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What The Media Tell Americans About Free Enterprise

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Friday, June 1, 2001

Volume 9, Number 5

Networks' Embrace of Price Caps
Reveals Reporters' Economic Illiteracy

With his state facing the prospect of electricity shortages and widespread power blackouts this summer, California Governor Gray Davis asked President George W. Bush to impose limits on wholesale electricity prices as a way to protect consumers from higher prices. The President rejected Davisís request, arguing that such artificial caps would only exacerbate the problem by discouraging new production while doing nothing to curb demand.

Not surprisingly, the broadcast television networks sided with Davisís demand for more regulation.

CBSís Dan Rather portrayed Bush as close-minded and obstinate. "It was a politically-charged meeting in California today between Republican President Bush and Democratic Governor Gray Davis," Rather intoned on the May 29 edition of the Evening News. "But there was no meeting of the minds about Bush for energy-short California, especially the Presidentís refusal to consider any price controls."

Bush, of course, had considered price caps and rejected them; the subsequent story by CBSís John Roberts even quoted the President explaining his reasons: "Price caps may sound appealing, but their result will ultimately be more serious shortages, and therefore even higher prices."

But to the networks, price caps are a compassionate remedy that only an ideologue could oppose. "After making a final personal appeal to the President and being turned down, Davis said he will now turn to the courts in an attempt to get price caps," ABCís John Cochran reported on Good Morning America on May 30, "but lawsuits take time, and Californians seem to have little hope of avoiding high prices and power blackouts this summer."

On Friday, May 25, CBS Evening News reporter Bill Whitaker even charged that the Presidentís "message of compassion [is] at odds with his administrationís hands-off approach towards Californiaís crisis," adding that "even some of the free-market conservative Republicans in the California congressional delegation are bucking the White House on this one."

Whitaker notwithstanding, a "hands-off" approach is not at odds with compassion when the proposed cure would do more harm than good. Writing for National Review Online on May 30, the Cato Instituteís Jerry Taylor and Peter VanDoren explained that Davisís prescription "provides a disincentive for firms to control costs....would lead to shortages.... reduces the incentive to invest in new power plants....[and] biases the market towards needing new supply."

"The President and his regulators at the FERC [Federal Energy Regulatory Commission] believe that prices ought to reflect supply and demand. The governor and his populist allies think that prices ought to reflect the cost of production and nothing more," Taylor and VanDoren wrote. "That this debate is even being held and that serious people are taking it seriously unfortunately says a lot about the level of economic literacy both in the press and in the public at large."

One display of the difficulties that many members of the media are having with the California power story came on the Fox News Channelís Special Report with Brit Hume on May 29. During a discussion with Roll Callís Morton Kondracke and Hume, Fortune magazineís Jeffrey Birnbaum asserted that price caps could somehow increase the supply of electricity and help prevent blackouts this summer. "Itís perfectly possible," he insisted when challenged by Kondracke.

Kondracke responded with an elementary economics lesson: "If energy is cheaper, then youíre going to use more of it. Therefore, youíre going to have blackouts."

Birnbaum, however, hung tough: "Yeah, but you may also have a chance of having more of it, itís also possible."

"How do price caps make that possible?" Hume challenged.

"Well, because people might be able to, to pay for energy. Itís possible," Birnbaum declared.

But after a nightís reflection, Birnbaum was ready to concede that government price controls would do nothing to increase the supply of electricity. "I made a mistake last night when I spoke," Birnbaum courageously admitted the next night. "Price caps are definitely the wrong economic answer. It could lead to a spreading energy gap and problem beyond Californiaís borders and a long-term energy problem that would clearly be a serious political and substantive problem for the Bush administration."

If Senate Democrats get their way ó and the recent defection of Vermontís James Jeffords practically assures that they will ó incoming Majority Leader Tom Daschle will force a quick vote on a proposal by California Senator Dianne Feinstein to force Bush to impose price controls on energy providers. Network coverage of such a Senate debate would be enhanced if reporters like CBSís Whitaker, who equate price controls with "compassion," follow Birnbaumís example and ponder the economic realities of Californiaís electricity problem. Viewers might be subjected to fewer news stories that reflect the mistaken belief that the laws of supply and demand can be overridden by government fiat.

ó Rich Noyes



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