Monday, August 04, 2008

Obama Calls for a Rise in Gas Prices

Barack Obama's latest YouTube ad calls for a windfall tax on so called "big oil," as if they are the reason prices are high. But no matter who market critics blame--the Middle East, spectators, or a handful of companies--their answer will always be incomplete. Oil price rise because of all of us.

This is not merely because so we choose to use oil (making Obama's painting of us as victims all the more absurd). We also choose not to supply oil. And why should we? It's hard. It's complicated. It's takes a lot of start up capital. The rewards have to be pretty high to get us to try. If oil was going for $10,000 a barrel, you see me looking for ways to supply energy.

These current profits do the same job (though on a smaller scale). People are more interested than ever in supplying gas. It takes time to refine it and pump it and find it. But they are looking (which is why we've seen oil futures stumble a bit). But Obama's plan dulls those incentives. Tax profits and people are less willing to enter.

The market reality of oil (or any product) should remind us of one of the great lessons of economics. The surest way to get low prices is to allow people to charge high ones.

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