The world crisis is now past its peak. The initial quadrupling of the price of crude oil after the Arabs cut output was a temporary response that has been working its own cure. Higher prices induced consumers to economize and other producers to step up output. It takes time to adjust, so these reactions will snowball. In order to keep prices up, the Arabs would have to curtail their output to zero; they would not for long keep the world price of crude at $10 a barrel. Well before that point the cartel would collapse.
—Professor Milton Friedman, 1974
President Carter has the authority to decontrol the prices of crude oil and gasoline immediately. That action would have immediate effects. Just about every professional economist, even including outgoing Secretary of Energy James Schlesinger, agrees that decontrolling the price of gasoline at retail and eliminating government allocation of gasoline would end gasoline lines immediately and make gasoline rationing unnecessary. Decontrolling the prices of crude oil and natural gas would not have an immediate effect, but it would stimulate production within months.
The energy crisis—in fact, the oil problem, for that is the energy source that has been subject to all recent change—is, in its basic lineaments, not terribly complex. The complexity, that which comes from ordinary, uncomplicated, understandable dim-mindedness apart, is largely the contribution of those who do not wish to face reality. Evasion, even a measure of obfuscation, protects deeply held belief from what exists. And there is an even more severe conflict between ideology and obvious practical action. So yet more evasive dialectic is required. Finally and more reasonably, there is, in the longer run, the uncertainty that is inevitable when policy involves technical innovation that is theoretically plausible but wholly unconsummated.
In the short run there are only two possible solutions to the oil shortage. The first is to rely on the market to bring the demand for oil down to where it equals supply. The second is to intervene directly to bring about this result—to set aside the market, at least in part, and to resort instead to some form of planning. There is a third line of action, though not a solution, and it is one to which, in fact, the recent energy czars have resorted. This is to have enough half-hearted planning of the wrong kind so that one gets the worst of both worlds. One notices here the use of the word czar. This is in accordance with a bipartisan convention of some years’ standing in Washington which holds that the word czar has a more democratic connotation than planner.
I speak of making supply and demand equal by reducing the demand. When a shortage is exigent, it is demand that must, with narrow exceptions, be adjusted. One of the first rules for anyone who wishes to respond sensibly to the energy shortage is to ignore, if possible without ostentatious contempt, the pompous ass who avers…
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