Dynamist Blog

There Is No Energy Crisis

I wrote this Reason editorial 10 years ago, but with a few tweaks of the names and numbers it could run tomorrow. Here's the opening:

In 1994 and '95, paper prices skyrocketed. The cost of magazine paper rose by about 10 percent a month, hardly the sort of hike you can simply pass on to subscribers. Most publishers, including REASON, dealt with the increase by printing fewer pages and adding fewer new subscribers than they'd planned. Newspapers were even harder hit: Escalating newsprint prices drove many to lay off hundreds of employees, raise prices, and, in some cases, go out of business. It was not a happy time in the publishing industry.

Yet as far as I know, no one in the Clinton administration ever called a press conference to address the "paper crisis." Congress never held hearings on the subject. CNN never led the evening news with tales of how paper buyers were struggling. Newt Gingrich never posed for photos in front of giant rolls of newsprint. Bob Dole never denounced the president for his lack of "leadership" on the matter.

And that's as it should be. There was no crisis, nothing requiring an emergency response from government. By historical standards, paper wasn't even that expensive; its price was just higher than expected, and rising rapidly. Government policy had exacerbated things--in this case, through recycling mandates that led paper companies to invest in converting, rather than expanding, capacity--but the main cause of the price jump was plain old ordinary tight supply hit by expanding demand. The higher prices gave both consumers and producers important information about the state of the market. In response, buyers bought less. Sellers started to produce more. And prices eventually crept down.

That's how prices work. They convey information. They give people feedback about what's happening in the world. They produce responses. They go up and down. And while sellers may experiment with different levels, always seeking the most profitable ones, no one in particular gets to decide where prices will end up. They are out of control.

Recently, we've had a "gas crisis." From February through the end of April, retail gasoline prices jumped about 12 percent nationally, 21 percent in California. What's interesting about the latest "gas crisis" is how, despite a brief flurry of media attention and political pontificating, it looks a lot more like the "paper crisis" than like the real gas crises of the 1970s. There are no long lines at the pump or threats of "odd-even" rationing based on your license plate number. You can fill your tank on Sunday, and every station has gas- -for a price. The government interventions that distorted energy markets in the 1970s, and put drivers through hell, have disappeared.

This crisis isn't a crisis. It's just a price increase, the sort of signal consumers adjust to every day. No hysteria is called for.

Anyway, I thought we were supposed to be using less gasoline--to save the planet, annoy the Saudis, whatever. But I guess that was just talk.

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