It was astonishing to hear Maxine Waters openly discuss nationalizing the oil industry. She was talking to the heads of America’s oil companies, and she was a little worked up, so it was also possible to say that it was just one person, speaking impulsively in a moment of anger, and easily dismissed.
What left most conservatives and libertarians staring in slack jawed wonder was when Maurice Hinchey (D-NY) stood before the press and advocated nationalizing the oil refineries. While most have known about the socialist beliefs of the left, what surprised them was the matter of fact manner in which they were suggesting socialist controls over the oil industry.
Finally, the socialist trifecta was complete with Obama supporter Malai Lazu, of the non-profit group Oil Change International calling for “price controls” on Neal Cavuto’s “Your World.” As she simply put it, “When Congress can set prices, Congress can set prices.”
This is, at best, ignorance of history.
For thousands of years, governments have attempted to set the price of different products with disastrous results. As Thomas J. DiLorenzo, author of “How Capitalism Saved America“, notes:
In 284 A.D. the Roman emperor Diocletian created inflation by placing too much money in circulation, and then “fixed the maximum prices at which beef, grain, eggs, clothing and other articles could be sold, and prescribed the penalty of death for anyone who disposed of his wares at a higher figure.” The results, as Schuettinger and Butler explain, quoting an ancient historian, were that “the people brought provisions no more to markets, since they could not get a reasonable price for them and this increased the dearth so much, that at last after many had died by it, the law itself was set aside.”
Inflexible price controls led to the Reign of Terror during the French Revolution:
On 9 September the Convention established sans-culottes paramilitary forces, the revolutionary armies, to force farmers to surrender grain demanded by the government. On 17 September the Law of Suspects was passed, which authorized the charging of counter-revolutionaries with vaguely defined crimes against liberty. On 29 September the Convention extended price-fixing from grain and bread to other essential goods, and also fixed wages. The guillotine became the symbol of a string of executions: Louis XVI had already been guillotined before the start of the terror; Marie-Antoinette, the Girondins, Philippe Égalité, Madame Roland and many others lost their lives under its blade.[5] The Revolutionary Tribunal summarily condemned thousands of people to death by the guillotine, while mobs beat other victims to death. Sometimes people died for their political opinions or actions, but many for little reason beyond mere suspicion, or because some others had a stake in getting rid of them. Most of the victims received an unceremonious trip to the guillotine in an open wooden cart (the tumbrel). Loaded onto these carts, the victims would proceed through throngs of jeering men and women.
The victims of the Reign of Terror totaled approximately 40,000.
This was all done for the “salvation of the people.”
The failure of this economic idea is evident today. As I noted in my article “I Bought a Gallon of Milk Today,” the price control policies of Hugo Chavez have led to massive food shortages in Venezuela. Chavez is following in the same footsteps as France. When he set the prices for food, shortages were created and Chavez threatened to jail store owners for violating the government set prices. He even called for “groups of his political supporters whose purpose would be to report on farmers, ranchers, supermarket owners and street vendors who circumvent the state’s effort to control food prices.” As of yet, there have been no public beheadings by guillotine.
Throughout history, it has been shown that price controls are good for creating three things:
- Shortages
- Rationing
- Black Markets
In the free market, a producer knows what it takes to create a product. He sets the price for the product and the consumer has the choice to buy the product at said price or refuse. Producers who are more efficient at creating products can sell their’s for less, those who use higher quality material can sell for more. The cost is determined between the buyer and the seller, thus creating a fair price.
When government enters the picture, they don’t consider the creation cost. They simply set a price and go home to feel good about helping the little guy. A couple different things happen next. Some producers will sell at that price, lose money and go out of business. Others realize they can’t make a profit at that price, and stop selling. Either way, a shortage is created because producers can’t maintain a living by hemorrhaging money, so they stop producing, stop selling, go underground or go belly up.
You can see the evidence of this in Venezuela:
Meat cuts vanished from many Venezuelan supermarkets this week, leaving only unsavory bits like chicken feet, while costly artificial sweeteners have increasingly replaced sugar, and many staples sell far above government-fixed prices.
…
Major private supermarkets suspended sales of beef earlier this week after one chain was shut down for 48 hours for pricing meat above government-set levels, but an agreement reached with the government on Wednesday night promises to return meat to empty refrigerator shelves.
Shortages have sporadically appeared with items from milk to coffee since early 2003, when Chavez began regulating prices for 400 basic products as a way to counter inflation and protect the poor.
How are the poor protected when there is nothing on the shelf to buy?
The government now enters the scene again and tells people how much of a product they are allowed in a specific time. So, if the Democrats nationalize the refineries and shortages follow, it is likely to see them tell you how many gallons of gas you can have per month.
The communists in China are doing that right now:
Frustrated truck drivers lined up to buy as little as a quarter-tank of diesel Tuesday due to shortages that one Chinese oil company blamed on price controls that it said discouraged new investment to expand refining capacity.
The shortages disrupted trucking in Shanghai and the export-driven provinces of Guangdong, Zhejiang and Fujian in the southeast, but the possible economic impact was unclear.
The Zhengda Transportation Co. in Guangzhou, China’s southern business capital, now needs a week to get goods to Beijing instead of the usual three days as drivers hunt for fuel, said a manager who would give only his surname, Liu.
“We have to drive further to find another filling station,” Liu said. “Many goods are delayed in delivery.“’
Why is rationing necessary:
Oil refiners are losing money because of price controls that block them from passing on soaring crude costs to consumers, and they have refrained from investing in expanding refining capacity.
If the government’s allotment isn’t enough, there is only one place to turn.
The black market is created as a result of the state. Always.
The Soviet Union had a great system of black markets. (Eric Wolfram has some photos of one here.) These were a result of the extensive price controls in the Soviet Union.
In America during the 70s, the government rationed gasoline. The biggest beneficiary of this action were those who produced gas cap locks and those who sold gas on the black market.
Because of New York state’s nanny state meddling (controlling the price of cigarettes via taxation) it is now very profitable to sell cigarettes on the black market:
On April 23, less than two weeks after Mr. Nablisi’s arrest was made public, Gov. David Paterson signed into law a $1.25 per-pack tax hike on top of the state’s $1.50 per-pack tax. That’s in addition to New York City’s own $1.50 per-pack tax. Come July 1, New York City’s smokers will be paying on average $9 a pack for legal cigarettes.
But if history is any guide, most cigarettes sold will actually be trucked up from Virginia, or shipped in from China, by “butt-leggers” who can make over $1 million on each tractor-trailer load of smuggled smokes. The blunt fact, which politicians of both political parties are determined to ignore, is that high cigarette taxes in New York have led to a bloody, decades-long smuggling epidemic.
Setting prices on gasoline and oil will not do what the socialists in Congress claim it will do. History shows it never has, and never will. Where you find price controls, you see shortages and rationing, not surpluses and lower prices. Remember this when you hear a Democrat talking about making something “affordable.” As Thomas Sowell asks, “What are they talking about other than price controls?”
