Wednesday, May 10, 2006

Congress and Gas Prices

The Motley Fool's Bill Mann has a great article on Congress and gas prices. I highly recommend it for the overview of the politics, history, and economics of gasoline as well as why a "windfall profit tax" is "sheer lunacy."

Here are some highlights:

You see, gas prices of $3 a gallon are a political problem only in that for the past 50 years, every single one of our elected officials has tried to take credit for, or assign blame for, things that are actually realities of the free market that they had no control over.


Yes, high gas prices are horribly painful. But what that pain causes is the greatest outcome of the free market -- incentive. Incentive to conserve, incentive to develop, and incentive to come up with (and switch to) alternatives like fuel cells and nuclear power...

Instead of recognizing this basic economic reality, our elected representatives are doing what they tend to do -- pander to voters by misrepresenting their importance to the national economy through saying they're going to "do something" about oil prices ... or conversely, blaming the other side for not doing something. And let me be clear about this: The outcome would be nearly the same no matter who were in office. Democrat, Republican, Whig -- it wouldn't matter. Politicians say these things because no one has ever gotten elected by making certain that his or her comments hewed to economic reality. Taking credit for success you had no hand in causing is a tried and true staple in legislatures worldwide. Sadly, people believe it.

That's where sheer lunacy like the "windfall profit tax" come from. If the government really wanted to do something, it could get out of the way and take down past distortions, like the high tariffs on imported ethanol. It could offer huge, obscene tax credits to jurisdictions willing to have new refineries sited in their borders. It could go back and start charging market rent to companies drilling on government lands and open up other territories for drilling -- like the entire Atlantic Seaboard. But beyond that, all you're hearing is posturing that will lead to pork products that will each achieve something either (a) stupid or (b) more expensive than what the free market could come up with on its own.

The original article is more detailed and highly recommended.

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