Sunday, February 19, 2006

Price controls never fail ... to fail

And that never fails to amaze us.

The latest victims of price controls are the residents of the State of Hawaii whose leadership, in their collective "wisdom" last fall, gave price control authority over gasoline to the state's Public Utilities Commission.

Granted Hawaii has usually had more expensive prices. After all, gasoline has to be shipped into the country. But right now they are paying about $1 a gallon more than the mainland. The average price difference before controls was 44 cents.

True, markets are messy and inequalities often exist for days at a time. But the market is self-correcting, not in spite of greed but because of it. Competition of necessity motivates the "greedy" company to lower the price in order to sell more units. A thousand sales at $1 profit per each is actually better than 500 sales at a $2 profit because you are growing your market share and inoculating yourself against market competitors.

Government-controlled price committees, no matter how noble and well meant, are not self-correcting because they cannot react to forces they do not see or understand. And if they understood them, they wouldn't be in business to begin with.


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