedom must be tempered by the interests of the community. Tibor Machan investigates whether that is really a coherent claim.
If someone gets a government subsidy, does fairness lie in giving someone else a subsidy too? Andrew Morriss is skeptical.
Some outspoken conservatives fear that the United Nations has launched an assault on the family. Wendy McElroy examines their charges.
Does the name Powel Crosley ring a bell? Probably not—which is a shame, considering his achievements. Anthony Young fills this gap in our knowledge.
Also in this issue, Mark Skousen reflects on new beginnings for FEE. Lawrence Reed defends SUVs. Doug Bandow says it’s time for Europe to stand on its own 1,500,000,000 feet. Dwight Lee sees a better way to limit air pollution. Donald Boudreaux distinguishes simplistic from simple-sounding answers. Walter Williams describes the market as a conflict-resolution device. And Alex Tabarrok, hearing the call for price caps on energy, responds, “It Just Ain’t So!”
Books coming under scrutiny this month deal with global warming, Ludwig von Mises’s Human Action, the nature of freedom, government efforts to end poverty, the flouting of the Constitution, and politically correct speech.