Kat Dwyer, RealClearEnergy
Inflation is hitting voters where it hurts the most, forcing policymakers to pay attention—and revealing the economic illiteracy of the Left.
Democrats are not willing to admit that fiscal and monetary policy were reckless. Instead, they have chosen corporate greed as the reason for the steep rise in prices. From “big poultry” to “big oil,” Democrats are eager to scapegoat their harmful economic policies.
This week their political theater is on full display with Democrats dragging oil executives before the Energy and Commerce Subcommittee on Oversight and Investigations to determine what’s driving up the price at the pump and why these companies haven’t expanded production.
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Subcommittee Chair Diana DeGette (D-Colo.) explained the purpose for the hearings in a statement: “We want to know what’s causing these record-high prices and what needs to be done to bring them down immediately.”
Are you kidding me? The reason for this should now be apparent.
The expansionary monetary policies that lead to inflation are ultimately responsible for inflation. As a response to the Covid pandemic the Fed increased quantitative easing and maintained interest rates at near zero. These measures flooded the economy in money, increasing the money supply by 40% over the two-year period.
At the same time, the government’s fiscal policy was also stimulative, with a gush of transfer payments that further goosed demand. These two approaches combined over stimulated demand in the market at a time when supply had been seriously hampered because of the pandemic and the government’s draconian response to it. What was the result? It’s a classic tale about inflation, with too many dollars being chased by too few good.
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Government-mandated lockdowns decimated demand during the pandemic bringing the price of Brent crude down to $0 a barrel. After the economic recovery began, government restrictions lifted and oil demand rose. Since then, suppliers have tried to catch up.
Likewise, the Biden administration from day one has clearly communicated its goal to phase out fossil fuels — from canceling the Keystone XL pipeline and pausing federal oil and gas leasing, to setting net-zero goals and making controversial anti-fossil fuel nominations.
This message should be embraced by the industry. With the uncertainty in their industry, why would they want to invest in pipeline construction or new exploration for oil and gas? The connection is obscured by Democrats, naturally.
Expanding production requires capital investment which requires some level of confidence that policymakers won’t throw sand in the gears of your operation. Perhaps the Democrats’ climate messaging has been nothing more than political red meat for its voter base, but in the real world, words have meaning, and telling an industry that your policy goal is to make it obsolete doesn’t encourage new investment or growth.
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To further illustrate this point, a recent survey by the Federal Reserve Bank of Dallas found that 59 percent of oil and gas executives said pressure from investors is the primary reason major companies are restraining production growth. In a similar vein, White House National Climate Advisor Gina McCarthy recently stated, “[U.S. climate policy]It is no longer a battle over coal.
It is a challenge about natural gas and infrastructure investments because we don’t want to invest in things that are time limited. Because we are time limited.”
Gee, I wonder what’s spooking investors?
Some others are adopting a slightly different but still backwards approach. The “Big Oil Windfall Profits Tax Act,” introduced by Sen. Sheldon Whitehouse (D-R.I.) and Rep. Ro Khanna (D-Calif.), would put a 50-percent-per-barrel tax on the difference between crude oil prices and the average between 2015 and 2019, with revenues returned to consumers as a rebate.
Not to be outdone, Socialist Bernie Sanders has proposed the “Ending Corporate Greed Act,” which would slap a 95 percent tax on excess profits of corporations with more than $500 million in yearly revenue. Sanders noted that had this act been in place last year, Chevron Corp. would have paid an additional $12.9 billion in taxes.
You could say that this was a desperate political move to please key constituents in advance of midterm elections. This is motivated by declining poll numbers. However, there is something worse. Increasing the tax burden on these companies will increase costs, which they’ll pass on to consumers in the form of higher prices.
In the meantime, more government-issued checks to stimulate demand will increase which in turn will push up prices.
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Other progressives have also called for more price controls, stimulus checks and antitrust actions. All these suggestions would only worsen the situation. A better solution would be to tighten the Fed’s loose monetary policy, reduce the tax burden, and untangle our ever-growing web of regulation, but don’t hold your breath for such logic to prevail.
It’s unsettling to see serious calls for such harmful and economically illiterate policy proposals. What can we expect from these proposals? After all, it’s what the government does best: propose backward solutions to problems it created in the first place.
Real Clear Wire granted permission to syndicate.
Kat Dwyer, a Young Voices contributor, is co-host of Whiskey Bench. She has published her writing in The National Review and Washington Examiner among other publications. Follow KatJDwyer @Twitter
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