Milton Friedman on the Energy Crisis (and ObamaCare to come)

By Robert Bradley Jr. -- July 31, 2013

July 31st is the birth date of one of the great intellectuals of the freedom philosophy. Milton Friedman (1912–2006) would have been 101 today.

Friedman Legacy Day is being celebrated at 144 events: 90 in 44 states and Washington,D.C., and 54 events in 25 countries abroad. Here in Houston, a “Milton Friedman Rocks” party is tonight.

Friedman was more than a technical economist and early Nobel Laureate in this field; he was a popularizer of the case for free markets. His shorter tracts and biweekly column for Newsweek covered a variety of in-the-news issues, including energy. And he became more libertarian and appreciative of Austrian School economics (market-process economics), the rival to his Chicago School of economics, as time went on.

Friedman’s insight into the distortions from government intervention shortages are timeless. Consider this from Milton and Rose Friedmans’ classic, Free to Choose (1979: p. 219):

Economists may not know much. But we know one thing very well: how to produce surpluses and shortages. Do you want a surplus? Have the government legislate a minimum price that is above the price that would otherwise prevail…. Do you want a shortage? Have the government legislate a maximum price that is below the price that would otherwise prevail.

Still the major example of our time is the 1970s energy crisis in the United States–the result of price and allocation controls by the Department of Energy. But get ready for a new chamber of economic horrors.

With ObamaCare’s use of price and allocation controls–and the growing problem of Medicare today–shortages and strife are upon us in the all-important health care field. The Wall Street Journal article, More Doctors Steer Clear of Medicare, said as much this week:

Fewer American doctors are treating patients enrolled in the Medicare health program for seniors, reflecting frustration with its payment rates and pushback against mounting rules, according to health experts…. [T[he number [of doctors] who don’t participate in private insurance contracts, while smaller, is growing—just as millions of Americans are poised to gain access to such coverage under the new health law next year.

All said, health experts say the number of doctors going “off grid” isn’t enough to undermine the Affordable Care Act, but they say some Americans may have difficulty finding doctors who will take their new benefits or face long waits for appointments with those who do.

Rationing by time and inconvenience instead of dollars–just like those old gasoline lines! Anger, arguments, violence, waste, gaming–it will happen in waiting rooms just as it happened in the car queues.

Here is Friedman on the 1970s energy crisis:

“It is a mark of how far we have gone on the road to serfdom that government allocation and rationing of oil is the automatic response to the oil crisis.”

– Milton Friedman, “Why Some Prices Should Rise,” Newsweek, November 19, 1973.

“The present oil crisis has not been produced by the oil companies. It is a result of government mismanagement exacerbated by the Mideast war.”

– Milton Friedman, “Why Some Prices Should Rise,” Newsweek, November 19, 1973.

“Lines are forming at those gas stations that are open. The exasperated motorists are cursing; the service-station attendants are fuming; the politicians are promising. The one thing few people seem to be doing is thinking….

How can thinking people believe that a government that cannot deliver the mail can deliver gas better than Exxon, Mobil, Texaco, Gulf, and the rest?”

– Milton Friedman, “FEO and the Gas Lines,” Newsweek, Marc 4, 1974.

“The long gasoline lines that suddenly emerged in 1974 after the OPEC oil embargo … and again in the spring and summer of 1979 after the revolution in Iran, [came after] a sharp disturbance in the supply of crude oil from abroad.

But that did not lead to gasoline lines in Germany or Japan, which are wholly dependent on imported oil. It lead to long gasoline lines in the United States, even though … for one reason and one reason only: because legislation, administered by a government agency, did not permit the price system to function.”

– Milton and Rose Friedman, Free to Choose (New York: Harcourt Brace Jovanovich, 1979), p. 14.

“There is one simple way to end the energy crisis and gasoline shortages tomorrow—and we mean tomorrow and not six months from now, nor six years from now. Eliminate all controls on the prices of crude oil and other petroleum products.”

– Milton and Rose Friedman, Free to Choose (New York: Harcourt Brace Jovanovich, 1979), pp. 219.

“There has been an energy crisis because government created one. Of course, government has not done so deliberately. Presidents Nixon, Ford, or Carter never sent a message to Congress asking it to legislate an energy crisis and long gasoline lines. But he who says A must say B. Ever since President Nixon froze wages and prices on August 15, 1971, the government has imposed maximum prices on crude oil, gasoline at retail, and other petroleum products.”

– Milton and Rose Friedman, Free to Choose (New York: Harcourt Brace Jovanovich, 1979), pp. 219.

Appendix: Nixon’s Price Control Order (August 1971)

Richard Nixon is the father of the energy crisis–and the resulting politicization of energy. His price control order of August 15, 1971, one of the more infamous and devastating economic interventions in American peacetime history, caused oil shortages before the Arab Embargo of October 1973.

Here is what Milton Friedman said in ‘real time’ on Nixon’s surprise decision.

“I regret exceedingly that he decided to impose a ninety-day freeze on prices and wages. That is one of those ‘very plausible schemes … with very pleasing commencements, [that] have often shameful and lamentable conclusions’.”

– Milton Friedman, “Why the Freeze is a Mistake,” Newsweek, August 30, 1971.

“Individual price and wage changes will not be prevented. In the main, price changes will simply be concealed by taking the form of changes in discounts, service, and quality, and wage changes, in overtime, perquisites and so on…. But to whatever extent the freeze is enforced, it will do harm by distorting relative prices.”

– Milton Friedman, “Why the Freeze is a Mistake,” Newsweek, August 30, 1971

“By encouraging men to spy and report on one another, by making it in the private interest of large numbers of citizens to evade the controls, and by making actions illegal that are in the public interest, the controls undermine individual morality.”

– Milton Friedman, “Morality and Controls,” Newsweek, October 28, 1971.