Too "Complex"? (Thomas Sowell)

Townhall.com ^ | May 13, 2008 | Thomas Sowell

[jazusamo]

Some people think that the reason the public misunderstands so many issues is that these issues are too "complex" for most voters. But is that really so?

With all the commotion in the media and in politics about the high price of gasoline, is there really some terribly complex explanation?

Is there anything complex about the fact that with two countries-- India and China-- having rapid economic growth, and with combined populations 8 times that of the United States, they are creating an increased demand for the world's oil supply?

The problem is not that supply and demand is such a complex explanation. The problem is that supply and demand is not an emotionally satisfying explanation. For that, you need melodrama, heroes and villains.

It is clear that many people prefer to blame President Bush. Others prefer to blame the oil companies, who have long been the favorite villains of the left.

Politicians understand that. Numerous times they have summoned the heads of oil companies before Congressional committees to be denounced on nationwide television for "greed," with the politicians calling for a federal investigation to "get to the bottom of this!"

Now that is emotionally satisfying, which is the whole point. By the time yet another federal investigation is completed-- and turns up nothing to substantiate the villainy that is supposed to be the reason for high gasoline prices-- most people's attention will have turned to something else.

Newspapers that carried the original inflammatory charges with banner headlines on page 1 will carry the story of the completed investigation that turned up nothing as a small item deep inside the paper.

This has happened at least a dozen times over the past few decades and it will probably happen again.

What about those "obscene" oil company profits we hear so much about?

An economist might ask, "Obscene compared to what?" Compared to the investments made? Compared to the new investments required to find, extract and process additional oil supplies?

Asking questions like these are among the many reasons why economists have never been very popular. They frustrate people's desires for emotionally satisfying explanations.

If corporate "greed" is the explanation for high gasoline prices, why are the government's taxes not an even bigger sign of "greed" on the part of politicians-- since taxes add more to the price of gasoline than oil company profits do?

Whatever the merits or demerits of Senator John McCain's proposal to temporarily suspend the federal taxes on gasoline, it would certainly lower the price more than confiscating all the oil companies' profits.

But it would not be as emotionally satisfying.

Senator Barack Obama clearly understands people's emotional needs and how to meet them. He wants to raise taxes on oil companies.

How that will get us more oil or lower the price of gasoline is a problem that can be left for economists to puzzle over. A politician's problem is how to get more votes-- and one of the most effective ways of doing that is to be a hero who will save us from the villains.

You have heard of the cavalry to the rescue. But have you ever heard of economists to the rescue?

While economists are talking supply and demand, politicians are talking compassion, "change" and being on the side of the angels-- and against drilling for our own oil.

Has any economist ever attracted the kinds of cheering crowds that Barack Obama has-- or even the crowds attracted by Hillary Clinton or John McCain?

If you want cheering crowds, don't bother to study economics. It will only hold you back. Tell people what they want to hear-- and they don't want to hear about supply and demand.

No, supply and demand is not too "complex." It is just not very emotionally satisfying.

[MrB]

Yes, I learned something from this article, as well, about economics.

I learned that leftists aren’t just economically ignorant, a lot of them are willfully so in order to satisfy their juvenile need for emotional satisfaction.

[SAJ]

Those who think trading stock shares is even remotely similar to trading spot and futures will very likely never understand either one.

If I were a trader, eh? (thought you chaps might get a chuckle out of this sub-thread...)

[Gondring]

Can you explain the California taxes further, please? I do not follow. Am stunned by the 69-cent tax posted, however. I live here ...

While most states have just a flat per-gallon tax, California has a low per-gallon rate of 18 cents per gallon (and also a state Underground Storage Tank [UST] fee of 1.2 cents per gallon), but also charges sales tax. At 6% state sales tax and 1.25% county tax, as an example, that's 7.25% per gallon added. Since the price of gasoline varies, the per-gallon rate will vary....and the sales tax part means the state (and county/local) government gets more and more money as the price goes up, unlike most places.

As an example, let's take a gallon of gas priced at the pump as $3.99⁹/gallon...

Pump Rate=                          $3.999
minus Federal Tax ($0.184) -->      $3.815
minus State Flat Rate ($0.180) -->  $3.635
minus UST Fee ($0.012) -->          $3.623
minus Sales Tax (7.25%=$0.255) -->  $3.360  

Pump Price of $3.999 minus $3.360 = $0.639 taxes per gallon

In other words, if the gas is being sold at $3.36 a gallon, the government is putting $0.639 cents of tax on it...that is, 19 percent tax.

But as the price of gas goes up, the overall percentage that goes to the government goes down, if that's any consolation. :-) Try these charts I threw together... (not checked, so use at your own peril)

[Gondring]

You two have some history?!?! Or is he just always that caustic and “shouty”?

If there's some history, then he was insignificant enough that I deemed him unimportant to remember. :-)

[Uriah_lost]

Yes, and that will be a joy to watch because this is not like the dot com bubble or the housing bubble, it’s effecting me personally on a daily basis.

[Rocky]

Bump Part I.

[newgeezer]

I heard about this on the radio a couple weeks ago and was only reminded today that I meant to find it here and ping you.

As usual, Thomas Sowell nails it!