A sure sign of the political panic that high domestic gasoline prices have created inside the Biden administration comes from Treasury Secretary Janet Yellen.
Yellen, former head of the Federal Reserve and an accomplished labor economist, pushed for the U.S. and other G-7 nations to impose price caps on Russian oil exports. The supposed goal: putting a dent in Vladimir Putin’s windfall oil profits, and further slowing Russia’s war economy.
While the other G-7 nations demurred on a concrete cap, Yellen’s press release exposed how even an economist who should know better can get stampeded into saying some truly bizarre things about prices:
By working together to limit the price of Russian oil, we will further strengthen the existing sanctions imposed by the G-7 and our partners to make sure that Putin will not be able to profit from the higher global energy costs that have resulted from his invasion.
That’s not how any of this works. Sure, the West can cap prices on Russian oil. But as the West’s soft oil embargo of Russian crude has already demonstrated, oil trades in a global market, with eager buyers who have no qualms about who supplies the stuff:
China and India, the world’s most populous countries, have swooped in to buy roughly the same volume of Russian oil that would have gone to the West. Oil prices are so high that Russia is making even more money now from sales than it did before the war began four months ago. And its once-flailing currency has surged in value against the dollar.
Russian officials are smirking over what they are calling a spectacular failure to cow Mr. Putin. And the economic pain the oil boycott was meant to inflict is reverberating not so much in Moscow but in the West, especially the United States, where skyrocketing oil prices pose a potent threat to President Biden less than halfway into his term.
By that measure, then, price caps are so much political theater. But oil-based theater seems to be a Biden administration staple, as the rest of Yellen’s statement makes abundantly clear:
It is the top economic priority of the Biden Administration to lower energy prices for American business and consumers – and energy prices are a primary driver of today’s inflation. Limiting the cost of Russian oil will put downward pressure on global energy prices in a way that dampens the impact of Putin’s war on the U.S. economy.
That’s almost worthy of a Tony Award nomination. But even if China and India weren’t buying Putin’s blood-soaked oil, would a price cap do anything to drive down gas prices in the U.S.?
Of course not. As the St. Louis Federal Reserve’s Christopher J. Neely wrote back in March, price controls (or “caps” if one insists), resort in all manner of economic distortions, including:
A government bureaucracy and law enforcement must be funded to enforce the controls.
Goods and services are allocated inefficiently, both in consumption and production.
Competition shifts from production to political markets as firms attempt to influence price-setting decisions.
Widespread evasion of price controls promotes disrespect for the law.
Suppressed inflation appears when temporary controls are relaxed.
Surely Secretary Yellen knows this…even if the Biden economic team seems oblivious to it.
But if Neely’s points are too academic, there’s this old saw from Milton Friedman:
Economists may not know much, but we know one thing very well: how to produce surpluses and shortages. Do you want a surplus? Have the government legislate a minimum price that is above the price that would otherwise prevail…Do you want a shortage? Have the government legislate a maximum price that is below the price that would otherwise prevail. That is what New York City and, more recently, other cities have done for rental dwellings, and that is why they all suffer or will soon suffer from housing shortages. That is why there were so many shortages during World War II. That is why there is an energy crisis and a gasoline shortage.
Secretary Yellen knows this, too – and lived it back in the energy crisis days of the 1970s.
That she can’t say it tells the rest of us how very, very far out of touch Team Biden is on gas prices, oil production, global markets, and so much more.
The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.
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Norman Leahy has written about national and Virginia politics for more than 30 years with outlets ranging from The Washington Post to BearingDrift.com. A consulting writer, editor, recovering think tank executive and campaign operative, Norman lives in Virginia.
This is what happens to the economy when a senile Communist is elected president and his associates are all like him.
C’mon, Joe, wake up! You’re killing your people and you don’t seem to care. Resign and save our wonderful country.
C’mon, Joe, wake up! You’re killing your people and you don’t seem to care. Resign and save our wonderful country. And to the trackers: stop with the automatic “you already said that” when I didn’t.
President and entire staff is inept and corrupt.
You got that right. They are all corrupt!!
Joe could have had the winning hand if he would have turned on the oil spigot from the USA. But alas, he is too stupid to do that so now we have the bumbling Brandon energy shortage.
Biden said when he was campaigning that he was “going to end fossil fuel in America”. Why didn’t anyone listen? Then said he was going to bankrupt Putin with his gas and oil sanctions. But the truth is that while our dollar is crashing, the ruble is rising and Putin is getting richer. The Europeans, who spent decades dismantling their fossil fuel industry with their own “Green New Deal” became totally dependent on Russian gas and oil because, of course, the sun doesn’t always shine and the wind doesn’t always blow. So you won’t see it reported anywhere but they are STILL buying Russian gas and oil because they can’t survive without it. So we are sending billions, that we don’t have, to Ukraine for a war that we don’t want and didn’t vote for. In the meantime, NATO countries (along with China and India) are effectively funding Putin. That’s insane! Consider that as Biden will soon ask for more money to go to Ukraine and all the Democrats and RHINO’s like Mitch McConnell and Lindsey Graham will waive their Ukrainian flags and shout we must “protect their sovereignty and territorial integrity” while they do nothing about our “territorial integrity” and the millions of illegals crossing our open border along with criminals, cartels, terrorists and the Chinese made fentanyl that literally kills a hundred thousand American citizens every year.
Steve, your comment is 100% right on the mark. The DC political cesspool is virtually raping our beloved country to line their own pockets and pad their hidden off-shore bank accounts. They’re all filthy money grubbing traitors. ??
Biden fiddles while the U. S. burns.
All Joe (Brandon) needs to do is open the pipeline he closed. Put our workers back to work and give us the gas we need!!!
All this to avoid drilling for oil in America when there is absolutely no hope of making the “Green New Deal” fly in the current America. That carbon neutral America is many years down the road. Today, every form of renewable or carbon neutral energy scheme is dependent on oil for it’s manufacture or even it’s energy, like EV’s. They are made almost entirely by the consumption of oil, natural gas, or coal, and propelled by electric energy that is produced by natural gas or coal in most cases. There is no way that is going to change in Biden’s lifetime. So that is how long this is going to go on. I see only one solution.
I have to laugh at most all of the previous comments – it ain’t just the IOTWH – it is the entire libtard party – they are completely under the thumb of the way-out progressives who want nothing more than to relegate this country to be totally dependent on the so-called green energy – to hell with ANY fossil fuels. Not being smart enough to figure out how that moldy energy is produced – oh gosh, by the use of fossil fuels – JUST FLAT DUMB!!!!
Washington and it’s Big White House are sinking back into the Swamp with noxious gaz bubbling up all around them!
Getting funds for war with oil.
endless money stream to Russia