This article discusses how the various politicians seeking the presidency - the ones we trust with our lives and money to “take care of us” - propose to solve the problem of high gas prices. Of course, none of our current candidates propose letting the market take care of solving oil price problem; they certainly don’t propose undoing what the government’s done to cause this oil price outcome in the first place. Each one of these politicians criticizes the others’ plan and explains how they’re wrong, while never offering a real solution. The more important points are addressed below:
John McCain and Hillary Clinton propose a gas tax holiday
A gas tax holiday does little good beyond being a political gesture. It would only reduce the price of gas by the amount of the tax for that day, week, month or year. Nothing will change the oil supply or prevent actual oil/gas prices from continuing to rise. What would prevent prices from rising is if the government quit printing money. It is mathematically impossible for prices to rise, no matter how great the demand, unless the quantity of money in an economy increases. What would then reduce prices after they quit rising would be an increase in the supply of oil. We could increase oil production and supply three-fold in this country if only the environmentalists would allow us (government law supports them in preventing us).
Gregory Mankiw, a former chairman of President George W. Bush’s Council of Economic Advisers, and a famous economist in his own right, says that Obama is right to be against Clinton’s and McCain’s plan because “In light of the side effects associate with driving…gasoline prices should be higher than they are, not lower.”
Side effects of driving? Higher taxes are good? This kind of logic can only be the result of government bureaucrat-hired economists whose job it is to tax us or give us tax reductions as incentives or disincentives to achieve the outcomes the government wants for us. We citizens are equivalent to Pavlov’s dogs.
And what side effects is Mankiw referring to? Congestion? If that’s the case, the problem is not too many drivers, it’s too few government roads. The road monopoly organization (government) should have road production increase at least at the same rate as traffic volume.
Additionally any tax cut helps the entire nation - the less you tax something the more you get of it, and taxing less means more capital is available to build more of the things we need and want (by private industry, since government produces nothing).
It could be argued that if the government removes taxes from gas prices, there would not be money with which to take care of the roads. Beyond the fact that government has not been taking good care of the roads till now, that argument should lead us to ask why it can’t be taken care of with other taxes - car sales tax, license tax, annual tag fee, property tax, state income tax, federal income tax, import tariffs, inheritance tax, licensing fees, capital gains tax, environmental-affecting taxes, consumption taxes, corporate taxes, excise taxes, tolls, other fees, retirement tax, payroll tax, transfer tax, value added tax, etc., or even by the money the government makes by printing money at our expense (the inflation tax). The answer to the funding question is that, in reality, most taxes do not go to support our infrastructure; they go to the pockets of other voters in the form of wealth redistribution.
We should drive as much as we want so that we can meet the goals we want to achieve - to work, to produce more goods and services, to enjoy ourselves. If the government is really there to provide for us, as so many believe, then it should let us drive all we want and provide for us the means with which to do it. Otherwise, it should get out of our way, let the free market provide all that we need at lower prices, and let us enjoy our lives.
The article then states that “economists” say that reducing the gas tax will only increase demand for gas by the amount of the tax, pushing prices back up (which is true). They then argue that since supply cannot currently be increased by the oil companies, the benefits of tax reductions will accrue to the oil companies’ bottom lines instead of helping consumers.
It seems that no one wants the oil companies to benefit because they are presumably making so much money and gouging us (gouging is economically impossible in a free market). Oil companies are making their large profits because the government’s printing of money is raising ALL commodities prices, just as it previously raised real estate prices, and stock and bond prices. The government handed them the profits. But it will also take their profits away. The oil and gas companies will be taxed a higher tax marginal rate on higher profits. But much of their costs, due to depreciation expense, are fixed. When they go to replace their machinery and equipment, it will all cost these companies much more because of the inflation taking place in that industry. With higher revenues being taxed more, and with costs rising, oil companies’ real purchasing power will not be that great. They could be left in real terms with approximately the same amount of profits (or less) as they had before prices rose.
Additionally, and importantly, with such a high amount of profit, more capital will enter the industry resulting in increased supply, which will lower the price. Also, the increased amount of competitors in the industry bidding for the same resources - people, equipment, materials, etc. - will raise costs and reduce profits. Beyond that, it must be remembered that 10 years ago, with oil at $10 per barrel, these companies were suffering. They might only now be coming out even in terms of actual return on invested capital - which accrues to the owners and debtors of the oil companies.
Too add to the previous point, the article then notes that Clinton wants to impose a windfall profits tax [to “go after” the greedy oil companies and help the consumers].
In doing this, Clinton will hurt consumers, not help them. Taxing oil company profits will prevent these companies from reinvesting capital in increased exploration, refining, and production. Instead, higher profits for oil companies mean more gasoline and lower prices for us citizens. The more we take away from them, the more market share the Arab countries obtain and the less oil we produce domestically.
(And what about these foreign oil companies? Are they helping to raise world oil prices to help ExxonMobil earn high profits at our expense? In reality, American oil firms are a small minority of global players and thus have a very small influence on the price of oil. Additionally, even the “cartels” have only 60% world market share, and they all cheat by supplying more oil than they agreed to, and thus help lower oil prices.)
Further, generally speaking, profits are good, and losses are bad. Profits mean that capital is being used wisely and consumers are being pleased. Losses mean that real wealth is consumed and wasted and that consumers are not happy enough with a product to purchase it at a price which covers the costs of production; consumers are not being satisfied. But this country punishes the successful ventures and props up the unsuccessful ones. Unprofitable companies, instead of being subsidized by taxpayers, should go out of business so that their assets and people can be used in places where we are producing net wealth instead of destroying it. Profitable companies should be celebrated and allowed to continue their success. Over time, no company in a competitive industry can make more than the economy-wide going rate of profit (which then, is only a nominal return to capitalists for providing the funds which allow the company to operate).
But in the end, our politicians care little to none about our companies’ success or failure. They care just as little about the well being of the citizens. What they do care about is selling votes to get elected, furthering their career, and living well off the taxpayer (i.e., primarily the rich).
Kel Kelly @ April 30, 2008
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