This week on TV there 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 — 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 strongly suggest to anyone who hasn’t read Thomas Sowell’s “Basic Economics” to get it. Not only should citizens and teachers be familiar with this book, but reporters, candidates, and even members of Congress will benefit from this book.
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 presidential candidates 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 treatments in places like Canada and England.
Any child who has ever run a lemonade stand or played Monopoly better understands the economic laws of supply and demand than your average voter, professor, candidate, 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.
