It is possible to remove price controls, as the enlightened world did on energy in the 1980s. It is more difficult to snuff the perverse political urge that gives them rise.
California couldn't resist the urge when it restructured electricity regulation. Its residents and economy now suffer mightily for the mistake.
And mutterings from Congress about the need for market controls show that the perverse urge lingers like a dormant virus.
So far, they are well outnumbered by lawmakers with more-advanced appreciation for history.
In the 1970s and 1980s, the US, like many energy-consuming countries, controlled prices of oil and natural gas.
The controls discouraged development of supply but did not discourage consumption. So supply stagnated, and consumption rose. Shortage resulted.
The ability to extract a lesson from that set of facts requires no special ideology, political persuasion, or college degree.
Government attempts to control markets create problems. End of lesson.
Yet California repeated the blunder in the way it restructured its electric power market. It capped prices at the retail level. Demand zoomed against supply limited by restraints on power-plant construction and a tightening regional market. California's uncapped wholesale prices jumped. Businesses caught in the middle—large urban utilities—suffered.
California now wants to export the costs of its political mistakes to taxpayers elsewhere and probably—thanks to the state's political importance—will succeed to some degree.
That's regrettable. But it makes no less valid the lesson that governments create messes when they try to manipulate energy prices.
The political pressure never goes away. When energy supplies tighten in relation to demand and prices rise, someone recommends price ceilings for lofty purpose of protecting consumers.
Inevitably, however, another step must follow: mandatory conservation. So a government that "protects" consumers with price controls must in turn punish them not only with limits to their economic freedom but also with the high costs of attendant inefficiency.
Sure enough, a few wrong-headed lawmakers are now talking up mandatory conservation for both California and the nation (see Watching Government, OGJ, Apr. 2, p. 37).
It never works. Markets have to balance. Governments can only guess at price and consumption levels and can do very little about supply. They therefore can only aggravate the imbalances that tempt them to mess with markets in the first place. Their intrusions always do more harm than good.
What consumers need most in a cycle of energy shortage are governments wise enough to remember the past and act accordingly.