By Kat Dwyer for RealClearEnergy
Inflation is hitting voters where it hurts the most, forcing policymakers to pay attention—and revealing the economic illiteracy of the Left.
Rather than acknowledging that reckless fiscal and monetary policy are to blame, Democrats have turned to their favorite boogeyman to explain the sharp increase in prices: corporate greed. 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.
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.”
Is she kidding? By now, the reason should be obvious.
Inflation is ultimately the result of expansionary monetary policy. In response to the Covid pandemic, the Fed dramatically increased its quantitative easing program and kept interest rates near zero, both of which flooded the economy with money, expanding the money supply by 40 percent over the course of the past two years.
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. The result? A classic inflationary tale of too many dollars chasing too few goods.
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Government-mandated lockdowns decimated demand during the pandemic bringing the price of Brent crude down to $0 a barrel. Once government restrictions began to lift and the economy began to rebound, demand for oil surged. Suppliers have been trying to play catch up ever since.
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.
The industry would be stupid not to internalize this message. Why would they invest in new oil and gas exploration or pipeline construction with the amount of uncertainty their industry faces? Naturally, Democrats obscure the connection.
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.
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] is not a fight about coal anymore.
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?
Others are taking a different, though equally backward 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.
Now, one could rightly argue that this is a craven political move meant to appease key constituents ahead of the midterm elections, motivated solely by cratering poll numbers. But something more harmful is afoot here. Increasing the tax burden on these companies will increase costs, which they’ll pass on to consumers in the form of higher prices.
Meanwhile, flooding the economy with more government-issued checks will further stoke demand, which will, in turn, exert upward pressure on prices.
Others on the progressive left have called for price controls or more stimulus checks or antitrust action. All of these ideas would just exacerbate the problem. 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. But what do we really expect? After all, it’s what the government does best: propose backward solutions to problems it created in the first place.
Syndicated with permission from Real Clear Wire.
Kat Dwyer is a Young Voices contributor and co-host of the Whiskey Bench podcast. Her writing has appeared in the National Review, Washington Examiner, and others. Follow her on Twitter @KatJDwyer.
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