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Clueless on Economics
by George Landrith (more by this author)
Posted 10/15/2008 ET
This summer, when oil prices were at all-time highs at more than $140 a barrel, Sen. Barack Obama bitterly complained about big oil, oil speculators, and windfall profits and demanded new taxes on energy. Obama denied the economic principles of supply and demand had driven prices higher. Obama blamed high prices on the greed of big corporations and speculators, and he told America that he alone could fix the problem with new energy taxes and "windfall profits" taxes.
Now oil prices have fallen below $80 a barrel. Experts expect that prices will continue to fall to below $60 a barrel within the next week or two. If it was greed that caused high prices, is it altruism and generosity that have caused prices to drop? Of course not! Market forces of supply and demand drove prices up this summer and more recently those same market forces have driven oil prices down.
Obama got it all wrong. It wasn't greed. It wasn't big oil. It wasn't speculators. There was no need for more energy taxes or a new "windfall profits tax" which would only be paid by consumers at the pump and further shackle the economy. Obama could not have been more simplistic in his analysis or more wrong in his policy pronouncements.
Market forces -- supply and demand -- drove oil prices up this summer. The supply of oil was tight compared to the relatively high demand. Thus, prices rose. As prices rose, market forces encouraged more oil production (more supply) and less demand for oil. Now, with these new market forces in play, oil prices began to drop and have continued to drop. Why is that Obama, with all his high brow Ivy League education, doesn't understand basic concepts taught in any high school economics class?
Make no mistake: Barack Obama has proven over and over again that he just doesn't get it when it comes to the economy. During the summer, his energy plan was to adamantly oppose domestic drilling and -- instead -- to hand out tire gauges to make sure everyone had their tires inflated to the right level.
Here are Obama's own words. “There are things you can do individually, though, to save energy,” Obama said. “Making sure your tires are properly inflated -- simple thing. But we could save all the oil that they're talking about getting off drilling -- if everybody was just inflating their tires. And getting regular tune-ups. You'd actually save just as much!” That stands as one of the most stunningly stupid presidential policy pronouncements in modern history.
Obama's energy plan is superficial and naive. He proposes a "windfall profit tax" but fails to define what such a profit is. How does one distinguish an ordinary profit from a "windfall profit"? Even at their record highs, oil company profits are in line with other industrial profit rates -- roughly 9 percent.
So does Obama believe that a 9 percent profit is an "outrageous windfall profit"? If so, should every company that is successful and earns 9 percent or more have the government confiscate those profits as a "windfall profit"? In 2007, the chemical industry earned an average profit of 12.7 percent. The electronics and appliances industry earned 14.5 percent in profits. The computer industry earned profits of 13.7 percent. Are these "windfall profits" that Obama will confiscate? Apparently so.
Berkshire Hathaway, the investment firm founded and run by Warren Buffett, grew its profits by 29 percent from 2006 to 2007. Is that bad? Is that greed?
I wish a few of the Wall Street outfits and banks that are now failing had more profits for 2007. We wouldn't have our current economic problems if these banks and investment firms were as profitable as the energy or electronics or computer industries. If failing banks were as successful as Warren Buffet's gaudy 29 percent profits, we'd all be happy with a record strong economy.
But not Barack Obama. He would be carping about big chemicals, big electronics, big computers, or big Buffet. He would be demanding that government confiscate those profits because, in his own words, profits in excess of 9 percent are "outrageous."
The past month has shown that we should be pulling for banks, investment firms and every company to have what Obama calls "outrageous" profits. Such profits would mean a strong economy, more jobs, and income growth. That is not greed. And it is not bad. It would be welcome good news.
Barack Obama doesn't understand basic economics. And because he doesn't understand the economy, he cannot be trusted to "fix" it. You can't fix something you do not remotely understand. He misunderstood the problem so he prescribed the wrong medicine. Imagine going to a phony doctor who knows nothing about medicine. Would you take the prescriptions he gave? It is no less foolish to trust Obama's economic prescriptions.
George Landrith is the President of the Frontiers of Freedom Institute and a graduate of the University of Virginia School of Law, where he was Business Editor of the Virginia Journal of Law and Politics. As an adjunct professor at the George Mason School of Law, Mr. Landrith has taught constitutional law, appellate advocacy, and legal writing.
Warren Buffet made 29% Profits .... lets tax his azz @ 35 % ....