Saturday, November 12, 2005

Do Nothing 2!

Russell Roberts nails the economics on Café Hayek (11 November), the economics Blog that consistently gets the appropriate policy right. Russell spots the following in the Washington Post, which shows that while the usual knee jerk reaction to oil price spikes caused by events like Katrina is to rage about ‘price gouging’, given a period of time for reflection, the truth finally comes out:

"When oil prices spike, it is because of scarcity -- for example, scarcity caused by hurricane damage to petroleum infrastructure on the Gulf Coast. The best way to manage that scarcity is for producers to make a special effort to get oil to the market and for consumers to make a special effort to cut back. Higher prices encourage both of those responses; rather than complain of price gouging, Congress should celebrate price signals. By contrast, controlled prices create no pressure for extra production or conservation. They just create gas lines: Witness the 1970s.

A tax on windfall profits is less counterproductive but still bad. For one thing, it's not as though the profits are socially useless. Even in the absence of a special tax, they generate regular tax revenue for both federal and state governments as well as dividends for retirement plans. For another, the profits are a spur to new investment; taxing them reduces the return that companies will expect to make on new oil finds or refineries, with the result that there will be less oil and gas available in the future and hence higher prices."

The title of the editorial is the lovely, "A Call to Inaction."

I like the editorial on this subject. I recommend the same thing over Venezuela; let events take care of the wonderland of Marxist illusion and economics take care of price spikes. Do Nothing!

It doesn’t do any good to be always doing something about everything; do less about most things, nothing about something’s and a lot where the doing something specific will help (like emergencies). Knowing the difference among these options is what legislators are supposed to have competence in; that they clearly don’t (in all political systems) is a sign that they should think before they bray for action and resort to populist stances.

At his point those US Senators, braying like spoilt children for ‘profits taxes’ and price controls, should quietly slip out of the limelight and sit in the park for a couple of hours, contemplating their foolish self-imposed idiocies.


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