Sure enough, the politicians are at it again.  This week cries went out from presidential candidates to Congressional leaders that something must be done to alleviate the ill effects of high gas prices on the economy.  Of course, instead of being honest and considering what Washington has done to create the problem, the politicians are focusing on oil companies and a gimmick.

The gimmick was originally proposed by Republican presidential candidate John McCain and usurped as her own idea by Hillary Clinton.  The proposal is to temporarily suspend the federal gas tax during the high travel months of June, July, and August.  The concept behind it is to give consumers a break by lowering the price of gas per gallon by eighteen cents.  For every ten gallons purchased, Americans would save $1.80.  This savings then would allow them to purchase Big Gulps and snack treats, thus providing a boom to the convenience store industry.  In all seriousness, the proposal is an election year gimmick – a shell game if you will.  The minimal relief that consumers will experience will be more than offset by the inflation caused by the Federal Reserve printing additional dollars to make up for the gas tax shortfall estimated at twelve billion dollars for the three months.  So while politicians will take credit for “helping” consumers in their time of need by providing “cheaper gas” this summer they won’t mention the hidden tax they are imposing on us through the Fed’s inflationary printing of money.

Then there is the more direct focus on oil companies with talk of reenacting our old friend the windfall profits tax (WPT).  Jimmy Carter imposed this tax on oil companies starting in 1980 and it lasted until 1988.  Carterite candidates Clinton and Obama want to reenact it today to get oil companies to pay their “fair share” and help those hurt by economic hard times.  The WPT was and is a tax on business entities that experience both “abnormally high and unanticipated profits”.  Other than who decides what “abnormally high and unanticipated profits” are, there are two other problems with the tax scheme.  First, forty-one percent of oil company stocks valued at over $267 billion are currently held in various forms of pension plans and retirement accounts.  As dividends and the share price of oil stocks decrease because of the WPT will Washington implement another program to help retired Americans with the losses or is it believed that they also need to pay their “fair share” to support the less fortunate?

Secondly, as Ronald Reagan use to say, “When you tax something, you get less of it”.  According to the Congressional Research Service, the 1980 windfall profits tax reduced U.S. domestic oil production by three to six percent.  This happened because the tax increased the marginal cost of production, thereby reducing the quantity of gasoline produced.  Cutbacks in domestic production now will only worsen the price situation.  This, of course, will give Washington another opportunity to legislate and help us again.

So where do we go from here?  What is a constitutionally proper course of action for Washington to pursue in dealing with the current high price of fuel?  First of all, the U.S. should completely pull out of Iraq.  By pulling out of Iraq, we lessen the possibility of a wider Middle East war (e.g. Iran and Syria) and probably lower violence in Iraq because al Quada and Iran will not have the Americans to fight.  These developments will calm speculators and stabilize the price of oil.

Next, Congress should move to abolish the Federal Reserve.  According to Ron Paul, the Fed has roughly tripled the amount of dollars and credit in circulation since 1990.  Because oil is priced in dollars worldwide, by looking at the current price of a barrel of crude one can plainly see the damage done by the Fed’s inflationary policies.  The high price of oil is directly related to the low value of the dollar.  In other words, it takes more dollars to buy the same amount of gas than it did in 1990.  Question is: why are the politicians ignoring this issue and proposing a phony gas tax holiday and a harmful to the middle class windfall profits tax?

The bottom line is that we have a better chance of seeing lower gas prices by eliminating speculation, uncertainty, and the political whims of a central bank then we do through fake government gimmicks and schemes.  Contrary to popular belief, Americans are not entitled by birth to cheap gas.  If we had a true free market and the price of gas was still high, then nature would be telling us something – “supply is low and endangering your environment, so maybe you should use the genius of your species, you know the one you have always used in the past to progress and survive to come up with a new technology to make life happen”.

Kenn Jacobine teaches History and English for the American International School of Lusaka, Zambia.  Send him email at lovesliberty@gmail.com.

Recently, I received an email that requested I boycott Exxon and Mobil stations in order to help bring the current high price of gasoline down.  Here is the thinking behind the email:  because Exxon Mobil is the largest oil company in America it can set industry prices at the pump.  In other words, because of its size, it can set prices artificially high to maximize profits knowing full well that smaller gasoline retailers, who are also interested in big profits, will set their prices commensurate with Exxon Mobil.  By boycotting Exxon Mobil, demand for its gasoline decreases thus forcing the company to cut prices.   As Exxon Mobil cuts prices, so must others to remain competitive.  The hope is that the lowering of prices at the very least puts a halt to rising prices at the pump and ensures that Americans can purchase gas this summer for less than four dollars a gallon. 

The originators of this movement should be commended for their clever idea and for taking matters into their own hands instead of instinctively turning to the federal government to solve their problem.  However, their attention is mis-directed as it should be focused on the U.S. government and not Exxon Mobil as the cause of high gasoline prices.

For instance, in 2002, the year before the U.S. military invaded Iraq, crude oil prices were $22.81 a barrel (see chart below).  Today they are around $118.00 a barrel.  The cause for the dramatic rise in price (the largest one in such a short period of time in history) certainly has more to do with the war in Iraq than anything else.  As the war drags on and America’s presence in Iraq becomes more entrenched, the price of crude increases even more.  Investors are concerned that at some point the violence in Iraq caused by the U.S. invasion will spread to other Middle East oil producing nations thus cutting off worldwide supplies.

A perfect example of this fear happened last Friday.  Oil prices per barrel reached a record high of $119.55 on the news that a U.S. military ship fired on Iranian ships in the Persian Gulf.  This, of course, is not the first time that the U.S. military has had a confrontation with Iran near the Gulf.  As the Bush Administration continues to instigate armed conflict with Iran, the price of crude will continue to rise on the fear that the Persian Gulf soon will be filled with missiles instead of full oil tankers. 

Then, there are taxes.  The average price of a gallon of gasoline in the U.S. right now is $3.60.  According to government statistics, federal, state, and local taxes make up twenty percent of the price of gas.  Do the math.  Without any taxes, the price of gasoline would be approximately $3.00 per gallon.  Eliminating taxes would provide a significant $6.00 savings for every ten gallons purchased.  Imagine how much money could be saved per fill up by owning an SUV?  Now, I do not condone eliminating gas taxes.  After all, they are technically user fees, which I support over taxes. They go to repairing roads, which people who buy gas and pay the taxes use.  But, it should be noted that a large portion of the price of gas goes to the government at all levels and not the oil companies. 

Finally, the price of gasoline has been affected by the value of the dollar.  The value of the dollar has been dropping for some time due to the Federal Reserve Bank printing too much money.  Investors sense rightly that we are on the verge of inflationary times, because of the Fed’s actions, so they have been dumping their dollars in favor of commodities.  One commodity they are buying to hedge against inflation is oil.  Money flowing into oil makes its price rise.  The dollar’s performance last Thursday speaks to this truth.  The value of the dollar improved on Thursday based on speculation that the Fed is concerned about inflation and may not cut interest rates further.  At the same time, oil dropped by $2.24 a barrel.  However, as mentioned earlier, conflict in the Gulf the next day, spiked the price to its highest level ever. 

We are all concerned about the rising price of gasoline and how it makes us all feel the pinch.  The politicians and media want us to believe that the oil companies are to blame.  The proof is clear: the blame for higher gasoline prices should be placed on Uncle Sam.

source: InflationData.com

http://inflationdata.com/inflation/default.asp

Kenn Jacobine teaches History and English for the American International School of Lusaka, Zambia.  Send him email at lovesliberty@gmail.com.