Posts Tagged ‘Price controls’

Carter and Reagan on energy

February 22, 2011

Energy policy represented one of President Ronald Reagan’s best accomplishments and worst legacies.

Ronald Reagan

Under his administration, an unworkable price control and gasoline allocation system was abolished, and oil prices were left to the working of the free market.  The free market worked the way it was supposed to work.  Prices went up, demand went down, producers looked for new sources of oil, and the price went down and stayed down (in inflation-adjusted terms) for the next 20 or 25 years.

President Jimmy Carter inherited gasoline price controls from the Nixon administration, and began a long-range phaseout.  During the oil price shock of 1979, however, he clamped down on prices and instead imposed a gasoline allocation system based on previous use.  This didn’t work.  Restrictions on availability of gasoline changed the patterns of use.  Too much gasoline was allocated to tourist destinations, for example, and too little elsewhere.  There actually were gasoline riots.

Reagan’s insight was that a market system of supply and demand works better than central planning would.  Unfortunately he carried that insight to a counterproductive extreme – that once you unleash the free market to increase production, energy policy can safely be ignored.

The Carter administration was the first to make a serious effort for energy conservation and energy independence (sometimes acting under authority of laws enacted during the Ford and Nixon administrations).  Fuel efficiency standards for automobiles were increased.  Incentives were provided for insulating buildings.  An ambitious research program on solar and other alternative energy sources was launched.  Large industrial companies such as Kodak and Xerox voluntarily launched their own energy conservation programs parallel to what the government was doing.

We benefit from the accomplishments of the Carter era to this day.  We would benefit even more if governmental policy had continued on the same trajectory.  But Ronald Reagan planted the meme that conservation is unmanly, alternative energy is a fad and the supply of oil will take care of itself.  That’s a meme we’re going to have to get rid of.