The French Don't Understand Free Markets

Propose A Price Ceiling on American Oil

The G-7 is meeting this week. The bureaucrats want to stop inflation. Unfortunately, they didn’t learn all the rules of the 1970s. They think the central bankers just push a magic “raise interest rates” button and the inflation pressure goes away.

That’s not how it works. Interest rates are but one lever to cure the problem.

To be totally plain and clear, the interest paid on loans is merely the “price of money”. Higher rates equal higher prices. When the interest rate goes up, the value of the underlying currency associated with it goes up which helps to ease inflationary pressure assuming that there is no increase in the supply line of that currency.

What might increase the supply line for currency? In my photo above, that would move the supply line out and to the right.

If your first instinct was an increase in government spending, you’d be right. Government spending forces central banks to create more money to fund that spending. That puts downward pressure on the price of the currency and also forces them to raise interest rates higher to adjust.

Has anyone advocated cutting government spending at the G-7? In America? It’s one lever they should pull.

At the G-7 today, this news came out.

Samuel Ramani @SamRamani2

BREAKING: France backs a U.S. proposal for a maximum oil price

That in effect is a “price ceiling”. What happens to the market when there is a price ceiling? This handy video explains it.

A price ceiling on oil will create more shortages of oil. Price ceilings also create disincentives for oil companies to invest in more production which creates a less elastic supply curve that creates higher prices. Price ceilings also have an effect to limit competition since there is no incentive for new entrants to come into the market or for new companies to innovate in the market.

Why do we have high oil prices today? It’s not just Biden banning the Keystone pipeline, banning drilling in productive oil areas, and Putin’s invasion of Ukraine.

The regulations around producing oil are onerous. Sky-high prices are a symptom of that. All the hoops producers have to jump through increases the costs.

There are bottlenecks in production. American refining capacity is low and there is no incentive to build new capacity to refine oil given Biden’s stance on it. These people haven’t a clue how the real world of business works.

Building a refinery costs millions of dollars and besides, the EPA won’t let it operate because of climate change. We will see if the anticipated SCOTUS ruling this week changes some of that.

Liberals are so out of touch.

• “Just get an electric car”. Course, super expensive to charge it in a lot of states and the electrical grid can’t supply enough electricity to do it. That statement also ignores the fact electric cars aren’t cheap. Cadillac is proposing a new $300,000 one!

• “Get solar panels”. The cost for solar panels plus batteries is super expensive and the system wears out and has to be replaced before it pays for itself. It’s not for the middle class but a great hobby for the super-wealthy. I looked at putting solar on my house when I rehabbed it and it wasn’t close to being cost-efficient.

• “Have government loans for cars and panels.” Both are already subsidized by governments and they still don’t work. Essentially, it is free money for the wealthy. Codifying loans and subsidizing them is a bad idea. See other government loan programs and the adverse effects they have. Besides, like everything with the government, they will be politicized.

We don’t manufacture batteries in the US. It’s done in China. Ironically, you need a lot of lithium to build batteries and they found a huge deposit in remote Nevada. Except the same people that are telling you to buy and drive an electric car won’t allow anyone to mine it.

The same people that want to hide under the covers because of global warming and the end of the earth won’t let mankind build nuclear plants to supply more and cheaper and greener electricity to people.

The elites and bureaucrats are just so out of touch. It’s frustrating to see how stupid the credentialed class is, and how you can motivate them with emotional appeals that don’t stand up to objective facts and judgment.