- The Washington Times - Monday, June 4, 2001

Alan Blinder, the Princeton economist enlisted by California Gov. Gray Davis to argue for energy price caps, argued against such caps when he served as an economic adviser to the Clinton-Gore administration.
Last month, Mr. Davis arranged for Mr. Blinder to tout price caps during a conference call with reporters. The former member of President Clintons Council of Economic Advisers made no mention of his previous assertions that price caps create a host of economic woes, including the spread of shortages that President Bush has warned about.
"An attempt by government regulations to force prices above or below their equilibrium levels is likely to lead to shortages or surpluses, to black markets in which goods are sold at illegal prices, and to a variety of other problems," Mr. Blinder wrote in a 1999 economics textbook. "The market always strikes back at attempts to repeal the law of supply and demand."
Although Mr. Blinder told reporters during last months conference call that the price caps he now advocates are temporary, he made no such distinction between temporary and long-range price caps when he wrote his textbook, "Economics: Principles and Policy," with co-author William Baumol. In fact, he wrote that all price caps are subject to political influence and difficult to rescind.
"Virtually every price ceiling or floor creates a class of people that benefits from the regulations," wrote Mr. Blinder, who was Al Gores economic adviser during the vice presidents failed White House bid. "These people use their political influence to protect their gains by preserving that status quo, which is one reason why it is so hard to eliminate price ceilings or floors."
Mr. Blinder is now an adviser to Mr. Davis, who is trying to stop his free fall in the polls by capping Californias soaring energy prices. But Mr. Blinders textbook actually makes the presidents point that price controls will only exacerbate the crisis.
"Price controls throw a monkey wrench into the market mechanism," wrote Mr. Blinder, former vice chairman of the Federal Reserve. "Though the market is surely not flawless, and government interferences often have praiseworthy goals, good intentions are not enough," he added. "Any government that sets out to repair what it sees as a defect in the market mechanism runs the risk of causing even more serious damage elsewhere."
In his textbook, Mr. Blinder also sides with Mr. Bush in arguing that price caps will worsen shortages by discouraging energy development. "In case after case where legal price ceilings are imposed, virtually the same series of consequences ensues," he wrote. "A persistent shortage develops because quantity demanded exceeds quantity supplied."
"An illegal, or 'black, market often arises to supply the commodity," Mr. Blinder added. "Investment in the industry generally dries up. Because price ceilings reduce the monetary returns that investors can legally earn, less capital will be invested in industries that are subject to price controls."
Such advice has won widespread praise from Democrats. Mr. Clinton, for example, called Mr. Blinder a "brilliant" and "distinguished" economist. James Hoecker, a Democrat appointed by Mr. Clinton to the Federal Energy Regulatory Commission, endorses the assertions in Mr. Blinders textbook. "As disappointing as it may seem to some, we cannot 'price cap California out of a supply shortage," the FERC commissioner wrote earlier this year. He later said the price caps advocated by Mr. Davis are a 'facile, short-term fix that could lead to more electricity blackouts in California.
Mr. Davis, after failing to persuade Mr. Bush to endorse price caps during a meeting on Tuesday, vowed to sue FERC. But that same day, a federal appeals court in California rejected an emergency request by Californias Democrat-controlled legislature to force FERC into capping prices. The 9th Circuit Court of Appeals ruled that the lawmakers failed to demonstrate the situation warranted emergency action.
Undaunted, Mr. Davis has vowed to press the fight with the help of Mr. Gores former media strategists, Chris Lehane and Mark Fabiani, who call themselves the "masters of disaster" for their skill at turning Clinton-Gore scandals into attacks against Mr. Bush.
GOP lawmakers in California have objected to the governor hiring these men, at $30,000 a month, to blame Mr. Bush for the states burgeoning energy crisis. Republicans are especially galled that taxpayers are footing the salaries at a time when Mr. Davis is cutting social welfare items from the state budget.
In a recent letter to the governor, state Senate Republican Leader James Brulte and Assembly Republican Leader James Cox wrote: "You reduced education funding, cut drug and alcohol treatment programs, delayed the construction of necessary transportation projects, and redirected revenues from local governments — in addition to reducing the year-over-year reserve by $800 million.
"Your action asserts that the contract to retain Misters Fabiani and Lehane is a higher priority than the above programs," the lawmakers added. "We find this assertion indefensible."
Mr. Lehane dismissed such criticism as "petty partisan politics" and argued that the governor has the right to employ political operatives.


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