Monday, August 4, 2008

Obamanomics

Last Friday Barack Obama announced his Emergency Economic Plan.

“What’s that,” you say?

Glad you asked. The short answer is—it’s a political stunt to buy the votes of the economically naïve.

The plan calls for “Forcing big oil companies to take a reasonable share of their record breaking windfall profits and use it to help struggling families with direct relief worth $500 for an individual and $1,000 for a married couple.” (For the full text of the plan click here.)

Just how would “big oil companies” be “forced” to do this? Through taxing the socks off them, of course.

Have you ever noticed how big business is always the villain in the economic policies of liberals? They always seem to assume that big businesses got so big because they cheated. They didn’t play by the rules. They had an unfair advantage.

In reality big businesses became big because they provided quality goods and services for the consumer at better prices than the other guys. This is simply the way the competitive free market works. Provide a product the customer wants at a price he can afford and you’re in business. Do this better than the next guy and your business grows.

Au contraire,” says the liberal, playing to our innate envy. “Those bad guys are prospering because they have some unfair advantage over the rest of us, and it’s up to the government to punish them and level the playing field so we can all get a piece of the action.” And what form does the proposed punishment take? More regulation and higher taxes, of course. This is what Obama proposes with his Emergency Economic Plan. Sock it to the oil companies by taxing their profits and redistribute the wealth to middle-class families.

The problem (one of many, actually) is that taxes are simply a cost of doing business, and the costs of doing business are always passed on to the consumer. Increase taxes on oil companies and the increase will be reflected in the price at the pump.

People are just naïve enough, however, not to understand that this is how it works. They don’t connect the dots. All they see is the government check coming in the mail and they think, “What a great guy this Obama is! It’s a good thing I’ve got this extra $500 dollars, because the price at the pump just went up.” Yes, the price did go up because the cost of doing business just went up.

He’s seeking to buy your vote with your own money. He’s asking you to give him $500 so he can cut you check for the same amount. Stand in awe of his creative economics.

Another problem with his plan (which is the same problem with all tax-and-spend liberalism) is that profits are why people are in business in the first place. Profit is a dirty word to liberals. But it shouldn't be. The fact of the matter is that no one would be in business if they didn’t think they would profit from it. Profit is the incentive to go to all the trouble to manufacture a product or to provide a service and to take the risk of starting a business. The higher the potential profit the greater the incentive. When profits are taxed profits are reduced, and so is the incentive to go into business. And so ultimately the consumer is hurt, not only because of the higher price of products, but also because a lower potential for profits discourages people from starting new competitive businesses. And competition is what drives prices down.

For more on the disastrous results Obama's Emergency Economic Plan will produce, see here and here.

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