President Obama today slammed global oil companies, once again, for padding their profit margins with “unwarranted taxpayer subsidies . . . to the tune of $4 billion a year.”
While the President is, he assures us, “scouring the federal budget for spending we can afford to do without,” he wants us to know that “these tax giveaways aren’t right. They aren’t smart. And we need to end them.”
While the Recovering Bureaucrat is delighted to hear that all this budget scouring is underway—although he hasn’t heard any results yet—he also wonders who will pay for the costs of the revoked tax subsidies. The President apparently believes that the oil companies will simply endure reduced profits, but the RB is not so sure. Isn’t it equally possible they will simply pass the added cost on to the consumer?
While the RB is not an economist of the caliber of Nobel laureate Paul Krugman, he hasn’t heard that the elementary laws of supply and demand have been repealed. Prices are rising because of the greater demand for a relatively inelastic supply of crude oil. At a certain point, this price increase will weaken demand, and the price will head back down. Won’t the relative profit margins of the oil companies fall when prices fall? Would the “$4 billion” in now lost tax subsidies therefore not have a relatively larger impact on their bottom line? And if so, would that not act as an incentive to push prices higher to keep the profit margins healthy?
So how does ending the tax subsidy help drive oil prices down? Don’t increasing energy costs threaten our weak economic recovery?
Classic economics dictates that if we want to drive the price down, we need to expand the supply. But that is not the President’s solution. He is proposing instead to do what he does best: make more undeliverable promises and pray that we keep smoking the hopium. In this case it’s that favorite leftist mantra of “clean energy.” When one lives in a fact-free environment, it’s amazingly easy for the emperor to parade around in the latest finery and assume we all admire it. It’s a bit like winning a Nobel Peace Prize without having reduced bloodshed in the slightest anywhere in the world.
But no one on the left has made a convincing argument that a world economy with billions of people on the brink of a middle-class standard of living (think India and China) can get there without massive increases in energy production. Wind and solar are nice, but they are simply not enough, and are still uncompetitive with oil, natural gas, and coal. The truth is, like it or not, carbon-based fuels are still cheaper than anything else by far.
In spite of this, the president’s policies dampen oil production from the country with the world’s third largest petroleum reserves (the United States), thus extending the very “dependence on foreign oil” that he and his allies promise to wean us away from. (To be fair to Mr. Obama, every president since Richard Nixon has made and failed to deliver on the same promise.)
The fundamental political error the president keeps making is to champion radical policies, like health care reform and an alternative energy regime, that do not have the support of an overwhelming majority of the country. He has made his case for both of these initiatives, and the greater part of the citizenry has shrugged them off.
In the meantime, the indebtedness of our governments at all levels continues to increase without the slightest check. Professors Obama and Krugman, along with their allies on the wishful-thinking left, keep chasing rainbows hoping for a pot of gold at the end to put things right.
Not going to happen.