by Archie M. Richards, Jr., CFP^®
June 25, 2001

The economy would recover from its doldrums if the Federal Reserve cut interest rates one more time and declared, that's it; no more cuts.

Last I noticed, human beings act in their own best interest. When the Fed cuts interest rates but implies that more reductions will follow, people postpone borrowing to take advantage of the lower rates. Why should a businessman borrow to buy an expensive piece of machinery now, when he's confident he can borrow cheaper later?

Government officials act as if citizens are morons and don't react to incentives. I have news for you, guys. Those morons are sharper than you are.

The Fed should cut interest rates one more time and announce that that's the end of the declines. The economy would immediately come to life. The Fed could reduce the rates later, of course, but not for a good long time.

Don't buy any of California 's huge, September offering of municipal bonds. The Federal Energy Regulatory Commission (FERC) has imposed price caps on the wholesale price of electricity, not only for California , but for the entire Western United States . Inevitably, too much electricity will be used and too little produced. Blackouts will persist, and the underpinings of the Western states will weaken.

Price controls are usually proposed as a temporary solution. But the prices are invariably set too low, stimulating demand and suppressing supply. This prevents the problem from being solved, tending to make the controls permanent. New York City imposed temporary rent controls almost sixty years ago. They're still in effect.

FERC also regulates the nation's interstate pipeline system. In 1992, it imposed price controls on natural gas. Surprise, surprise: Natural gas has become scarce.

Price controls won't work in California any better than they did in the Soviet Union . Governor Gray Davis, who is largely responsible for California 's electricity shortages, should own up to the error and teach Californians how free markets work. But no, he's cowering in the capital, blaming President Bush and hoping that the people won't dump him. They should dump him in favor of someone who knows what good leadership means.

Here's another source of energy shortages. State governments have protected their utilities from more efficient rivals and discouraged the construction of transmission lines.

Florida 's utilities, for example, have aging, oil-fired plants, not the more-efficient kind that burns natural gas to make steam that's used to generate electricity. Florida regulators have protected its charges by banning outsiders from building the more-efficient plants above a certain size, on the ridiculous grounds that they waste water.

New York State produces plenty of electricity. But government rules have discouraged the construction of power lines across the Hudson River , leaving Manhattan in a summer sweat.

When Hydro-Quebec tried to put a power line across Long Island Sound , Connecticut said, no, that that little line might hurt the oysters beds.

Utilities are not at fault for trying to influence the regulators. Increasing profits is what companies are supposed to do. Governments are at fault for submitting to the influence. By hindering competition, government regulators stick their bulbous noses where they don't belong.

America , by the way, has been terrific at conserving energy. Since the mid-1970s the U.S. economy has more than doubled. But its consumption of energy has grown by less than a third.

There are about 500 million cars in the world. If all of them ran flat out, the total energy would exceed that of all power plants by about twelve times. Just you wait. After the mechanical controls of carburetors, transmissions, brakes, and other functions are replaced by electronic controls, the fuel savings will be enormous.

Rich people care more about the environment than the poor. The best way to preserve the environment is to make poor people rich.

Most foreign aid should be stopped. It's paid to governments, which makes them all the more powerful. This makes the rich richer and the poor poorer.

The United States should also repeal all tariffs and impediments to trade. This would aid other nations enormously, and help the U.S. too.

When the founding fathers spoke of freedom, they meant freedom from government. Most Americans don't know that. Maybe this is because they attended government schools.