Energy: Supply and Demand Ignored

With gas prices rising there is a growing frustration with Congress because of their lack of action. What would help reduce energy prices? Production - basic supply and demand dictates that if supply increases then prices drop. There is debate about where drilling is appropriate, but cutting off all sources of new drilling makes the U.S. more dependent on foreign oil. The Democratic Congress has essentially blocked new drilling or delivery on new sources of oil. Even if Anwar and the Everglades are taken off the table due to environmental concerns, blocking all new drilling clearly restricts supply and increases prices.

Energy production could also be assisted with the use of alternate energy sources. Ethanol has promise, and Brazil has a large supply available for export at reasonable prices. However, ethanol subsidies take this form of alternative energy off the table. The rules stating that ethanol must be corn based limits ethanol’s potential. From grasses to sugar, ethanol can be developed from numerous natural sources. It has even been argued that deforestation could be reduced if tree based ethanol was a viable product. However, ethanol subsidies create a myopic focus on corn, ignoring the potential for alternatives, and manipulating the market in a way that ensures ethanol’s failure. Secondly, the high tax on Brazil’s ethanol prevents a less expensive energy source from entering this country cutting off another valuable energy supply.

Finally, nuclear has potential as a clean fuel source. Several environmental groups are starting to view nuclear as the energy of the future. While some have safety concerns, it is clean and nuclear plants have made advancements over the years and can be run safely.

So why the frustration with Congress? Because they are ignoring these sources of energy. The Democrats are against drilling and against nuclear energy, and they support corn based ethanol subsidies and the ethanol import taxes. The trouble in the economy has been caused mainly by high energy costs, and the Democrats are more interested in a windfall profits tax, which has not been proven effective, and ignore the need for supply. The increased enery costs hurt the middle and working class the most, as it acts essentially as a tax increase. The Democrats say these are the people they are most interested in looking out for, but that is not reflected in their energy policy.

*Clarification - Ethanol subsidies do not disallow use of other forms of ethanol.  It’s an import tarriff that makes Brazilian ethanol economically unfeasible.

Energy: Supply and Demand Ignored

Tags: alternative energy, drilling, drilling for oil, energy, energy policy, middle class, supply demand

19 comments June 16th, 2008

Taxes and the Myth of Fairness

In the Democrat’s ABC debate Senator Obama stated he would raise the Capital Gains Tax even though it would adversely effect the economy because of ‘fairness’.  Senator McCain, and Republicans in general, favor keeping this tax rate low because it has been concusively proven that a high Capital Gains Tax slows the economy, and that the government actually takes in more in money when the rate is kept low, as people will invest less if the tax rate is burdensome.  Senator Obama’s statement points out the trouble Democrats have with economics.  The idea that increasing tax rates on the wealthy, particularly when the economy is sagging, because of fairness shows a lack of economic understanding.  An increase in taxes slows economic growth.  The people hurt most by a struggling economy are middle to lower middle class people who are already working hard to make ends meet.  The wealthy will still be wealthy, but middle class workers will struggle.  This is strikingly unfair.

The rationale behind keeping taxes low on the upper class has been explained and marketed poorly.  The term ‘trickle down economics’ has a demeaning ring to it.  The idea that the rich pay too much, does not engender sympathy.  Few have been given a clear explanation about why low taxes stimulate growth.  However, one would hope presidential candidates would understand how taxes effect the economy.  Senator Mccain has been the only candidate to date to show this understanding.  What’s fair for the American people of all classes is to have a president that understands how the economy works, and has an intelligent plan to put the economy back on solid ground.

Tags: capital gains tax, economic undersatnding, economics, economy, low taxes, mccain, middle class, middle class america, Obama, presidential candidates, solid economy, tax and spend, tax the rich, tax the wealthy, trickle down economics

3 comments April 21st, 2008