The Lesson of Gas Price Caps-Shoots from the Grassroot Institute of Hawaii – Feb. 11, 2005

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It will be an interesting experiment. It will also be a test of economic theory versus reality.
The question will be if the public at large will see that reality or go with the common wisdom that is so often wrong.

The gas cap law looks like it will be implemented and the resulting effects on the market are what will be interesting to watch. There has never been a price cap in history that didn’t have adverse consequences for the market and there is no reason to expect it will be any different in this case.


In one sense the focus on the price of gasoline is somewhat contradictory. Everything costs more in this state from milk to meat to electricity. The relative price of gasoline is no greater than the relative price of just about anything compared to the mainland. Between having some of the highest taxes in the nation, to the Jones Act, it is no wonder that everything costs more.

Yet, for some reason, there is a disproportionate angst about the price of gas. Why not price caps on milk, tomatoes, cereal or anything else? The idea that the gas companies are “gouging” the public any more than any other commodity just doesn’t make sense.

Housing prices in Maui are among the highest in the state. Is it any surprise then that gas prices are as well? Electricity prices are the highest in the nation, why are we not putting price caps on that as well then? Surely the use of electricity is even more universal and vital than the need for gasoline. Proportionally the price is just as high as gas prices, maybe even more so.

The experiment with gas price caps will be very instructive though because the economic damage and consequences will be obvious and inescapable. The consequences that always happen when government interferes with the workings of the marketplace will happen here as well. There will be shortages. There will be other repercussions that we presently can’t foresee.

The only remaining question then will be will the people remember how, and who, got them into this fix. Many will still continue to blame the oil companies instead of the plethora of regulations on the industry, and the taxes, that drive up prices at the pump. Sometimes it takes a long time for the public in general to become educated about the realities of the marketplace and this state is particularly far behind in that regard. But the lesson is coming.

”’Don Newman, senior policy analyst for the Grassroot Institute of Hawaii, Hawaii’s first and only free market public policy institute focused on individual freedom and liberty, can be reached at:”’

”’This editorial is intended to provoke thought, discussion and an examination of issues. It does not reflect official policy of the Grassroot Institute of Hawaii. See the GRIH Web site at:”’

”’ reports the real news, and prints all editorials submitted, even if they do not represent the viewpoint of the editors, as long as they are written clearly. Send editorials to”’



Daily Policy Digest


Thursday, Feb. 10, 2005

Congress should not reauthorize the Higher Education Act because it will create more demand for higher education and increase college tuition costs, says Gary Wolfram (Cato Institute).

Instead of expanding the current system under HEA, Wolfram recommends that Congress consider a 12-year phase-out program to remove federal assistance from higher education. If implemented, he projects:

Sticker tuition prices should decline.
The private market should respond to the phase-out of federal assistance: That response would likely take three forms: additional private-sector loans, additional private scholarship funds, and perhaps most importantly, the expansion of human capital contracts.
Human capital contracts, first suggested 40 years ago by Nobel Laureate Milton Friedman, would allow students to pledge a portion of future earnings in return for assistance in paying their tuition.
The federal government should not be providing financial assistance to induce people to obtain a higher education, says Wolfram. Such activity should be left to the states and individuals.

While it would be nice to evict the government from higher education finance and totally scrap HEA, says Wolfram, the reality is that more than 10 million students and their families rely on some form of federal assistance for their college education.

With such large numbers relying on government funds, Wolfram concludes that the integrity of higher education is threatened when the federal government uses financing to affect the behavior of state and private institutions. Colleges and universities lose their independence and that loss affects the independence of political opinion from the government