Back To Babylon: From Hammurabi To Gov. Gray Davis, Caps Never Work.(ISSUES & INSIGHTS)(BRAIN TRUST)

Byline: William Peterson

Face to face in Los Angeles, Golden State Gov. Gray Davis implored PresidentBush to impose price caps on electricity wholesalers who sell into the rich California market. Bush said no. An irate Davis then vowed to sue Uncle Sam.

On other price fronts, Congress is moving to boost the minimum wage and impose "labor and environmental standards" -- in other words, higher prices -- on foreign producers, especially on those seeking to export their wares to the U.S.

So we once again hear the tired call for wage and price controls. Never mindthat they have never worked and they won't work now. They defy economics and history.

Economic logic says free prices have a job to do in evening out shortages and surpluses as they develop. But price controls ("caps" in today's jargon) cause or worsen shortages as "low" prices impel producers to cut supply and inspire consumers to raise demand.

Price controls simply widen the gap between demand and supply. They compoundthe shortage problem for consumers, producers and the price controllers, and lead to the desperate solution, repeated throughout history, of rationing, now known as "conservation," which simply compounds the problem.

History's dark lesson on controls is undeniable. Hammurabi's Code from circal750 B.C. decreed for inflation-prone ancient Babylon: "No. 258. If a man hires a herdsman, he shall give him six gur of corn per annum."