Saturday, November 10, 2007

Two minute answers

I've joined Toastmasters recently, and in this past week's session the table-topics master asked "how would you fix the problem of rising gas prices?" I regret not volunteering to answer because it would have been a good forum in which to educate people on the market process. So here is the answer I would have given.

My answer is that I don't know, and neither do you. No one in Washington knows and no environmentalist or oil company executive knows.

The answer, or more likely answers, will emerge from what Ludwig von Mises called the "daily repeated plebiscite" of the market process. Each of us contributes to this process by acting on our own bit of information. Consumers make decisions about what and how much to purchase, and producers and entrepreneurs decide on what and how much to produce. What governs this process is not some central authority with god-like powers; nor is it some committee of wise men with only the public good in mind. The governing mechanism of this "daily plebiscite" is the price system. Rising prices encourage consumers to cut back on purchases while at the same time encouraging producers to find new sources of supply. Innovative new products and technologies become more viable with higher prices.

Now I know this answer is somewhat simplistic because it ignores the international political issues going on in the world. It also assumes that the normative statement of rising gas prices being a problem is correct. But there was a two minute time limit!

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