Ontario NDP Cannot Violate Economic Laws

Ontario New Democratic Leader Andrea Horwath is promising to address the high cost of gasoline with weekly price caps. This is likely to play well with voters because it sounds like gas prices would be lower. But Ontario cannot really do much about the price of gasoline because it is set in the international marketplace.

Looking at the details of Horwath’s statements, the NDP isn’t really promising lower gas prices. What they are promising is reduced short-term volatility. Horwath says “the point is not to keep prices artificially low” but rather “to stop the oil industry from price gouging.” But most voters will surely see a promised end to “price gouging” as lower prices.

The truth is that forcing prices lower will result in shortages unless the government subsidizes our consumption of gasoline through reduced gasoline taxes or direct subsidy. The classic price-quantity curve of economics applies: if the price is lower than the equilibrium point, then demand will exceed supply leading to shortages.

Rather than complain endlessly about the inevitable climb of gasoline prices, Canadians need to embrace alternative energies. These alternatives are expensive now, but as we learn to exploit other energy sources more efficiently their prices will come down while oil prices continue to climb.