Walter Williams: Markets, not mandates, set prices

Here's a question: If there's a disaster, a war, a severe drought or some other calamity that restricts future supplies of a commodity – such as oil, coffee or corn – what is the intelligent thing for people to do right away? If you said "use less now and try to produce more," you'd be absolutely correct. That's not rocket science, but understanding the machinery involved in getting people to do so is a bit more challenging.



Suppose that in the wake of a natural disaster – in the name of anti-gouging or some other nonsense – government officials mandate that prices cannot rise. What's the economic message? The mandate encourages people to continue their consumption as if the disaster didn't happen. Let's use gasoline as a concrete example. Suppose a family is fleeing a pending hurricane and has a half-tank of gas, plenty to get them to a safe destination, but they would feel more comfortable topping off the tank. If the price of gasoline remained at a pre-hurricane price of $3 a gallon, they might do so. But if the price shot up to $5, they'd wait until they arrived at their destination.

Their decision has the effect of making more gasoline available for others. So here's my question: Which alternative is preferable for a family, fleeing the hurricane with their gas gauge showing nearly empty, gasoline available at $5 a gallon or gasoline unavailable at $3?


Whenever there are expected shortages of a commodity, there are millions of wonderful nongovernmental people who enter to help. These people, often vilified and called every name except child of God, are the speculators.

Efficient allocation of resources requires allocation over time. If speculators guess there will be future shortages, they will buy the commodity now in the hopes of making a personal gain when prices rise. Their purchases have the effect of raising the commodity's price now and making more available in the future – and at a lower-than-otherwise price.

Last April, President Barack Obama called for his Department of Justice to lead a task force to root out manipulation of the oil market and gouging of consumers at the gas pump. U.S. Sen. Bernie Sanders, I-Vt., introduced legislation called the End Excessive Oil Speculation Now Act. White House and congressional attacks on oil speculation do not alter the oil market's fundamental demand-and-supply reality.

What would lower the long-term price of oil is for Obama and Congress to permit exploration for the estimated billions upon billions of barrels of oil off our Atlantic and Pacific shores, the Gulf of Mexico, and Alaska – not to mention the estimated billions, possibly trillions, of barrels of shale oil in Wyoming, Colorado, Utah and North Dakota – but doing that would offend the sensitivities of environmental extremists who have the ears of Congress and the White House.


Digital & Driveway Delivery - 50% Off
User Agreement



Programs & Promotions
Business Directory
Ads by Google