Every so often, an issue comes along that sort of turns principles on their head. The issue this time just happens to be gas prices. The prevailing economic theory is that supply and demand drives prices and that free markets ensure a “balance” between the two. Further, political theory holds that government should not interfere with the markets and that we should not look to government to solve our problems because that leads to bigger and more powerful government.
Along comes rising gas prices and skyrocketing prices for a barrel of oil. We were told that the disruptions in the Middle East might lead to a decrease in supply and when that did not pan out, it has become the Mississippi flooding. All of the time that we have seen $4 gas prices, there has been a plentiful supply of oil and gas. If the principle of supply and demand was not at work here, what was distorting gas prices? I know you will take the answer in stride because we have come to expect such behavior from Wall Street – it was speculators. These financial wizens of the free markets – and the reason why supply and demand theory is flawed – demonstrated, yet again, what happens when greed dominates the markets.
So, what has been the political response? First, it was to blame Obama. Uh? The first place conservatives look is to government? You would think the first cause they would suspect was supply and demand and upon discovering that there were no problems with either, they would look toward price gouging. But the first place they looked was government!
And it did not stop there. The rather rabid tea party conservative Tom Graves from north Georgia sends out an email directing people to his YouTube video “…to learn about some solutions the House plans to vote on this week.” This message alone implies that government is the answer! Regardless of political philosophy, the first place everyone looks when in a crisis is the government. That is why we have big government. If conservatives really wanted smaller government, they would refocus that attention away from government and toward more common sense solutions that buttress their principles – like buy less gas. They could tell us that free markets mean we might have to pay exorbitant prices when Wall Street decides to “play” with supply and demand issues to line their pockets. Instead, they keep the focus on government as the solution.
I could not help but wonder what “solutions” Graves (R-GA) had in mind. What free market and supply and demand solutions that would address the speculators that were so distorting the gasoline market. So, I went to his YouTube video. He starts out by reading two letters from constituents asking what government could do to lower gas prices. Rather than rebuke them for looking to government for a solution to market issues, he goes on as if looking to government was quite natural.
As it turned out, he did not address the problem. Instead, he created a straw man. He blamed supply and repeated the McCain manta, “drill, baby drill.” Unfortunately for Graves, government was not in the way of this crisis. Supply and demand channels were open and flowing freely. Graves did not even acknowledge the speculators – the same people that gave us the mortgage and banking crisis.
Look, people want government to interfere with the supply and demand chain when it hurts their pocketbook. Graves acknowledged that reality even when that was not the issue at hand. In this case, the speculators lost money and the big oil companies reaped huge profits as a result. Since that increase profit did not come from supply and demand issues or increased costs, I think it is reasonable for taxpayers to recoup that speculative profit through a windfall profits tax. Why should we bear the consequences for blatant attempts to distort the markets for personal gain?