It’s sad that the first rule of economics is opposite of the first rule of politics, but isn’t that true in all economic environments? Cardigan sweaters being included in the challenges of the 70s caused some laughter, particularly when one reflects on the outrageous disco clothes of the era..
Thanks for this. You might enjoy the last of the four Rest is History episodes on "Britain in 1970s" and how various politicians wanted to respond to these kinds of problems. Surprisingly, it was Jim Callaghan's Labor government - against the wishes of his more liberal backbenchers - that plonked for a version of what we might today call "austerity." It was kind of pre-Thatcher thatcherism:).
"The first principle of economics is: Don’t transfer income by distorting prices. The first principle of politics is the opposite.
"High energy prices do slow the economy. But a slowdown turns into a recession only when something financial goes wrong.
"What should government do about rising energy prices? Nothing. Or, more concretely, get out of the way, ease restrictions, and let the market work its magic of sending energy to the most economically important uses while encouraging others to save, substitute or provide new energy." --- JHC, The Wall Street Journal, April, 2026.
Easy to say, harder to do when your energy supplies (oil, natural gas, helium, &c.) originate in the Persian Gulf littoral states that have suffered as a result of the preventative war which the U.S. and Israel in their rush to arms.
The Philippines is a case in point--it imports a high proportion of petroleum from the Middle East, and prices have risen to the point where farmers are leaving crops in the fields because the revenue from harvesting is less than the expense of the diesel fuel required to operate the harvesting machinery. S. Korea is another case in point--it imports all of its energy requirements and all of its helium. Helium is an essential input to the manufacture of semiconductors. No helium, no semiconductors. S. Korea obtains all of its helium from the Middle East natural gas producers.
So, wax eloquent over economic theory. Tell the central bankers what they already know. But spare a thought for the poor smucks that live hand-to-mouth producing the produce and rice that fill the bellies of the urban working stiffs who manufacture the goods which the Western consumers find so attractively priced in the West's retail stores.
All because the White House failed to "run the movie" before committing warfare on the one region in the World that produced, before the war, 20% of the World's energy.
We already have bad policies in the escalation of tariffs and the internal warfare against immigrants--legal and illegal. And the fiscal house is a little disorderly, too. And while an energy crunch doesn't have to turn into a recession it can still have some pretty intense but uneven distributional effects. While it's not a likely outcome, I'm not sure that against that backdrop a lump-sum profits tax would do a lot of harm, especially given the tax breaks oil companies already get for expensing intangible drilling costs and percentage depletion.
Great insights. "Higher gasoline prices need not mean inflation," unless governments are tempted into "ham-handed policy responses", which reduce the expected future path of primary surpluses - your FTPL mechanism, John :). Not a very unlikely scenario in Europe, I am afraid.
Trump just proposed a 550,000 barrel a day oil pipeline thru my state of Montana but not through any Fentanyl/methamphetamine territories (Indian Reservations) so they can't interefere with their usual nonsense. The Eco-Fascists are opposed but those Communists hate everything any way.
Hope it goes through before Kamala Harris and AOC object.
In 1979, the increase in energy costs (gasoline) was abrupt and based significantly on supply sharply declining compared to demand. Then add in ridiculous policy decisions and stagflation was predictable and did occur.
Today the price of a gallon of gas at $4 per gallon adjusted for inflation using 2020 as the starting point is equivalent to $3.15 then with27% inflation. Not much screaming in 2020, but a lot of screaming now. How much is political?
There is not a supply constraint for the U.S. except maybe California. Europe and much of the "greenie" driven world, especially the woke west, chose their own energy driven idiocy. They will have more severe supply constraints, and, if President Trump is not allowed to manage the Iranian nightmare, Iran will be the controller of energy prices at least in the near future. The Middle-East oil producers are already seeking alternatives to the Strait of Hormuz. True, prices are up and total supply is down, but the U.S. along with Venezuela can moderate much of the void thereby mitigating astronomical price increases.
Is there some pain? Yes. Is it worth it in order to energize innovation for the future, wake up the ideological idiots from their “green” fantasies, change the world’s energy supply dynamics (the entire market including OPEC) and eliminate a true threat to the future of energy and the safety of the world by eliminating an Islamist terrorist bunch of crazies? Yes, of course. And there is no other choice other than the status quo which is intellectually and economically indefensible.
Hope your wisdom wins the day
It’s sad that the first rule of economics is opposite of the first rule of politics, but isn’t that true in all economic environments? Cardigan sweaters being included in the challenges of the 70s caused some laughter, particularly when one reflects on the outrageous disco clothes of the era..
Thanks for this. You might enjoy the last of the four Rest is History episodes on "Britain in 1970s" and how various politicians wanted to respond to these kinds of problems. Surprisingly, it was Jim Callaghan's Labor government - against the wishes of his more liberal backbenchers - that plonked for a version of what we might today call "austerity." It was kind of pre-Thatcher thatcherism:).
"The first principle of economics is: Don’t transfer income by distorting prices. The first principle of politics is the opposite.
"High energy prices do slow the economy. But a slowdown turns into a recession only when something financial goes wrong.
"What should government do about rising energy prices? Nothing. Or, more concretely, get out of the way, ease restrictions, and let the market work its magic of sending energy to the most economically important uses while encouraging others to save, substitute or provide new energy." --- JHC, The Wall Street Journal, April, 2026.
Easy to say, harder to do when your energy supplies (oil, natural gas, helium, &c.) originate in the Persian Gulf littoral states that have suffered as a result of the preventative war which the U.S. and Israel in their rush to arms.
The Philippines is a case in point--it imports a high proportion of petroleum from the Middle East, and prices have risen to the point where farmers are leaving crops in the fields because the revenue from harvesting is less than the expense of the diesel fuel required to operate the harvesting machinery. S. Korea is another case in point--it imports all of its energy requirements and all of its helium. Helium is an essential input to the manufacture of semiconductors. No helium, no semiconductors. S. Korea obtains all of its helium from the Middle East natural gas producers.
So, wax eloquent over economic theory. Tell the central bankers what they already know. But spare a thought for the poor smucks that live hand-to-mouth producing the produce and rice that fill the bellies of the urban working stiffs who manufacture the goods which the Western consumers find so attractively priced in the West's retail stores.
All because the White House failed to "run the movie" before committing warfare on the one region in the World that produced, before the war, 20% of the World's energy.
We already have bad policies in the escalation of tariffs and the internal warfare against immigrants--legal and illegal. And the fiscal house is a little disorderly, too. And while an energy crunch doesn't have to turn into a recession it can still have some pretty intense but uneven distributional effects. While it's not a likely outcome, I'm not sure that against that backdrop a lump-sum profits tax would do a lot of harm, especially given the tax breaks oil companies already get for expensing intangible drilling costs and percentage depletion.
Great insights. "Higher gasoline prices need not mean inflation," unless governments are tempted into "ham-handed policy responses", which reduce the expected future path of primary surpluses - your FTPL mechanism, John :). Not a very unlikely scenario in Europe, I am afraid.
Trump just proposed a 550,000 barrel a day oil pipeline thru my state of Montana but not through any Fentanyl/methamphetamine territories (Indian Reservations) so they can't interefere with their usual nonsense. The Eco-Fascists are opposed but those Communists hate everything any way.
Hope it goes through before Kamala Harris and AOC object.
In 1979, the increase in energy costs (gasoline) was abrupt and based significantly on supply sharply declining compared to demand. Then add in ridiculous policy decisions and stagflation was predictable and did occur.
Today the price of a gallon of gas at $4 per gallon adjusted for inflation using 2020 as the starting point is equivalent to $3.15 then with27% inflation. Not much screaming in 2020, but a lot of screaming now. How much is political?
There is not a supply constraint for the U.S. except maybe California. Europe and much of the "greenie" driven world, especially the woke west, chose their own energy driven idiocy. They will have more severe supply constraints, and, if President Trump is not allowed to manage the Iranian nightmare, Iran will be the controller of energy prices at least in the near future. The Middle-East oil producers are already seeking alternatives to the Strait of Hormuz. True, prices are up and total supply is down, but the U.S. along with Venezuela can moderate much of the void thereby mitigating astronomical price increases.
Is there some pain? Yes. Is it worth it in order to energize innovation for the future, wake up the ideological idiots from their “green” fantasies, change the world’s energy supply dynamics (the entire market including OPEC) and eliminate a true threat to the future of energy and the safety of the world by eliminating an Islamist terrorist bunch of crazies? Yes, of course. And there is no other choice other than the status quo which is intellectually and economically indefensible.