In an interview last week on National Public Radio, Barack Obama was asked about his proposal for a "windfall profits" tax on oil companies. To her credit, the interviewer prefaced her question by noting that nearly all economists from across the political spectrum oppose the idea. Taxing oil company profits won't make gas any cheaper—it'll likely make it more expensive in the long run by discouraging exploration—and it won't speed the development of alternative energy sources. Obama's answer was pure demagoguery, pitting senior citizens and working class families against oil companies, who he says are reaping profits "hand over fist."
Obama's opponent John McCain has smartly opposed a tax on oil company profits—and Obama has promptly attacked him for it.
But McCain isn't much better. McCain has proposed an equally ridiculous "gas tax holiday," which will also do almost nothing to provide relief at the pump. Obama has smartly opposed the idea—and McCain has promptly attacked him for it.
Economic ignorance is nothing new in politics. Neither is the idea that a candidate would perpetuate economic idiocy he knows to be false because it plays into the narrative he's pitching to the voters. But no issue seems to prompt more jaw-dropping sophistry and anti-capitalist demagoguery than gas prices.
Both candidates have promised to crack down on so-called "oil speculators," who are really only commodities traders wagering on whether the price of oil will go up or down. Speculators are an important part of the market process because they're generally knowledgeable about what they're trading, and their collective wisdom sends useful signals about supply and demand. "Cracking down" on speculators is silly. In the first place, it isn't possible. Oil futures are traded all over the world, well outside of U.S. jurisdiction. In the second place, if you own a 401(k), you're likely an indirect "speculator" yourself.
We Americans seem to think we have a right to cheap gas. There is no such right. Like anything else sold on the free market, the gas at the station pump belongs to someone else, at least until it falls into your tank and you swipe your credit card. From extraction, to processing and refining, to retail sale, someone owned the oil in your car at every step of its manufacture. And each owner was free to put whatever price on the stuff he pleased. You have no more right to cheap gas than you have to cheap bananas, or a cheap iPhone. This notion that cheap gas is part of our national heritage has been both nurtured and exploited by politicians, despite the fact that there's little they can do—or should do—to make it so.
For years now, our political leaders have told us that we need to wean ourselves off of oil and gas and find cleaner, more renewable energy sources. McCain and Obama are no exception. But there's no surer way to change our behavior when it comes gas consumption than high prices at the pump.
In fact, that's exactly what's happening. We're driving billions fewer miles per month than we drove last year. We're biking more, walking more, and more often opting for public transportation. Sales of sport utility vehicles have plummeted, while quaint gas-sippers like the Geo and the Mini-Cooper are all the rage. The big car companies have all but stopped production of gas-guzzlers, and can't churn out hybrids fast enough to meet demand.
We're changing our habits. We're driving less, and driving more fuel-efficient cars when we do. The market is working. High gas prices are altering behavior and nudging us toward more conservation-oriented transportation habits.
So why are our politicians tripping over themselves to keep prices low?
The easy answer is to win votes. The better answer is that Washington can't handle not having control. Letting market forces dictate our energy habits isn't satisfactory for our all-knowing leaders in Washington, because elected officials want their hands on all of the economy's levers, all of the time. Instead of letting supply and demand alter consumption patterns and drive the market to come up with better sources of energy, they'd rather keep gas prices low through government fiat, while at the same time promoting their own favored forms of alternative energy through subsidies, tax breaks, corporate welfare, and research and development boondoggles. It's waste piled upon waste, and a massive strain on taxpayers. But we let it go on.
The whole mess does nothing to ensure that the cleanest, most efficient, or most innovative ways of harnessing energy will win market share. On the contrary: The winners in this system are the energy suppliers with the most political clout in Washington—a lesson you'd think we'd have learned from the ethanol debacle.
Unfortunately, this isn't likely to end anytime soon. Pandering to voters by making impossible promises and vilifying faceless speculators is quite a bit easier than explaining to the American people that sometimes, sometimes, they're going to face problems that cannot—and should not—be fixed by politicians.