Free To Choose: a personal Statement

Who Protects the Consumer?
219
and has always been rapacious. Consumers have not suddenly
become wasteful. We have had hard winters before. Arab sheikhs
have desired wealth as far back as human memory runs.
The subtle and sophisticated people who fill the newspaper
columns and the airwaves with such silly explanations seem never
to have asked themselves the obvious question: why is it that for
a century and more before 1971, there were no energy crises, no
gasoline shortages, no problems about fuel oil—except during
World War II?
There has been an energy crisis because government created
one. Of course, government has not done so deliberately. Presi-
dents Nixon, Ford, or Carter never sent a message to Congress
asking it to legislate an energy crisis and long gasoline lines. But
he who says A must say B. Ever since President Nixon froze
wages and prices on August 15, 1971, the government has im-
posed maximum prices on crude oil, gasoline at retail, and other
petroleum products. Unfortunately, the quadrupling of crude oil
prices by the OPEC cartel in 1973 prevented those maximum
prices from being abolished when all others were. Maximum le-
gal prices for petroleum products—that is the key element com-
mon both to World War II and the period since 1971.
Economists may not know much. But we know one thing very
well: how to produce surpluses and shortages. Do you want a
surplus? Have the government legislate a minimum price that is
above the price that would otherwise prevail. That is what we
have done at one time or another to produce surpluses of wheat,
of sugar, of butter, of many other commodities.
Do you want a shortage? Have the government legislate a
maximum price that is below the price that would otherwise pre-
vail. That is what New York City and, more recently, other cities
have done for rental dwellings, and that is why they all suffer or
will soon suffer from housing shortages. That is why there were
so many shortages during World War II. That is why there is an
energy crisis and a gasoline shortage.
There is one simple way to end the energy crisis and gasoline
shortages tomorrow—and we mean tomorrow and not six months
from now, not six years from now. Eliminate all controls on the
prices of crude oil and other petroleum products.
Other misguided policies of government and the monopolistic

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FREE TO CHOOSE: A Personal Statement
behavior of the OPEC cartel might keep petroleum products ex-
pensive, but they would not produce the disorganization, chaos,
and confusion that we now confront.
Perhaps surprisingly, this solution would reduce the cost of
gasoline to the consumer—the
true
cost. Prices at the pump might
go up a few cents a gallon, but the cost of gasoline includes the
time and gasoline wasted standing in line and hunting for a gas
station with gas,
plus
the annual budget of the Department of
Energy, which amounted to $10.8 billion in 1979, or to around
9 cents per gallon of gasoline.
Why has this simple and foolproof solution not been adopted?
So far as we can see, for two basic reasons—one general, the
other specific. To the despair of every economist, it seems almost
impossible for most people other than trained economists to
comprehend how a price system works. Reporters and TV com-
mentators seem especially resistant to the elementary principles
they supposedly imbibed in freshman economics. Second, remov-
ing price controls would reveal that the emperor is naked—it
would show how useless, indeed harmful, are the activities of the
20,000 employees of the Department of Energy. It might even
occur to someone how much better off we were before we had a
Department of Energy.
But what about the claim by President Carter that the govern-
ment must institute a massive program to produce synthetic fuels
or else the nation will run out of energy by 1990? That, too, is
a myth. A government program seems the solution only because
government has been blocking at every turn the effective free
market solution.
We pay OPEC nations around $20 a barrel for oil under long-
term contracts and even more on the spot market (the market
for immediate delivery), but the government forces domestic
producers to sell oil for as little as $5.94 a barrel. Government
taxes the domestic production of oil to subsidize oil imported
from abroad. We pay more than twice as much for imported
liquefied natural gas from Algeria as the government permits do-
mestic producers of natural gas to charge. Government imposes
stringent environmental requirements on both users and pro-
ducers of energy with little or no regard to the economic costs

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