Sprinkle Down Economics

-By Dan Scott

Now with gasoline around $2.50 a gallon in much of the country the clock has been turned back to 2005 as far as transportation cost is concerned. However, the price of gasoline in any area is very dependent on the taxing policies of the various states. We have confusion once again with the Democrats regarding the high price of gasoline and oil versus the credit market meltdown. The Democrat’s talking points are the greedy oil speculators caused the run up of oil prices and the greedy bankers made loans to people who couldn’t afford them. As usual, Democrats are busy pointing the finger at everyone else but themselves because they aren’t willing to be a part of the solution. You can’t be part of the solution if you aren’t willing to take responsibility for your part in what went wrong, thus the Democrats have nothing in their grab bag of give-aways that will address any of the economic issues. Their only solution is to tread water until someone else comes along to save them, hence the banking, auto industry and insurance company credit bailouts. Treading water is a very short term solution that only delays the inevitable if nothing else changes.

The current basis for the tumbling in gasoline prices is increasing unemployment. Without jobs and with less people affording the products businesses sell, of necessity there has to be a market driven response. This holds true not only for gasoline sales and retail sales but also for mortgages. People who occupy the lower end of the economic spectrum are more sensitive to the cost of energy than any other group. Low wage and low skill jobs have been always at the mercy of economic down turns and the economy is particularly sensitive to the price of energy. You will note that the peak of the housing bubble occurred when the price of gasoline started moving up and down around $3.00 a gallon and the price of oil started steadily rising. By 2006, the price of gasoline was starting to move past the $2.50 gallon mark causing concern among the voters. The Democrats sensing this concern turned it into one of their many campaign promises which they didn’t keep. When Democrats took control of Congress in January 2007, they promptly accused the oil companies of greed and started talking windfall profits tax. During this whole period, domestic production continued to fall thus forcing the US to purchase ever more foreign oil causing even more dollars to flow out of the economy, i.e. dollars no longer available for recycling within the economy. There is a reason for this, you will notice there is approximately a $5 to $6 premium on domestic (WTI) over foreign (Brent) crude oil. You can thank the Democrats for that one due to higher taxes on those supposedly greedy US oil companies. To a Democrat, somehow it is sound public policy to hike the price of energy and then take the credit to sprinkle government handouts to the poor to offset those higher prices. I call this Sprinkle Down Economics, robbing Peter and Paul, then coming back to Peter and telling him we need to cover Paul’s losses because you still have money that we couldn’t steal.

Given the increasing worldwide demand for oil and the decreasing US domestic production due to the drilling ban and taxation issues, a shortage of oil was artificially created driving up the price of oil. Of course Democrats were unwilling to face their part in the rising price of oil since they had more important agendas like alternative energy and global warming. Their answer to reducing dependence on the Middle East and petrodollar terrorism was to raise the price of oil so high that alternative energy would become economical. The ugly secret of alternative energy using current technology is the price of oil would have to stay well in excess of $200 a barrel. Clearly a self defeating policy since the higher the price of oil, the MORE money state sponsors of terrorism like Iran had to shovel out to Hamas, Hezbollah and indirectly Al Qaeda. Is it any wonder that violence in Iraq skyrocketed with Iran supplying IEDs and weapons to the terrorists from 2004 until the surge was implemented?

For a while, things were looking great for the Democrats, the economy was adjusting to the increasing price of oil, the environmental lobby was placated with higher energy prices and dreams of wind generators in their sights. The problem for the Democrats was another policy called the CRA (Community Reinvestment Act) created under Jimmy Carter and supercharged under Clinton, forcing banks to make loans to borrowers with low credit scores they normally otherwise wouldn’t make. Guess who are the people with low credit scores? Those with low wage and low skill jobs, the very people whose jobs are sensitive to increasing energy prices. It doesn’t take a genius to realize when you loose your job, you can’t make the mortgage payment. Add to that the double barrel hit of the housing glut, there was no way out for marginal home owners other than to default on their mortgages thus snowballing into the current credit crisis. What we see here is the Democrats tried to have their cake and eat it too. The CRA and alternative energy are conflicting liberal agendas which collided to cause the current economic slowdown. Now Democrats want to write down mortgages and lower the interest rates of those who are defaulting on the backs of the taxpayers – more sprinkle down economics.

The Bureau of Labor Statistics chart tells the story of when Democrats took over Congress in January 2007. Up to that point, unemployment was steadily dropping. So why didn’t we have the meltdown in 2001 or 2003 when unemployment was also high? The answer is the numbers of high credit risk people had not reached the tipping point because they were still able to sell their homes to avoid a mortgage default before the housing bubble burst in 2005.

As we can see Blue states tend to have high taxes on gasoline prices. Gasoline and other energy taxes are a highly regressive form of taxation against the poor since they use most of their income to pay for the necessities of life. Coincidently, these are much the same areas where the bulk of the mortgage defaults occurred and high unemployment exists. Again, more sprinkle down economics where Democrats claim we must do something in the good times, create and fund numerous government social handout programs and jack up the gasoline tax and property tax in order to fund those programs. Lest any Democrat be tempted to claim a chicken and egg scenario, the social programs were their idea in the good times, raising taxes were their idea to pay for the programs based on everyone else’s prosperity and the cost of those myriad of taxes fell back upon the poor along with everyone else.

Now that gasoline prices are coming down to 2005 levels, businesses from manufacturing to retail have been given breathing room on the expense side of the balance sheet. The price reductions should soon be seen rippling through the economy as retailers can once again compete for market share. The big question is, will enough Democrats relent of their failed policies to allow market forces to rescue them from their folly?
The silver lining for country in all this is the derailing of the alternative energy programs. With oil prices now around $61 a barrel and financial institutions flailing to tread water, the funding for the grandiose liberal alternative energy projects have been put on hold. To the average citizen this is extremely good news since if those boondoggles had gone forward, the government would have been taking more tax dollars to subsidize the cost differential between higher priced alternative energy and high priced oil, just like with the ethanol boondoggle. Now with oil so low, no amount of subsidy can economically justify such projects thus making any loan highly speculative. No bank or group of investors at this point is going to fund highly speculative ventures.

Since both Iran and Venezuela, self proclaimed enemies of the US who sponsor terrorism, denominated most of their oil sales in Euros, they are now in serious economic difficulty. This is a good thing for the average person here in the US because less money in their pockets means less money for troublemaking around the world. Therefore the less need for the US military to backup threatened governments such as Iraq and fewer of our solders are killed or wounded. If the price of oil is kept low for a few years, the source of funding for terrorism will be drastically reduced thus allowing every government the opportunity of rooting out the remaining fanatics who would desire to create a worldwide Caliphate. Make no mistake, the purpose of Islamic Terrorism is not about wealth in the West or lack of it in the Middle East, it is about the power over others.

Coming full circle after reviewing the facts I am forced to ask these questions. Is the real reason for the credit bailout due to the dry up of funding for pet liberal projects such as alternative energy? Why engage in an economic action in excess of $750 billion of tax payer funds when the root problem is actually the price of gasoline? In the 2006 campaign we were promised lower gas prices by Democrats. Prices at that time period were fluctuating around $2.50 to $3.00 gallon from 2005 to 2006. Democrats did nothing to increase the supply but only made noises of a windfall profit tax. So why did Democrats break their promises and do exactly the opposite? I would remind everyone that there were around 10 promises made and none of them were ever kept. Why would government leaders NOT unleash the oil companies to engage in domestic drilling to increase supply when billions in royalty and tax revenues and thousands of new jobs could have been realized? The amount of domestic supplied oil has been dropping for years, thus siphoning an ever larger amount of money available for recycling within the US domestic economy. By the way, did anyone ever bother to inform Barack Obama that no amount of alternative energy would bring the US to energy independence when most alternative energy produces only electricity? Only 2% of the electricity generated in the US is made by burning oil. Nor is there enough arable land in the world to produce the quantities of ethanol needed to supply US transportation, let alone the world.

This brings us to the fundamental premise of Democrat policies regarding energy and taxes, a centrally planned economy by controlling the means of production. Under the Democrat plan as espoused by Charles Schumer, the government should be deciding how much energy, in what form it is produced and how those excess benefits should be distributed to those who have the least. Someone has to take credit for sprinkling the benefits since the point of doing so is achieve power. Socialism is the essence of Sprinkle Down Economics.
Dan Scott calls himself a “Member of the Global Capitalist Cabal preaching Capitalism and personal responsibility as the economic solution to world poverty.” He is also a member of the 14th Amendment Society — victimhood is a liberal code word for denying the civil rights of others. He is also a proud member of the Global Warming Denier Cabal, insisting that facts not agendas determine the truth.

Dan can be seen on the web at http://www.geocities.com/fightbigotry2002/ as well as http://www.geocities.com/dscott8186/saidwebpage.htm, And can be reached for comments at dscott8186@yahoo.com.

Copyright Publius Forum 2001