Ilana Mercer, June 13, 2008

The Mouths on television tell you to blame gas speculators, “profiteers” or foreign producers for gas prices—anyone but your government. By their post hoc illogic, the price of fuel is causing prices to rise.

Fuel is fueling, but not causing, price hikes.

The deliberate and destructive policies of deficit spending are responsible for the steady rise in the prices of all commodities, crude included. This is so because deficit spending is “accompanied by an enormous increase in the stock of money,” as economist Henry Hazlitt explained in Economics in One Lesson. 

Prices are rising because mounds of paper money are printed and credit expansion policies promoted in order to fund the government’s profligacy. More fiat currency in the system means that every unit is worth less. This is the essence of inflation—it is a hidden tax, another way for government to steal your wealth by stealth.

Ever since Keynesian deficit spending became the centerpiece in the policies of the US government—and the governed—the dollar has been losing its purchasing power. If you’re raising the pom-poms for the wanton welfare or warfare schemes of Obama or McCain, respectively, you’re cheering for your own demise.

The Federal Reserve once published data on the money supply. But providing information about the money supply became impolitic as Fed counterfeiters and their political masters, with the imprimatur of John Maynard Keynes’ General Theory, settled into permanent inflationary mode.

Keynes, who claimed that deficit spending reduced existing unemployment, has been utterly discredited. For obvious reasons, however, self-serving statists and their surrogates have hung on to the idea that a country can spend itself into prosperity rather than into the poorhouse.

Don’t try that at home!

The Fed excused its secrecy by claiming to have, conveniently, “discovered” that an oil and water relationship exists between the money supply and the performance of the economy. This is like saying that overdrawing on your account and forging money to finance your lifestyle will not affect your finances. (Again: don’t try this at home!) Armed with this economic “theory,” the state put the printing presses to work and has left them running.

The general trend, then, of price increases is a consequence of government-generated inflation and the $9.5 trillion trifle known as the national debt. Unless these are curtailed, the trend will persist.

The particular price of fuel, concomitantly, is determined by supply and demand. I understand Bill O’Reilly believes otherwise, but the natural laws of economics cannot be suspended by man, not even by “Bill O.”

Purchasing patterns drive prices up or down. Through their “competitive bidding” people raise the price of a commodity. In an unhampered market, rising prices would have signaled to established oil companies and other entrepreneurs and investors that there are profits to be made in the industry.

Absent legislative barriers to exploration, enterprising capitalists would have defied central planners and turned from tinkering with ethanol to drilling for—and refining—oil. Forecasted profits would guarantee accelerated production. Had Exxon and the others been allowed to satisfy their only overlords, consumers, they’d have long since increased the production of oil. Increased supply would have brought down prices—and profits, eventually.

The much–maligned price system works not only to secure supply but to conserve. The price system—rising prices in this case—signals to consumers to adjust their consumption.

Enter the eco-idiots and their accomplices in Congress. For over 25 years this cartel has not allowed industry to build even one refinery. In 1981, the same contemptible claque outlawed the drilling in the arctic tundra and off the coasts of California and Florida.

All in all, Exxon Mobil has done a smashing job of bringing oil to market considering the fly-in-amber policies it faces.

Profits and prices are the street signs of the economy. Only fools flout them. Duly, the brilliant Barack has had a brainstorm (or an infarct). He wants to tax the oil companies’ profits. This will further curtail production and increase prices. As in Iraq, lines around the block will ensue.

Still less does McCain’s meandering on energy rate a mention. Suffice it to say that the senator’s pronouncements on pumping-up supply—the only way to satiate demand and reduce prices—are limited and delimited by the shamanic thinking he and Obama share: Godless humans are overheating the Goddess Gaia.

Gasoline is a glorious resource. Drilling for oil is the second most efficient, cheapest—and hence cleanest—source of energy. “It requires only a narrow hole in the earth,” explained the Wall Street Journal, “and is extracted as a highly concentrated form of energy”—it “is up to 1,000 times more efficient than solar energy, which requires large panels collecting a less-concentrated form of energy known as the midday sun. But even solar power is roughly 10 times as efficient as biomass-derived fuels like ethanol.”

The more efficient the source of energy, the less waste and pollution are involved in its conversion into energy. Think of the totality of the production process! The fewer resources expended in bringing a fuel to market, the cleaner and cheaper is the process.

America is run and overrun by interests hostile to progress and prosperity. Its politicians have recently rejected exploration along America’s oil and natural-gas rich outer continental shelf. It’s hard to imagine China aping such idiocy. Yet we, repugnantly, condemn clever countries for going after the oil their people require.  To borrow from Henry (Hazlitt) the Great, “this reminds one of nothing so much as Aesop’s fox, who, when he had lost his tail, urged all his fellow foxes to cut off theirs.”


  June 13, 2008

* Image is of an American refinery is via CEA

CATEGORIES: Capitalism, Economy, Energy, Environmentalism, Federal Reserve Bank, Free Markets, Inflation, Regulation