Sunday, January 21, 2007

Another Big Mistake

This is not a political blog, it's an economics blog; but very often, the two are tied closely together. The reason for this is that the Democrats believe, and the Republicans act as though they believe, in Bigger Government, i.e. that federal legislation can solve problems. In reality, government intervention only makes things worse. Instead of leaving markets free to do their competitive thing, governments meddle, create quasi-monopolies, and screw things up.

Example: Energy.

oil company senate hearings
[Thanks to Jason Reed and Reuters for the photo.]

Before the 2006 elections, the Democrats bragged about their intention to penalize Big Oil, and now they are beginning to act upon their word. Max Schulz over at TCS gives the perfect argument against their actions.

In sum, he says that the Dems want to (1) take away the Bush "tax breaks" from the big oil companies; (2) give subsidies to alternative fuel research; (3) "restructure the royalty payment system for leases in the Gulf of Mexico that they say will fleece taxpayers of more than $10 billion"; and (4) "repeal a manufacturing tax deduction ... for oil and natural gas companies...."

The only problems are (1) there were no Bush "tax breaks" for big oil companies, because the breaks in question were for the smaller oil companies and were encouraged and put in place by a Democrat named Mary Landreiu for Louisiana's smaller independent producers; (2) alternative fuels like corn and wind power only survive because of government subsidy and are therefore losers, and they produce "just a fraction of one percent of the energy we use" (never mind the fact that all this undeserved attention has just tripled the price of corn, the staple of the diet of much of the world's poor); (3) the inequities in the Gulf of Mexico leases were caused by officials of the Clinton administration who "failed to include the escape clause language" that should have been an integral part of each lease so as to "eliminat[e] the waiver if the price of oil climbs above $34 per barrel"; and (4) taxes are always passed along to consumers who pay higher prices and are therefore the ultimate victims.

Politicians profit from *not* learning economics. If they can profess ignorance, follow their noses, sniff the winds for their personal benefit and blame others for the damages they cause, they win at the taxpayers' expense and the public is none the wiser.

Both Democrats and Republicans are guilty, and until we fix the incentives that cause them to increase government power (i.e. their own), this problem will continue to erode our freedoms and our standard of living.

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