The Sentinel

Issue date: 9/24/08 Section: Commentary

Dear America,

Taxes are taxes and profits are profits-this is not a difficult concept. In economics one is very bad, and the other is very good. Can you tell which is which? Recently Barack Obama managed to confuse the two. His argument is big oil companies are making obscene profits while consumers are unfairly paying higher prices at the pump. The Socialist solution for this problem is a Windfall Profits Tax, which would cap the revenues of businesses and then redistribute that money in the form of $1,000 energy rebates for families and the poor who cannot pay for gas resulting in effectively a lower price. However, this untruth has a major flaw: higher taxes never lower prices.

The source of our current debate stems from the unreasonably high gas prices of which we are all fully aware. But why are prices so high? Some would like you to think prices are high because "Big Oil" are a bunch of greedy bastards, raising prices and pocketing from the extortion. However, this is just not the case. Yes, oil companies have made record profits, but when you compare capital gains, oil companies actually only make slightly better than average profits. Consider that oil companies really only make about 9 cents per a gallon of gas, compared to the profit made by the Federal and State governments through gas taxes, which averages 47 cents per gallon. Shocking, right?

Now there are a few true reasons for the increase in price of oil, most of which have to do with failures of government.

The first is inflation. The Federal Reserve has printed too much money, and therefore the dollar is worth less today than it was yesterday, and even less than the day before that. Every time the value of the dollar goes down, the price of goods go up.
The second reason is an increase in global demand from developing countries like China and India, whose economies have enjoyed record growth and who, every day, consume more oil than they did the last.
The third reason is most affected by lousy government control and that is a lack of domestic supply. We do not allow oil companies to drill in the United States and have so many barriers to investment that there has not been a new oil refinery built here since the 1970s. Vast oil fields in America are simply off limits to explore and drill due to environmental concerns over wildlife habitats like ANWR (a magical liberal holy land in Alaska, of which I will never see or experience).

So when domestic supply goes down, global demand goes up, and the depreciating dollar means it takes more Greenbacks to buy a gallon of go-juice, it is easy to see why prices have gone up. This is a little more complicated than the Big Oil Bastard theory, but it makes sense now.

Continued...

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