Posted on 06/13/2008 6:25:35 AM PDT by Congressman Billybob
On TV this week was a senior Member of Congress whom I knew from way back when, talking about “the gas crisis” and “what Congress should do about it.” I recall him from when he was a member of the Baltimore Jaycees, a young lawyer hustling for clients. Now he was on TV saying things that your average child would know was balderdash, with minimal thought about it.
This gentleman thought that additional taxes on the oil industry would somehow lower the cost of gasoline. He also claimed that drilling for additional oil in the US in places where it exists, had nothing to do with the price of gas and would do no good.
He had the effrontery to say that “if we drilled in ANWAR (in Alaska), the additional oil wouldn’t come on line for ten years.” This same gentleman voted, repeatedly, ten years ago to prevent the drilling of oil there, and in most coastal areas of the US.
There are laws of nature and laws of economics which are absolutes. No one - not even a high-fallutin’ politician who is surrounded by staff who tell him daily that he can walk on water - no one is immune from those laws. That’s why I began with the quip about gravity. Too few people realize that the law of supply and demand is equally inexorable.
I suggest strongly to anyone who hasn’t read this book, that you get and read Thomas Sowell’s Basic Economics. Not only should citizens and teachers be familiar with this book, so should reporters, candidates, and even Members of Congress who talk about such things as prices.
Let’s review some basics:
Whenever demand goes up faster than supply, prices go up. The world, not just the United States, is demanding more oil per month than suppliers are providing. So the price of oil, and of all products made from oil, MUST go up. This is before the influence of a weak dollar is cranked in. The dollar is tanking due to certain policies of the federal government. That makes everything we buy from other nations, cost more. Including oil.
The only way to force the price down is to subsidize it. Some of the oil-producing countries actually sell gas at home for 25 cents a gallon, or so. That doesn’t mean that the value of a gallon of gas in Iran, for instance, is only a quarter. It just means the government is taking money from other people to subsidize gas prices and keep car and truck drivers happy.
That brings us to two more absolute rules of economics. If you raise the taxes on anything, you will get less of it. The higher prices on alcohol and tobacco have reduced consumption of those products, especially by those with the least money to spend. Yes, I know that both of those products are addictive. But all products are price elastic to some extent.
This is not a new concept. The Supreme Court said in the McCulloch decision in 1819 that “the power to tax is the power to destroy.” It is beyond me how a long term Member of Congress who is also a lawyer, and to my personal experience is not a stupid man, could fail to understand this point. By the way, I am not naming him because there are thousands like him, including some who are candidates for President or covering such candidates who are equally ignorant of economics.
The opposite rule to taxes, concerns subsidies. If you subsidize anything, you get more of it. Witness “free” health care. Whatever is free to the users will still have a cost to someone else who is actually paying the cost. That would be you and me, whom my sainted Uncle Charlie always called, “the grateful taxpayers.”
Whenever something is free, or close to it, demand will go through the roof. Then, the government which created the problem in the first place will have to engage in rationing. That’s why people are dying on waiting lists to get life-saving surgery or other treatment in places like Canada and England.
Any child who has ever run a lemonade stand or played the game of Monopoly better understands the economic laws of supply and demand than your average voter, or professor, or candidate, or Congressman, or reporter. And when all that economic ignorance by adults is brought to bear on “high gas prices,” nothing either positive or competent will result.
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About the Author: John Armor practiced law in the US Supreme Court for 33 years. He now lives in Highlands, NC, and is working on a book on Thomas Paine. John_Armor@aya.yale.edu
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Republicans, as a whole, seem to have a fairly faint grip on reality vis a vis economics, and the Democrats live in an alternate universe on the subject.
How hard is to find simple competence these days?
If I didn’t know better I’d say the Dems have a ‘master plan’ to fix overpopulation by limiting our access to energy.
Tread carefully through that mine field. As I remember, the Federal Gooberment began subsidizing the production of illegitimate children during Johnson's Great Society.
As most FReepers know, what gooberment subsidizes, gooberment gets. They subsidized illegitimate children and got a bumper crop of the little bastards.
Congressman, if you ever get around to creating a ping list put me on it.
There is a problem with the government subsidizing the purchase of Gas, it will simply increase demand which ultimately will increase the price of Gas.
Now if the Government subsidizes the production of oil then it will increase the supply which will lower the price which is a good thing, but that isn't what they are talking about.
The way to force the price down is to increase the supply.
John / Billybob
We have had two presidents since 1900 who actually understood economics, Reagan and Coolidge. And Kennedy was talked into significant tax cuts by people who understood the subject. It is truly a dismal science and dynamic people, those who aspire to government leadership, do not normally study it. Dynamic “leaders” want to know how to manipulate the economy because they think they are capable of that and must do it and thus almost all are disciples of Lord Keynes who did not write on Economics but rather on the plausible excuses for government to control the economy. His theories were, of course, wildly popular with the political class. Were there no John M. Keynes there might well be private mineral extraction operations on the Moon and Mars by now, with tourist accommodations.
I have the opposite view, that people who get their living from the government should not be allowed to vote for the level of government from which they are compensated. Such people have a bias for government solutions and derive their incomes from taxpayers and tend to work to increase their incomes and thus taxes. I first heard that idea from my father who was a career naval officer.
If there were such a requirement the Great Universities would all have "Economic Citizenship" courses that would teach Keynes and command-and-control. Students would learn that economic events can only happen if the properly educated are pushing the buttons and spinning the dials and designing the economy from the political center. And remember, Marx was a noted "economist" who wrote about Capital and its deployment.
Well, I did say a “good” intro course. But you are right, in general the universities would fail us on that count.
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