- The Washington Times - Tuesday, June 5, 2001

Theres been a great deal of talk about children not being able to read and write adequately but its adults such as California Gov. Gray Davis who need remedial instruction in basic economics, at least. Mr. Davis, after meeting with President Bush to discuss Californias energy problems and possible solutions, subsequently announced that he would sue the federal government over Mr. Bushs refusal to endorse price controls on electricity.
A governor who believes that a commodity can be provided at less than the cost of its production, which would be the result of federal price caps, is a dangerous naif. Mr. Davis also released a letter co-signed by several "prominent economists" that stated in part that the federal government must "act to ensure that wholesale electricity prices are just and reasonable." Exactly what constitutes "just" and "reasonable" prices is left to the imagination.
Whether we like it or not, economics involves cold realities. People and businesses, including those mean old electrical utilities, do not produce what they produce for the sake of going bankrupt, or incurring losses. In order to exist at all, they must produce that which the market needs and desires, and for which the market is willing to pay. The price, "reasonable" in Mr. Davis eyes or not, reflects the markets judgment as to the value of the product or commodity in question, as well as its cost to produce. Remove the natural pricing mechanism from the equation, and you have fundamentally undercut the ability of the marketplace to rationally respond to supply and demand. It is a recipe for bankruptcy and impoverishment as countless examples of this kind of "tinkering" ought to have demonstrated by now.
Mr. Bush, at least understands this. "My administration," he said, "is committed to doing our part to help California as it confronts its energy problems." He then explained his belief that price controls, by interfering with the markets efforts to balance supply with demand, would only lead to more serious energy shortages and even higher prices just as when the Nixon administration tried the wage and price controls approach in the early 1970s, followed-up by the disastrous price control policies of the Carter administration that exacerbated one of the worst energy crises the nation has ever had to endure and helped to create an economic quagmire with double-digit inflation and high unemployment rates that well hopefully never have to relive.
At least, not so long as Mr. Bushs view carries the day and Mr. Davis rereads a few chapters of the introductory texts to Econ 101.


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