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Cantwells plan just shows how desperate she is
One sure sign a politicians term is winding down is when they start proposing solutions to problems that do nothing but make matters worse.
Sen. Maria Cantwell, up for re-election in 2006, displayed the classic symptoms last week when she proposed a bill in Congress that would empower the president to investigate whether oil companies are gouging consumers and, if so, impose price controls.
Presumably the president knows better than to ever exercise such powers. But then, thats why hes the president and shes an obscure junior senator desperate to make a splash in order to hold her seat.
Cantwell notes that such measures were taken during the gas shortages of the 1970s but the law expired in 1981. Her bill would simply reinstate the authority.
What Cantwell conveniently overlooks is the fact that there havent been any serious gas shortages since 1981. In fact, it was the very price controls she seems to advocate that caused the long gas lines and rationing of that era in the first place.
Its simple economics, really. Supply and demand. When the supply of any good exceeds the demand for it, the price comes down. When demand is greater than supply, the price goes up.
In the current market, oil is in short supply because of the recent and rapid industrialization of nations like India and China. Thus, prices are going up.
But while no one likes it, the increase has two positive results. First, the high prices encourage consumers to con-serve, which replenishes the oil supply and leads to a price reduction. Secondly, the increased profits Cantwell finds so offensive make it economically feasible for oil companies to explore and extract oil from new sites. This, too, results in increased supply, which ultimately lowers the price.
Arbitrarily suppressing the oil companies profits through price controls, of course, has precisely the opposite effect. Consumers buying fuel at lower-than-market-level prices have no incentive to conserve, so they keep on driving as before which reduces supplies.
Meanwhile, oil companies earning lower-than-market-level profits have no incentive to invest in new exploration or technologies that would make fuel more plentiful. Which leads to further shortages, which leads to higher prices.
Price controls always result in shortages, no matter what commodity youre talking about. A junior high school student can grasp the concept, and since Cantwell is a grown adult and a spectacularly successful businesswoman in her own right we assume she understands full well that what shes promoting in return for a few votes is utter hogwash.
Which makes her doing so all the more irresponsible.