No Runny Eggs

Why do we have people like Ben Bernanke, people who study economics, trade and monetary policy, handling the  Nation’s economic affairs  when we could have someone like the latest Governor of New York, David Paterson.

Paterson has come out against the gas tax holiday. A position which I agree with him on. My disagreement with the holiday is based on a fear that any reduction in the price will allow Congress to think they’ve actually accomplished something to solve a long term issue. Governor Paterson’s issue is that he things the gas companies are greedy. For his evidence he points to what happened following Hurricane Katrina:

At a press conference about a personnel matter in his midtown office, Paterson told reporters to go to the oil companies and "ask them why, the week after Katrina"”the Katrina Hurricane"”August 29, 2005, ask them why the gas prices went up in that week.

“It couldn’t have had anything to do with the gas,” Paterson charged. “Because gas delivery took place three weeks before then. They sold you the same gas that was in their tank the week before at"”at some points"”10 to 15 percent higher."

Paterson thinks that because the gas was put into tanks at one price, that should dictate what price the gas should come out of the tanks.

David, have you ever been in an area prior to a hurricane hitting? If you have, you would know that plywood has this nasty habit of increasing in price right before a hurricane. That plywood didn’t cost more coming in just because the hurricane was coming but it did cost more going out. Another thing David, plywood is also rationed when a hurricane is coming. Yup, the day before a hurricane you could have bought every single piece from your local home building supply company but the day the hurricane is announced, rationing starts.

How about another example David? After a hurricane generators get more expensive. Those generators were all sitting there prior to the hurricane at the same cost but lower price than after the hurricane where the cost stayed the same but the purchase price goes up.

The point David, is that increasing prices are the mechanism that free markets use to help manage demand for products that are, or are expected to be, in short supply.

I think we should test all political candidates for their knowledge of Adam Smith’s “The Wealth of Nations.” If they fail the part about supply and demand, they don’t get to run, pure and simple.

Instituting the test may not get us any better politicians but we would at least know that they do know better and not have to wonder whether they were lying to us or just flat out ignorant.