WHAT'S THE MATTER WITH OUR EARS?

Nothing as yet; but we may soon have oil and gasoline coming out of them. Only 10 months ago, the Arab extortionists were said to have the world over an oil barrel for the rest of this century. Today, world demand for crude oil, in spite of increased population, is expected to drop by 3% this year. There is a glut of supertankers. Gasoline dealers have their tanks full and are saying "no thanks" to the few and wonderful allocations kicked out by the FEA's computers.

Until last year, gasoline consumption in the US increased by 5 to 6% a year, partly due to the increasing number of drivers, partly due to the increasing affluence. This year, the number of drivers and vehicles has again risen, but gasoline consumption is level with last year's, and it may show l% decline at the end of the year

What has happened? Miracle of miracles, the law of supply and demand still works when given a chance. Gasoline prices are up 45% over last year. To the boundless surprise of liberal economists, this has produced consumer resistance: People buy less gasoline, about 7% less per driver. Milton Friedman, Alan Greenspan and others from the rare breed of free-market economists had predicted such a development 10 months ago, but the majority of economists, suckled on Keynesian milk, swore high and low that gasoline had no price elasticity and the only out was to ration it.

Economist David Freeman, for example, declared on nationwide TV at the time that gasoline had zero elasticity (demand elasticity is the percentage decrease in demand per percentage increase in price) and that only rationing could do the job. He is now head of the Ford Foundation's Energy Policy Project and calling for a drastic s1ow-down in energy growth. Figures recently released by Chase Economic Associates show that the demand elasticity of gasoline is no less than 15% in the short run (defined as a year or less); the long-run elasticity is not known for certain, but is estimated to be even higher. W. Heller was another one to call for rationing because of zero elasticity. He also used to give advice to the President on how to stop inflation; and it would seem that the President took it.

The White House is now studying a proposal to put a 10 cent excise tax on a gallon of gasoline. This would doubtlessly cut gasoline consumption. But if the 10 cents were charged by the producers, they would be ploughed back for badly needed energy investments. As an excise tax, they are likely to finance further wars on poverty that cure nobody's poverty except that of its administrators.