Why Price Controls Fail
June 21, 2001
The Federal Energy Regulatory Commission's (FERC) decision to impose price controls on electricity in 11 western states is a classic case of political expediency triumphing over economic sense, say critics. They point out that price controls have always failed and they will backfire again in this case.
- Complex price controls invite gaming of the system -- witness the fact that the first round of "price mitigation" rules in December 2000 forced FERC to revise its rules three times because the caps were being skirted.
- Price controls create shortages, leading to rationing, as happened with gasoline during the last major energy crisis.
- Price controls discourage conservation because they destroy the only viable mechanism which encourages consumers to cut back usage -- high prices.
In a futile attempt to solve one problem, price controls distort other markets and crate additional problems.
Source: Editorial, "Sooner or later, federal price controls will backfire," USA Today, June 21, 2001.
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