Friday, August 26, 2005

Hawaiian Economics

In a repeat of legislative history, Hawaii has shown that its politicians are neither historians nor economists. As of Wednesday, price controls on gasoline were instituted in Hawaii.

First, they contradict themselves, saying on one hand that they would like incentives for new sources of energy to be developed. Then, on the other hand, they would like for oil to be cheaper. Rather than allowing market forces to negotiate the optimum levels, those supporting the price controls believe that they are the most qualified to make such decisions. Another example of central planning at its best.

Secondly, they contradict themselves again, saying one one hand that they want for gas prices to be more affordable. Next, they ignore the effects of price controls -- that they make the total price much higher by causing shortages and increasing the time that people must spend waiting in line for gasoline. They do not allow bargaining between consumers and suppliers to negotiate a mutually beneficial exchange in which the consumer does not waste his time in line and the producer may profit. Such bargaining, even though both parties benefit, is illegal in a price control system.

There has been some talk of other states adopting Hawaii's policy and instituting price controls of their own. I should hope that the shortages of the 70s are recent enough for most politicians to remember. However, Don Boudreaux at Cafe Hayek looks on the bright side: the recent example of Hawaii will make teaching the economics of price controls much easier.

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