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Ever wonder why gasoline prices vary so much across the country, or why gasoline can’t be shipped into a state from elsewhere when a local refinery goes on the blink? The answer represents one of the barriers we must overcome to boost U.S. economic growth. A fascinating Op-Ed article in The Wall Street Journal opened my eyes. The authors are Andrew P. Morriss, a law professor at the University of Alabama, and Donald J. Boudreaux, an economics professor at George Mason University. They show how regulatory requirements have carved up the national market for gasoline into fragmented, regional sub-markets. The trouble, they write, is that “each separate market is much more vulnerable than a national market to refinery outages, pipeline problems and other supply disruptions.” If Phoenix ran short, more gasoline couldn’t be shipped in from Tucson because the Environmental Protection Agency mandates different blends for the two cities. Morriss and Boudreaux point out that this situation began building after World War II because of whining businessmen. Inland refiners complained that coastal refiners had an unfair advantage. Small refiners griped that big ones squeezed their profit margins. Politicians and regulators began listening, and responded with favors — rules and regulations — to mollify the moaners, injecting politics into a market that should have been responding to supply, demand, and technology. State legislators and environmental laws exacerbated the trend. Whiners can have legitimate causes, but sometimes they become what economists call “rent seekers.” In “The 4% Solution,” Brendan Miniter describes rent-seekers as aiming to profit by wrangling money or privilege from the government, “not by producing a better or cheaper product.” Unfortunately, as Miniter quotes from a 2008 Boudreaux article, “…enormous amounts of resources — including human talent — are wasted in pursuit of government privileges.” If that pursuit sounds like lobbying, move to the head of the class. Substituting politics for entrepreneurship hobbles the economy’s capacity to grow. It also burdens the taxpayer and fleeces consumers through higher prices than competition normally would allow. If we are to succeed in accelerating economic growth, we’ll need to adjust some attitudes on Main Street as well as in Washington.
2012 Economic Growth Fellow
John Prestbo is retired as editor and executive director of Dow Jones Indexes. Previously he was markets editor at The Wall Street Journal. He has co-authored or edited several books over the past 30 years. The most recent is “The Market’s Measure: An Illustrated History of America Told Through the Dow Jones Industrial Average,” published in 1999 by Dow Jones Indexes. His column, Indexed Investor, appears on the highly regarded “MarketWatch” business and finance website. He received his bachelor's and master's degrees from Northwestern University.Full Bio
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