Obama’s Economics

I recently heard Barack Obama, expert economist that he is, proclaim that high gas prices are here to stay.  In his infinite wisdom, he doesn’t see a let-up.

I guess he’s got the laws of supply and demand all figured out, then.  What about the rest of us?

In this article about just prices, Jeffrey Tucker talks about how prices come to be, and what they represent.  It is a fascinating article, and well worth reading.

Gasoline prices, as Paul Craig Roberts indicates, are tied to financial speculation and low interest rates associated with Federal Reserve monetary policies.  Like all bubbles, (think housing or dot com) they burst.  Oil prices will then come down.

Yes, China and India have a strong and continued demand, and yes, our presence in the Middle East, and continuing risks of armed conflict with Iran, tend towards higher prices.  But speculation is a huge factor.  When the stock market is weak, people like to invest in bonds, which are often tied to the strength of the dollar.  When the dollar is weak, people tend to invest more in the stock market.  But when both are weak, what to do?  Low interest rates mean there is plenty of money to go around and invest.  It gets invested in commodity futures’ markets: foodstuffs, metals, oil, etc.

Bubbles end up bursting, and so prices will come back down for these markets with speculation-fueled increases.  This is something to look forward to: lower prices.  It will happen.  And it may not take too long.

But what Obama is doing with his rhetoric, whether he realizes it or not (I sure hope he is unawares and simply ignorant) is to justify further government interventions in the energy markets, which will surely result in price increases, shortages, and other previously encountered maladies.  These may take the form of windfall taxes (taxes are destructive and discourage production, increasing prices, not decreasing them), increased regulation, price fixing, or a combination.  Keeping oil prices high feeds the fever for more government action in the area of, say, global warming, or energy policy.  More government intervention again leads to more problems: shortages, high prices, economic stagnation, etc., which fuels further calls for government action.  It is a self-perpetuating problem, this statist mindset that plagues America.

This vicious cycle will come to an end: the piper must be paid, after all, and socialism is only affordable for so long, especially with a worldwide military presence, which Obama has made very little effort (even rhetorically) to reduce in size or scope.  He’s opposed to our involvement in Iraq, yes, but not necessarily future engagements in Iran, nor further entanglements abroad, in such places as Darfour.

Obama’s economic policy (and domestic and foreign policies, for that matter) is that the government knows best: capitalism is fundamentally exploitative, and the government must regulate or too many people get taken advantage of. 

The great irony, of course, is that it is the government that takes advantage of individuals with such policies and philosophies, by stifling growth, development, and freedom, and punishing innovation, hard work, and voluntary exchange.  In a world full of creations of capitalism and government-sponsored destruction, we can hope that someday we will actually get the lesson.