Rational Capitalist on Facebook

Tuesday, May 20, 2008

Congress, American's Grasping At Straws and Strawmen

As the price of crude oil hits all time highs, the Congress has decided to act:

The House of Representatives overwhelmingly approved legislation on Tuesday allowing the Justice Department to sue OPEC members for limiting oil supplies and working together to set crude prices, but the White House threatened to veto the measure.

In my previous post "Politics for Dummies" I said the following:

If you are trying to eliminate the effects of a particular problem, do you think it would ever help to understand the causes that give rise to the effects? For example, if a building were on fire, do you think it would help that the firemen in charge understood what tends to fuel a fire and what tends to extinguish it? If they did not understand the causes, wouldn't they be as likely to throw a ham sandwich on the fire as to pour water upon it?

In principle, this legislation is tantamount to throwing a ham sandwich on a fire.

Consider that if the oil companies have the arbitrary power to raise prices and "gouge" us at any time, why have they not been doing this for years? Why now? Were they just being nice when crude oil was $10 a barrel only ten years ago? Should the oil companies have been investigated at that time for excessive congeniality and maybe given an award? Is it coincidental, that gas prices are rising at the same time that everything is rising in price? If you look at charts of prices for the last 10, 50 or 100 years is there a pattern? Is it also coincidental that energy supplies are harder to come by as the hysteria surrounding apocalyptic environmentalist claims reach a fever pitch? If gasoline prices are arbitrarily high, then why doesn't everyone go into business selling it and reap huge profits by selling it just slightly below the supposedly high price of others?

In three previous posts (Gas Has Not Risen in Real Terms, Make gas cheap - wait expensive - no cheap - or else and Probe of Probes), I demonstrated how the relatively high dollar price of gasoline is entirely the result of government policy. First, it's policy of inflating the money supply above the level of increase in the supply of precious metals causes the price of everything to rise accordingly. Second, to the extent that gasoline prices have risen over and above the level to which they would have risen absent the government's inflation of the money supply, it is a result of government policies which discourage the production of gasoline in myriad ways. Third, (uh, duh) "gasoline taxes" evidently increase the price of gasoline more than otherwise (although this one might require more study by government experts).

Suing OPEC under so called "anti-trust" legislation is an absurd attempt to deflect responsibility from US government policy and evade the real underlying causes of higher prices. Such legislation will not work to bring about lower prices and is an attempt at contradicting the laws of reality. At best, such legislation betrays a complete and utter ignorance of the fundamental laws of economics.

Another point worth mentioning is the hypocrisy on the part of various American's who complain about the high cost of gasoline and support these legislator's efforts to demonize oil companies and take destructive action against them while evading or at best remaining ignorant of the real causes. It is time that American's take responsibility for their own government. What do I mean by this? Consider the following.

American's evidently will not allow the government to roll back entitlement spending. Yet, American's don't want to pay higher taxes. This results in an enormous national debt, yet, American's don't want the high interest rates that are brought about when demand increases in the credit markets relative to supply, but American's also don't want the increasing prices which result from the government's printing of paper money (inflation) to fund its debts and bail out mortgagees and mortgagors. At the same time, American's (due to the hysterical propaganda of the Ecology movement) demand that the "environment" be untouched which translates into regulations and policy that dramatically curtail drilling for supplies in the United States and retards the growth of refinery capacity. Yet, American's don't want to rely on corrupt fanatical foreign governments for oil who use the oil revenue to support terror against the West. Therefore, American's demand that oil companies find alternatives to oil yet they apparently want the government to pass a windfall tax on oil company profits - the very same profits that would be used as capital to fund the research of alternatives and find more energy supplies.

In this context, the Federal Reserve system and the government's unlimited power to tax and regulate enables American's (in the short run) to engage in a fantasy in which energy emerges from thin air without effort or contact with nature. In this fantasy, all the government needs to do is print money for us to buy energy from these mysterious people who seem to just have it and prosecute anyone that resists. Fundamentally, this fantasy represents a desire for the unearned, and it is the desire for the unearned which gives rise to such government policies in the first place. (My experience is that those who seek the unearned and want stuff for free usually get what they pay for.)

America is now like one of those deluded American Idol contestants whose fantasy is shattered by the judges who admonish them to quit music and find another job. The question is whether we will be like the contestant that stubbornly ignores reality to pursue a hopeless quest or whether we will recognize reality and change course. Unfortunately, I have a feeling we will see this contestant next season.

No comments: