Another industry titan leaves economic principles behind
Tuesday, September 16th, 2008 By James NesbittThe following is a video interview with John Hofmeister (former president of Shell Oil and founder of “Citizens for Affordable Energy”) that appears today on the website of the Washington Times:
Around 1:20, John makes his proposal:
My advice would be to go to odd-even purchase and to restrict the amount available for purchase to some number. And that would shock enough people to say, “Maybe I won’t drive today, or maybe I’ll carpool for a month.”
Indeed, it would shock people. Let’s take him up on his suggestion and “go back to the 70s” with a trip down memory lane. Don Boudreaux, chairman of George Mason University’s Department of Economics, describes his memories of this system of allocation:
I well remember in July of 1979 my father driving to a gasoline station at midnight only to wait in line. He waited in that line until 6am, when I (having walked the mile and a half from our home) relieved him. The station finally opened at noon. It allowed each motorist in line to buy a maximum of five gallons of gasoline. I bought the five gallons and drove home – without, of course, turning on the air-conditioner, for to do so would have burned too much of the precious elixir. As we lived in New Orleans, these sorry recollections of the consequences of misguided government intervention are seared especially hot into my memory.
To better illustrate this delightful process, click on the picture below:
Perhaps John doesn’t remember this process. After all, it is usually not endured by the wealthy, powerful, or privileged of society. They don’t rearrange their schedules to stand for hours on the hot asphalt to get five gallons of gas; they send their personal assistants and chauffeurs to wait in line. It is the common people who suffer most from this method of allocation.
But now that you remember (or for those of my generation, have learned) what rationing is really like, let’s try to think of a better way to “shock enough people” into driving less or more efficiently (or both). The price mechanism comes to mind. This system of allocation spares people the inconvenience of shortages and waiting in hot lines and is impartial in its treatment; not all citizens will wait in gas lines if we ration, but all citizens must pay higher prices if we allocate with the price mechanism. It also bases the choice to purchase gasoline not on a government agent or a calendar, but on the consumer. If the consumer places a higher value on gas, he can easily obtain it. If he does not place a high value on gas, he may forgo the opportunity to purchase it. This choice is not available when rationing is used to allocate goods. Most importantly for John, the higher prices “shock” people into changing their behavior. The price mechanism has already shown in the last few months that it indeed has this effect; all that’s left is to accept and embrace the price mechanism’s benefits.
Tags: gas prices
