Trust the Market

This summer, vacationers have more to worry about than long lines at our nation’s amusement parks. With gasoline priced at more than $3 per gallon, it’ll cost families more than ever before just to get there. Such high prices have led many customers to think they’re being gouged at the pump.

But as economist John Lott argues in his new book, Freedomnomics (Regnery, a Human Events sister company), today’s soaring prices are actually a good thing. They mean our free market is working to deliver a product many people want at a price they’re willing to pay. “Temporarily high prices result in increased gas supplies, ultimately leading to a faster reduction in gas prices,” he writes.

The alternative to the free market, Lott notes, would be for the federal government to impose price controls on gasoline. Washington has done this in the past, specifically during the oil crises in the 1970s.

Instead of making things better for consumers, though, these price controls led to gas shortages in 1973 and again in 1978. “Americans waited in lines for hours to fill up their tanks due to chronic shortages” in the 1970s, Lott writes, shortages that “instantly disappeared as soon as the price controls were removed.” When it comes to setting gas prices, Lott writes, “the free market is working, and it’s ultimately working far more efficiently than any government-mandated controls would.”

Freedomnomics is packed with such commonsense observations — the sort of things that shouldn’t need to be said, but bear repeating anyway.

The cover of Lott’s book bills it as “a rebuttal to Freakonomics,” a bestselling book by authors Steven Levitt and Stephen Dubner. They had aimed to “show that economics is, at root, the study of incentives—how people get what they want, or need, especially when other people want or need the same thing.” That book discussed subjects ranging from abortion to swimming pools.

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Yet with his book, Lott has done something unusual: He’s delivered even more than he promised to.

First, he catches several missteps by the authors of Freakonomics. For example, in discussing corporate scandals, they wrote that “one characteristic of information crimes is that very few of them are detected.” Lott challenges that head on: “This claim is really just an assertion of what they think might be happening. No evidence is offered because — conveniently — no evidence is possible.”

In fact, corporate crime is relatively rare, because companies that lie or cheat are punished by the free market. “When firms defraud their customers or don’t deliver what they promise, customers will stop buying their products,” Lott says.

Yet this same accountability applies less and less these days to elected officials who supposedly keep an eye on big business. “Campaign finance reform is usually touted as a means to address political corruption and influence peddling,” Lott writes. Instead, it has helped incumbents remain in office.

“The rate of incumbents’ victories in federal races has risen since these regulations were passed,” Lott found. “The re-election rate for House members has grown from 88% to 94%, while the rate for Senate members has increased from 76% to 81%.”

Of course, Freakonomics became well known because of its claim that legalized abortion reduced crime. “Legalized abortion led to less unwantedness; unwantedness leads to high crime; legalized abortion, therefore, led to less crime,” Levitt and Dubner wrote.

Lott takes that argument apart.

For one thing, he notes that “legalized abortion, by raising the rate of unprotected sex, increases the number of unplanned births, even outweighing the reduction in unplanned births due to abortion.” In fact, not only does abortion not reduce the crime rate, Lott found it increases the rate of some crimes. “Legalizing abortion raised the murder rate, on average, by about 7%,” he writes.

So what caused crime to suddenly decrease in the 1990s? Lott cites the death penalty, tougher law enforcement and right-to-carry laws allowing citizens to arm themselves as the strongest factors.

Lott does far more than simply correct the mistakes in Freakonomics. He gives a thorough — and thoroughly enjoyable — explanation of why we have more government than ever today, how easier entrance exams have put less-skilled cops on the street and what government-run schools exist to do.

“Markets not only increase our wealth, they also increase our freedom,” Lott concludes. Freedomnomics is a good reminder of the importance of both. It’s a book that’ll have you nodding your head and saying, “oh, yeah, I hadn’t thought of that” while you’re spending hours in line, waiting to get on the roller coaster you spent $40 to ride.