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Government Solutions Will Make The Gasoline Problem Worse: Peter Schiff

  • Peter Schiff: federal compensation of high gasoline prices will only create bigger deficits.
  • The problem is creating new inflation by trying to solve the problem of too much inflation.
  • Schiff: “windfall profit” tax on oil companies is a bad idea.

As Peter Schiff put it in a recent podcast, government solutions make every problem worse. The solutions being floated to help Americans deal with high gas prices are no exception.

One proposal is to give Americans $100 per month to help ease the pain at the pump. Peter called this “a hair-brained scheme.”

Where’s the government going to get this $100 per month of extra money to send to every American? Well, they’re just going to print it. They’re going to get it from the Federal Reserve. They’re going to run bigger deficits, which means they’re going to have to create more inflation to solve the problem of too much inflation.”

Inflation is the underlying cause of rising oil prices. We’ve seen the price of oil moving up for a year, along with the cost of everything else. That was caused by government and the flurry of money printing during the pandemic.

The most recent spike in gas prices is due to supply constriction brought about by economic sanctions placed on Russia.

With supply short, you don’t want to just hand out money so people can “afford” higher gas prices. You need people to cut back on consumption. You need people to economize. The market needs to protect the limited supply.

That’s what the free market solution is to high prices. It’s find a way to cut back on consumption. But no. The government wants to give people money so they can keep consuming what’s in short supply driving the price even higher.”

Another proposal is a “windfall profit” tax on oil companies. Peter called this idea even dumber.

A Democrat in Congress wants to levy a 50% tax on “excess” profits oil companies earn while the price is high. Then the government can hand that money out to Americans to help pay for the higher gas prices. Granted, this wouldn’t be inflationary because the money would come from oil companies.

Related: Unsold Oil Forces Russian Operator To Cap Pipeline Flows

But if you want more oil, if oil prices are high because we don’t have enough oil, the last companies you want to tax are the oil companies. Because, if we’re going to get more oil, where is it going to come from? It’s going to come from the oil companies. Well, where are the oil companies going to get the money to develop alternative sources of oil? From their profits. If we tax their profits, if we diminish their profits, then we diminish the capacity of oil companies to make the investments in exploration and development that would increase the supply of oil. So, we’re actually adding to the problem by making it more difficult for the only people in the country who are capable of producing more oil, making it less likely that they will by making it more difficult by depriving them of their resources.”

Not only that, you’re disincentivizing the entire industry by sending a message. The message is if you invest in this and make money, we’re just going to take it away from you. So, why bother to produce oil?

Why take the risk if the government is going to confiscate the reward?”

At the same time, the government would be giving money to consumers to keep paying for gas so they don’t have to cut back on consumption.

So, the government is incentivizing demand for oil while discouraging an increase in the supply of oil —  doing the opposite of what the free market would do.”

These “bone-head” ideas aren’t limited to Capitol Hill. California Gov. Gavin Newsome wants to hand out $400 debit cards Californians can use to pay for gasoline. This would create the same perverse incentives, encouraging consumption of something that is in short supply.

And where is California going to get all of this money? It will likely borrow the money, meaning even more debt is piled on the shoulders of Californians.

These are solutions that will not work. … The solution to the problem is not more government. The solution to the problem is less government.”

In this podcast, Peter also talks about the yo-yoing in the stock market, government intervention in the bond market, and bitcoin, tech stocks and meme stocks caught up in a bear market rally.

By Zerohedge.com

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Leave a comment
  • DoRight Deikins on March 29 2022 said:
    I agree. Inflation is not limited to petroleum, but is pervasive. While an increase in the cost of fossil fuels affects the cost of just about everything produced in the world (with traditional, i.e. non-mechanized, agriculture being the most significant outlier).

    Best let market forces take care of it. When artificial methods are used, it just kicks the can down the road where it gets larger and larger until it causes far greater consequences. Of course, conspiracy theorists might say that that is the purpose, to cause dire consequences that open the door for an even more authoritarian, less free future.
  • Lee James on March 29 2022 said:
    I agree that government relief for high energy prices is probably not a good move. Until demand for energy is reduced , we probably are in for high prices, and for a variety of reasons that go beyond Ukraine and Russia.

    My best suggestion is to use energy wisely. Do not look too hard for energy costs to go down any time soon.

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