How gas price controls sparked '70s shortages

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Originally published 12:28 a.m., May 15, 2006, updated 12:00 a.m., May 15, 2006

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Proposals to control gasoline prices and tax producers' windfall profits were popular ideas that were tried -- without much success -- during the oil shocks of the 1970s and 1980s.

The era of price controls is most remembered for long lines at gas stations. The controls were put in place by the Nixon and Ford administrations in reaction to a jump in fuel prices caused by cuts in production by the newly formed international oil cartel, the Organization of Petroleum Exporting Countries.

Back then, "price controls turned a minor adjustment into a major shortage," said Thomas Sowell, author of "Basic Economics: A Citizen's Guide to the Economy."

Mr. Sowell says that although the best response would have been to let prices rise, giving oil companies an incentive to produce more and consumers an incentive to conserve, "this basic level of economics is seldom understood by the public, which often demands 'political' solutions that turn out to make matters worse."

The public -- as it does today -- wanted low prices. But the artificially depressed pump prices imposed during the oil crisis of 1973 -- which stayed in place in various iterations through 1980 -- brought about lines at gas stations and an artificial shortage of gas, he said.

The price controls resulted in a fuel-rationing system that made available about 5 percent less oil than was consumed before the controls. Consumers scrambled and sat in lines to ensure they weren't left without. Gas stations found they only had to stay open a few hours a day to empty out their tanks. Because they could not raise prices, they closed down after selling out their gas to hold down their labor and operating costs, Mr. Sowell said.

The shutdown of stations that had been open at all hours before price controls further raised the public's panic level and resulted in more lines, anger and frustration in what many Americans still remember as one of the nation's worst economic nightmares.

"No doubt many or most motorists whose daily lives and work were disrupted by having to spend hours waiting in line behind other cars at filling stations would gladly have paid a few cents more per gallon to avoid such inconveniences and stress," Mr. Sowell said.

Those who preferred not to sit in line bought gas on the black market at exorbitant prices far above what the market price would have been, he said. "Price controls almost invariably lead to black markets."

By the Iranian oil crisis in 1979, the controls had grown unsustainable as oil prices escalated in global markets. With lines forming once again and fistfights breaking out at the pump, President Carter quickly waived most of the controls on oil and gas prices to make more fuel available.

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