Category: Economics

Anecdote Against Anti-Capitalism

Remember stories like this through all the lies we’ll hear in the next few years about the trouble with capitalism and how it’s a tool of the rich.

The free-for-all is a boon to the millions of Americans who want to trade in their bulky analog sets. Thanks to the likes of Westinghouse, which undercut the prices of premier brands by 20% to 40%, LCDs are no longer a luxury item. Nearly one-third of the 30 million TVs sold in North America in 2006 had LCDs, and by yearend they’re expected to account for half of all TV sales. The average 27-in. LCD set now retails for less than $650, compared with $1,000 in early 2006, says iSuppli, while 40-in. models have plunged to about $1,600, down from $3,000 during the same period.
…

For many in the industry, though, the competition is brutal. Prices for LCD sets are falling so rapidly that retailers who place orders too far in advance risk getting stuck with expensive inventory. Circuit City Stores Inc. (CC) cited plummeting prices in its Feb. 8 announcement that it will shutter nearly 70 outlets. The Asian companies that make the LCD panels that go into the TVs are getting slammed, too. Korea’s LG.Philips LCD Co. (LPL) attributed a $186 million loss in the fourth quarter to the 40% drop in display prices last year. With panel prices expected to fall 20% in 2007, the world’s dozen or so makers of displays are scrambling to sell at almost any price just to generate the cash to survive. “The cuts have stressed everybody in the supply chain,” says Paul Semenza, the vice-president for display research at iSuppli.

No doubt this type of example will fuel people like Sebastian Mallaby into pushing for a bigger safety net, propped up through higher taxes. That would be a bad lesson. Instead, notice how those who want an LCD television can now get more for less. Some who couldn’t afford such a TV last year will now be able to purchase one. This is progress, and it can apply to any field when unrestrained by nonsensical falsehoods. The flaw is never with capitalism, only with how it’s implemented or who does the implementing.

This is a bogus trade.

Sebastian Mallaby uncorked a doozy today on the intersection of trade and tax policy. He seems to grudgingly concede that free trade is inevitable, so governments shouldn’t get in the way. Right conclusion, poor reasoning. For example:

Paradoxically, the changes that have made globalization less popular have rendered resistance to it less fruitful. Back in the 1980s, trade put pressure on big, vertically integrated industries: cars, electronics. In the new world of outsourcing and global supply chains, vertically integrated enterprises have been sliced into discreet processes; trade now puts pressure on tasks rather than on industries. Back-office administration and phone-based customer support may shift to India, and this shift may affect industries from banking to medical services. The manufacturing and assembly of components may be outsourced to Mexico or Asia, and this change may affect everything from toys to telephones.

The reasonable question is how much longer such a shift took as government interfered in the process. If your output is protected from competition, you’re also protected from pressure to cut expenses as far as they can be cut. The only problem is that the need to innovate doesn’t change, only the damage from not doing so. Compare the lobster tossed into boiling water and the lobster brought to a gradual boil. Which one fights back while he still can?

So trade now threatens workers in more industries. Even if it still causes less dislocation than technological change, we shouldn’t be surprised that anti-globalization sentiment has sharpened. But the advent of competition in tasks also renders protectionist remedies less sensible than ever.

Preposterous. Companies now better focus on their true business. This is beneficial. The reality that some will perform better does not constitute a flaw in the trade process.

At least Mr. Mallaby comes to the right conclusion. The same can’t be said of his tax analysis:

Consider the work of Peter Lindert of the University of California at Davis. In a magisterial work published three years ago, Lindert analyzed tax-financed transfers across rich economies and found no correlation with the rate of growth or with gross domestic product per person. This, Lindert continued, should not be surprising. What matters for growth is less the quantity of tax and spending programs than their quality.

We know who gets to decide what constitutes quality. That same central planner also decides the quantity, which reduces the incentive to tie the two together. It’s most frustrating that the trade policies mentioned above are the perfect example of such incentive disconnect.

Lindert is no party-line liberal. He argues that high taxes in Europe don’t damage growth because they hit consumption and labor rather than savings and capital: This is an uncomfortable point for those who want the tax system to be progressive. But Lindert also argues that high taxes are compatible with growth if the revenue is spent well. Investments in education and public infrastructure boost a country’s growth rate. Programs that break the link between employment and health insurance enhance the flexibility of workers. Subsidized child care keeps women in the workforce, encouraging employers to invest in training them.

How is a belief that high taxes don’t damage growth not party-line liberal? But that’s less the point here than the notion that high taxes are “compatible” with growth if the revenue is well spent. Again, we know who gets to determine how to spend tax receipts. It’s fine to say that investment in education and public infrastructure boost a country’s growth rate. I’m not going to argue against that. I just find it absurd that the possibility that the private sector might provide even better quality than the public sector is never considered. Any honest look at our public education system would demonstrate that we could improve, to be kind, and money is not the lacking aspect.

Basically, Mr. Mallaby says he’ll give us economic freedom if we’ll agree to give up economic freedom. No thanks.

If the home team doesn’t win, I don’t care.

Someone from Major League Baseball finally spoke about the looming deal to provide DirecTV with exclusive rights to the Extra Innings package. In an Op/Ed in USA Today, Tim Brosnan, Major League Baseball’s executive vice president, business, had this to say in defense of whatever action Major League Baseball eventually announces.

We offer the following assurances to our fans: Any deal for the Major League Baseball’s Extra Innings subscription package, when concluded, will in no way affect a single fan’s ability to watch games of his home club in his home market. Major League Baseball will continue to make available on basic cable, satellite and broadcast television more games by far than any other sport (on average, more than 400 games per year are telecast in each market); a subscription package of out-of-market games will continue to be available to a broad segment of our fan base through either MLB Extra Innings or MLB.TV, its broadband counterpart.

There are two fundamental flaws in that paragraph. One reveals why MLB’s executives will make the right decision only if they’re lucky. The other is based on inaccurate marketing fluff.

Basically, MLB has no business acumen. It’s decision is based on justifying what it wants to do rather than doing what is justified. Mr. Brosnan states that the deal for Extra Innings “will in no way affect a single fan’s ability to watch games of his home club in his home market.” This is either ignorant or insulting. The issue is not about home clubs in home markets. MLB thinks the hardcore fans it courts with Extra Innings are merely locals who want more games. It is ignoring those fans who subscribe to Extra Innings to see their favorite team. I suspect that’s the majority of subscribers.

In my case, I subscribe to watch as many Phillies games as possible. I don’t care one bit about the Orioles or the Nationals, the two teams I’m supposed to focus on given my geographical location. I will not ask for forgiveness for developing a rooting passion that doesn’t involve a franchise that qualifies as a toddler or a franchise with a misguided superiority complex.

To Mr. Brosnan’s second claim, of course baseball broadcasts far more games than any other major sport. It plays at least twice as many games as every other sport. This is not a major feat. It’s certainly not something to brag about, given how easily commenter dianagram deflated the non-argument on USA Today’s Op/Ed blog:

Let’s do some math …. 162 games * 30 teams / 2 teams per game = 2430 possible games. You are therefore offering 1/6th of the total universe of games. The NFL offers 4 games per week on basic cable or major network (out of a possible 16 games). They therefore offer 1/4th of their total universe of games. What am I missing (I mean, BESIDES the 60 games a week on Extra Innings)?

Major League Baseball doesn’t understand its fan base. It’s too busy making decisions it thinks customers should want, decisions that comply with the strategy it hopes to pursue, while its best customers adamantly tell it that they want something else. To make this situation worse, MLB is dragging this out at a time when the focus should be on the field. Trading goodwill for a few dollars is bad long-term business.

USA Today’s opposing editorial can be found here.

Treat adults like adults.

I looked into a few policy recommendations coming from the Center for Responsible Lending, based on yesterday’s post. My initial hunch proved correct. Consider its stance on “Debit Card Danger”:

Banks stand back as debits and ATM withdrawals cause high-cost overdrafts for their customers

Rather than linking their customers’ checking accounts to their savings or other resources to cover overdrafts, many banks and credit unions are automatically covering their customers’ shortfalls with expensive short-term loans.

More overdrafts are happening when customers swipe their debit card or make an ATM withdrawal than when they write a check. In these cases, banks can warn customers or merchants when they have insufficient funds—but most do not. They can also decline the transaction and save the customer the overdraft fee—but most do not.

See, we should blame the banks because people don’t manage their money. Someone should be looking out for the customer who can’t keep track of his checking account. Someone should look out for him, even though he signed up for the account with “expensive” short-term loans. Remember, banks are in the business of giving away money to customers. That’s the purpose of banks. They have money. They give it to people who don’t have it.

I never use my bank card as a debit card, instead opting for the credit card feature. Perhaps I just have better credit than most Americans, but I doubt it. My brother got it on his card when he opened a checking account at 18-years-old. As you could expect, the Center for Responsible Lending’s stance doesn’t get any better when looking at credit cards:

While some cardholders use their credit for occasional purchases, working families have come to rely on plastic to weather economic downturns or to make essential purchases: groceries, medical expenses, home repairs. Even though most households pay more than the minimum each month, more and more people find themselves perpetually indebted to the credit card industry. College students and other minors have also become attractive targets for the marketing of cards that contain hidden transfer charges, exorbitant late fees and exploding interest rates.

Any public policy that starts with the premise of “working families” and “weathering economic downturns” will most likely be garbage. I suffered through years of credit card debt that I brought upon myself. I ended up using my cards to make essential purchases like groceries. This was my fault. I’m not saying that people are to blame for every bad incident in their life, but placing this at the feet of credit card companies is silly. They offer a service. People can buy that service or not.

It’s just as possible to say that people use credit cards to manage economic downturns so that they don’t have to rely on others, including the government, to bail them out. They know that their situation will change, and they’ll repay the debt. Again, tighter regulation, which is what I suspect is the ultimate policy recommendation, cuts both ways. Consumers will suffer. The ability to manage their present and future is limited as much as their opportunity to screw it up. This is about who knows best, individuals or central planners.

Naturally the Center has an opinion on Tax Refund Anticipation Loans.

Tax Refund Anticipation Loans (RALs) are short-term cash advances against a customer’s anticipated income tax refund. But the loans are offered at high interest rates, ranging from about 40% to over 700% APR. Also, they speed up the refund process by as little as one week, compared to what consumers can expect by filing online and having their refunds deposited directly into their banking accounts. There were over 12 million RAL borrowers in 2003.

Tax preparers and lenders strip about $1.57 billion in fees each year from the earned-income tax credits paid to working parents, according to a 2005 study by the National Consumer Law Center.

There are few worthwhile angles here. Taxpayers shouldn’t be getting refunds hefty enough to justify such fees. Teach people to adjust their withholding exemptions to come much closer to their tax liability. They’ll have more cash throughout the year. (By extension, that might also impact the debit and credit card “problems”.)

The last sentence is the real kicker here. Tax preparers and lenders strip these dollars in fees. Why not just say that they rape customers if you’re going to implicitly accuse them of thievery? Teach people to manage their money, if that’s the problem. Teach them to read their contracts, if that’s the problem. Teach them to …

You get the drift. The Center for Responsible Lending seems more interested in being the Center for Lending Regulation, with a healthy disrespect for the abilities of “working families” to manage their money. Whatever evidence exists to support such a belief is not sufficient justification to punish with more regulation those who can do what the Center for Responsible Lending believes is impossible, or worse, unnecessary.

People should be free to act against their best interest.

Those newfangled mortgages from 2005, they’re threatening to negatively impact some individuals. But don’t worry, government wants to save everyone.

… But as mortgage defaults rise, the new Congress and several state legislatures are contemplating enactments that would require mortgage brokers and lenders to make sure a loan is “suitable” for a borrower–just as stock brokers have to make sure an investment is suitable for a client. Your loan officer would be required to ask a series of detailed questions about things like your financial goals and your tax status. And if the loan was inappropriate, the lender would be open to a lawsuit–and even a prison term.

That should work wonders on the mortgage (and by extension, the housing) market. Screw up according to some bureaucrat’s unclear standards and whammo, prison bars for you. Wonderful.

I’m all for fair disclosure requirements, but I also understand that that’s what contracts are for. I understand enough finance from my education that I could walk my way through buying my first house with little trouble on the specific terms. Adjustable versus fixed rates, interest only, whatever. I faced all of those questions. The answers were obvious enough to me because I did my homework. But I also hired an attorney to work through everything and verify that the contracts matched expectations.

I don’t pretend like everyone has that knowledge, or even that every mortgage broker has any scruples. I can’t believe that those require this level of anti-market glee:

The mortgage industry doesn’t object to the congressional intrusion, since a federal law might be preferable to a patchwork of state laws (though the industry would have preferred a Republican-run Congress). Consumer advocates are now happily taking their case to a Democratic Congress, and they don’t deny that what they propose could crimp profits of lenders and of investment banks that securitize home loans. “It would eat into returns and presumably investors’ appetites, too,” says Keith Ernst of the Center for Responsible Lending in Durham, N.C.

Presumably.

The ramifications are simple, really. Reduce the profitability, and the providers will disappear. Then that low-income family that could just barely afford a house will be stuck renting. That middle class family looking to trade up? Maybe next year. Even if they can properly assess their risk and potential to repay the loan(s), they won’t be able to do so because the government cares so much.

Remember, of course, that the logic works the other way. Lend without common sense and your borrowers will go kaput. If the lack of judgment is large enough, the company will go kaput. This is how the market works to achieve balance. Lenders and borrowers alike have a built-in incentive to behave responsibly, even if they ignore that incentive. Beyond the basics of honest disclosure, handcuffing the market is just meddlesome misbehavior that will fail to protect people from themselves.

Incentives Matter

I don’t understand people who refuse to believe that basic economic incentives can be ignored or legislated away with nothing more than noble intentions. First, the premise:

As you know the United States is the only industrialized nation that does not have some form of universal health care. Over the past year or so several forms of “mandated” health care have been proposed: Massachusetts, Gov. Schwarznegger in CA, Wyden, Edwards. I will diary another week on why any “mandate” plan, tried no where else in the world, cannot work well. But for now let’s quickly look at all those other systems that really are in place elsewhere.

I don’t understand why mandate is in quotes there. Both states want to require specific actions and expenditures by its citizens. That sounds like a mandate. Perhaps the DailyKos diarist meant to put health care in quotes. Moving on.

Why do we need to really know how other countries do it?

Well, they all have better quality of care and outcomes than we do. And they control costs better.

Better quality of care? Better outcomes? Cheaper? Dubious, at best. Broader scope of who gets covered, perhaps, but that is not the same as quality of care and outcomes, and certainly not costs. The better strategy here would be to look at what’s preventing us from reaching that broader scope of who gets covered with superb health care without a pre-determined solution. Supporters of universal coverage appear to have analyzed the economics and found that economics is a right-wing conspiracy imperfect at meeting needs. I disagree:

The most highly-privatized system in Europe is probably Switzerland. Even there, private insurance companies are required by law to be nonprofit, their premiums, benefit structures and plans are set by the government, they are required to community-rate (i.e. they are not allowed to screen out the sick and deny them coverage, the fundamental way that U.S. insurance companies make money), and – get this – if one of them happens to enroll a healthier population and make more money, they have to give it away to the companies that made less.

I don’t understand how this is supposed to be privatized. If the context is just that it has the least government interference in Europe, okay, I guess it could pass such a claim. But “privatized” is not a word I’d use to describe that scenario. Forced non-profit status and revenue redistribution is hardly a free market solution.

To figure out the long-term flaw, start with the foundation: there’s no profit incentive. Socialism is a bad assumption because it reduces freedom when even one person is uninterested in participating, but let’s first fight the fight further along in the process. What’s the incentive? What motivates people to keep coming to their jobs? What motivates people, once there, to control costs? What motivates people to innovate within a system designed to first control cost? I’m at a loss. Someone please explain what I’m missing.

I’m not getting that answer from this diary, so I’ll excerpt what comes next.

Can you imagine U.S. health insurance companies being any more likely to go for that than for single-payer? They might as well go out of business! The idea that a system like that is going to make a proposal more “politically feasible” is totally ridiculous. That’s why I say in the talk that just as fundamental to the idea of “one-payer” is the notion that for-profit insurers must be eliminated. Also, the added cost of the Swiss multi-payer system makes it the most expensive. The reason we advocate single-payer for the U.S. is that it saves more money, AND it is also “ready to go out of the box” because we already have one single-payer system (Medicare!) and all the infrastructure and know-how ready to make it work.

Several questions arise from that. What about the investors in those for-profit insurers? I understand that many liberals view capitalism as bad, but retirees hold shares in those for-profit insurers. Pension funds, both private and government, rely on those companies to diversify portfolios. What do we do when we eliminate for-profit insurers? What about the blue-collar workers who’ve had promises made to them? Why hate them through this plan? Whatever the solution, I bet the answer includes Social Security.

The Swiss system is the most expensive. The only alarm bell to go off here is that the multi-payer aspect makes it expensive? How intentional and pre-ordained does the path to that conclusion have to be ignore the missing incentives in the Swiss system? Without the promise of profit, there is no incentive to control costs. Someone else will presumably cover whatever expenses arise. This is not the structure of a healthy system.

The end of that excerpt is the best. We already have one single-payer system that works. Forgive me for asking dense, obvious questions, but if Medicare works, why is there complaining that poor people can’t get insurance coverage? If it works, they’re getting the health care they need. Do we care about health care or health insurance? This seems like little more than misdirection to get more government control in more areas. It’s a feel-good solution being promoted only because it feels good to tell people what they should have, without incentives. Once again, count me out. I’m not interested.

Link via Balloon Juice because there’s only one DailyKos diary I read.

I don’t know how serious this is.

If you need to break the oppressive chain blocking you from using someone else’s property on your own terms, resourceful individuals are working to make sure you can have whatever you want. Behold the WiFi Liberator:

Wifi Liberator is an open-source toolkit for a laptop computer that enables its user to “liberate” pay-per-use wireless networks and create a free, open node that anyone can connect to for Internet access. The project is presented as a challenge to existing corporate or “locked” private wireless nodes to encourage the proliferation of free networks and connectivity across the planet. The project was inspired by the ongoing “battle” between providers broadcasting wireless signals in public spaces, in particular: corporate entities, wireless community groups, individual users, and proponents of open networks. Like my Wifi-Hog project, the Wifi-Liberator critically examines the tensions between providers trying to profit from the increasingly minimal costs associated with setting up a public network and casual users who simply want to see the Internet transform into another “public utility” and become as ubiquitous and free as the air we breath. The project targets pay-per-use wireless networks as often found in airports, other public terminals, hotels, global-chain coffee shops, and other public waiting points.

I’ve traditionally recognized such liberation as theft.

It’s irrelevant how minimal the costs associated with setting up a public network happens to be. Price and value include more than just expense. Bandwidth supply is not unlimited at any one point. For users who have a critical need, however legitimate, they can have the access they need if they’ll pay the price. Casual users need not pay or use the service if they don’t like the price. If it’s not profitable because enough people won’t pay to cover those minimal cost, the business will adjust or die. As long as there’s a profitable model, someone will find it. That is how (closer to) free access should and will arrive.

Via Boing Boing

Promoting Ignorance

I seldom watch the evening news because everything it presents can be found in shorter, more productive (i.e., less sensational) formats on The Internets. Last night I stumbled on a segment on NBC where Brian Williams introduced the news that Exxon Mobil produced a record profit of $39.5 billion for 2006. Rather than taking the standard “windfall” profits route, Williams hit a different bit of stupidity. He set up the reporter to address this popular “outrage” by asking what incentive Exxon Mobil now has to find alternate energy sources. Ehhhhhhhhh.

I didn’t listen to the answer because, as he asked it, his implication lacked any notion of understanding or belief that Exxon Mobil might not drive its business into the ground seeking ever greater profits from oil. In the larger context of the economy, Exxon Mobil doesn’t have to perceive any incentive to find alternate energy. Perhaps Exxon Mobil doesn’t want to be in that business and believes that oil (and natural gas) will be around long enough that it can keep generating profits without alternate energy sources. I doubt its executives believe that, but it doesn’t owe anyone beyond its shareholders an obligation to adjust its business to market pressures. If alternate energy is potentially profitable, someone will pursue it. That someone will most likely include Exxon Mobil. This is not complicated.

Of course, the $20 billion or so that Exxon Mobil invested in exploration and research last year suggests that they’re at least working to find more oil, oil that we currently can’t reach or find. While not an alternate energy source, finding more oil delays the need for finding an alternate energy source. The scarcity and political ramifications that Williams probably thought he was asking about are a bit more complicated than one company generating a large¹ profit through its activities. If Williams wanted to make that point, he should’ve offered a monologue on how a $39.5 billion profit is socially irresponsible or some other pontification. He probably figured that Al Gore already has that covered, which left him free to continue his economically simple misunderstanding.

¹ I’ve made this point before, but it probably needs to be said again. In absolute dollars, $39.5 billion is impressive and mind-boggling. In the context of the expenses (and taxes) needed to create such a figure, a great deal of the luster wears off. As a percentage of total revenue, the net profit is only 10.45% (39,500/377,635). Many companies with a smaller absolute dollar profit have significantly higher profit ratios. To illustrate this point relative to Exxon Mobil, its revenue for the fourth quarter of 2006 decreased (pdf link) by more than $9 billion from the same quarter in 2005. Yet, it managed to keep net income mostly stable by lowering its costs. There’s obviously more thorough analysis needed to give that weight, but only politicians with a populist axe to grind would hammer its conservative results. Maybe I should hammer away at the “revenue” brought in by the U.S. government.

Continuing to hide costs is not exposing them.

Robert Samuelson’s column about health care proposals in today’s Washington Post is interesting. I agree with the gist of what he says, but there are a few phrases that rub me wrong. They’ll be used to advance stupid(er) plans. For example:

For decades, Americans have treated health care as if it exists in a separate economic and political world: When people need care, they should get it; costs should remain out of sight.

Who defines need? In a health system with even minimal government involvement, the wrong person will influence need. That’s minor, I think, because his implication is clear enough to everyone but the most obtuse and/or ideological. But his follow-on, that costs should remain out of sight, is the problem now. Perpetuating that only changes the assumption that medical care should occur regardless of cost to essential medical care should occur regardless of cost. Again, if we can’t define need beyond a placeholder for a basic point, absent individual circumstances, we’re doomed to end up where we are after reforming the system.

The hard questions won’t sit still, because health care (now a sixth of the economy, up from one-eleventh in 1980) is too big to be hidden. Myths abound. Contrary to conventional wisdom, the doubling of premiums for employer-provided coverage doesn’t mean companies shifted a greater share of costs to workers. In both 1999 and 2006, premiums covered 27 percent of costs, says Paul Fronstin of the Employee Benefit Research Institute. It’s simply the rapid rise in total health spending that’s depressed workers’ take-home pay.

Unless we advocate a complete separation of employer and health insurance, using take-home pay as a measuring stick will create sub-optimal solutions within the confines of our already bungled system. And note the key word, depressed. That’s not an accident. People are “suffering,” so something must be done. If the share of costs from premiums is consistent, take-home pay lower than it would be without employer-paid insurance is merely a signal from the market that costs are escalating. To Mr. Samuelson’s earlier point, this should remain out of sight? Without the incentive to accept health insurance benefits as compensation, individuals would see the direct cost of their choices through greater expenditures, rather than “depressed take-home pay”. Presumably, they could then better define need based on their own situation.

Dude, Where’s My Gas Tax?

Charles Krauthammer starts off with a great premise from his Friday column:

Is there anything more depressing than yet another promise of energy independence in yet another State of the Union address? By my count, 24 of the 34 State of the Union addresses since the oil embargo of 1973 have proposed solutions to our energy problem.

The result? In 1973 we imported 34.8 percent of our oil. Today we import 60.3 percent.

Most everything else in his essay is worth reading. The bit about ethanol, in particular, is useful because we’re not getting the full picture. There are unintended consequences, as the cost to feed livestock increases (not necessarily a bad unintended consequence for vegans). More farmland must go to grow corn. And few in power will acknowledge how government protections irrationally impact decisions regarding ethanol since sugarcane can be used to make ethanol at a significantly more efficient, effective cost in dollars and energy expended. But we must prop up our sugar industry from foreign trade. As Mr. Krauthammer says, we’re not really serious about tackling the issue of oil dependence as much as we’re interested in making the politically correct choices that appear responsible.

As good as it is, I’m still left with questions from Mr. Krauthammer’s essay. Particularly, from this:

First, tax gas. The president ostentatiously rolled out his 20-in-10 plan: reducing gasoline consumption by 20 percent in 10 years. This with Rube Goldberg regulation — fuel-efficiency standards, artificially mandated levels of “renewable and alternative fuels in 2017” and various bribes (er, incentives) for government-favored technologies — of the kind we have been trying for three decades.

Good grief. I can give you 20-in-2: Tax gas to $4 a gallon. With oil prices having fallen to $55 a barrel, now is the time. The effect of a gas-tax hike will be seen in less than two years, and you don’t even have to go back to the 1970s and the subsequent radical reduction in consumption to see how. Just look at last summer. Gas prices spike to $3 — with the premium going to Vladimir Putin, Hugo Chávez and assorted sheiks rather than the U.S. Treasury — and, presto, SUV sales plunge, the Prius is cool and car ads once again begin featuring miles-per-gallon ratings.

No regulator, no fuel-efficiency standards, no presidential exhortations, no grand experiments with switch grass. Raise the price, and people change their habits. It’s the essence of capitalism.

I’d quibble that the essence of price increases mandated by the government is not capitalism, but that’s not really my point. I haven’t refueled my car in several weeks¹, so I can’t really say what the current average is. Also, I’m too lazy to look it up on The Internets. I’m just going to assume $2.50, since it’s an easy number to work with. My assumption means that, to reach Mr. Krauthammer’s suggestion, the government must increase the current gas tax by $1.50 per gallon. Done. And then?

Where does the money go? When the actual, untaxed price of oil fluctuates higher the next time some crisis arises, will the government adjust the extra tax down to keep the price stable at $4? The goal is to reduce consumption, not bankrupt the economy, I assume. So what do we do when capitalism interferes with the essence of capitalism? I don’t trust politicians to be noble with that extra $1.50 per gallon, if nothing else. (Don’t tell me that $1.50 per gallon would go to “energy independence” programs or whatever. Two words: Social Security.)

I agree that this would have at least the effect that Mr. Krauthammer and other supporters suggest. But I’m skeptical. There will be unintended economic consequences, as well as waste by politicians. I don’t like artificially unleashing these demons to make us do what we “should” do.

¹ Public transit is great, except when it leaves me stranded in the cold for an hour, as it did Friday morning.