ECONOMIC LIBERTY 101: A CRASH COURSE FOR CALIFORNIA'S GOVERNOR GRAY DAVIS

By Michael S. Giorgino

Human effort works best to supply human needs and satisfy human desires when men are free. This is as true of electrical power as anything else. The market works efficiently when government is limited, property rights are respected, and individuals are left alone to pursue their individual happiness.

President Bush wants to get government out of the way, unleashing the limitless potential of American business to increase supply in pursuit of private profits. Governor Davis wants to place a noose around the necks of energy producers, expecting them to provide power at the point of a gun.

Bush is right, and Davis is wrong: price controls cannot work. Government imposed maximum prices always lead to shortages. (This is even true in wartime, when scarce price-controlled commodities are taken off the shelf and sold at high prices on the Black Market.)

Davis should read the works of the 19th Century French economist Frederick Bastiat, who taught that every economic regulation has both seen and unforeseen consequences. The key is the ability to anticipate those unintended effects, which are often disastrous. Thus, "the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil."

The governor could also learn a lot from 20th century economist Henry Hazlitt. In Economics in One Lesson, he identified the two unintended consequences of price controls: First, demand rises--since the commodity is cheaper, people can afford more of it. Second, production decreases--with profits slashed, marginal producers go out of business (see Pacific Gas and Electric) and efficient producers have no incentive to turn out their product at a loss. What always occurs when government caps prices is shortages.

The essential role of profits in achieving market efficiency is not a new concept. Davis must know of Adam Smith's The Wealth of Nations, published in 1776. The Scottish economist noted that the typical investor "intends only his own gain, and he is . . . led by an invisible hand to promote an end which was no part of his intention. . . By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affect to trade for the public good."

Human effort works best to supply human needs and satisfy human desires when men are free. This is as true of electrical power as anything else. The market works efficiently when government is limited, property rights are respected, and individuals are left alone to pursue their individual happiness. Even more important than the economic case for liberty is the fact that capitalism is the only truly just system ever devised by mankind!

In a free market, producers are allowed to keep what they earn. Trade is voluntary. No force is involved. Human relationships are based upon persuasion and agreement, not coercion. Men compete with one another in the marketplace to offer the best quality products and services at the cheapest prices. All parties benefit, in an ever expanding world of mutual prosperity and good will. It is only when force is initiated by government that the individual incentive to cater to the needs of others is interrupted.

I wish Governor Davis would read Ayn Rand's novel Atlas Shrugged. It is a work of genius, proclaiming the crucial importance of man's mind, and describing in detail what happens when government condemns men of ability as greedy and selfish, destroying industry after industry with ever widening controls. She wrote, "There is no conflict of interests among men, neither in business nor in trade nor in their most personal desires--if they omit the irrational from their view of the possible and destruction from their view of the practical." Instead of declaring "war" against out of state generators and demanding Washington point guns at them, Davis might come to see these producers as the true heroes of the energy crisis--the men and women whose intelligence and respect for reality offers Californians their only opportunity to keep the lights on this summer.

With some in depth classical liberal education, Governor Davis might come to see that the only way out of this mess is to do what President Bush suggests: Unchain producers! Eliminate price controls. Remove restrictions on mergers and acquisitions. Lift counterproductive land use regulations. Support a balanced approach to environmental regulation, committed to maintaining clean air and water while allowing rational development of energy resources. Above all, recognize that the unshackled human mind is the fountainhead of all human progress.

Mike Giorgino retired as a Commander from the U.S. Navy in 1997 and is a Gulf War veteran. He now practices law in San Diego. He is a Republican candidate for the State Senate District representing South San Diego, Imperial, and part of Riverside County. He can be reached via e-mail at mgiorgino@aol.com. Website: http://www.giorginoforsenate.com.