Democrats and their progressive cousins either don’t understand the economic principle of supply and demand or they don’t care.
That combination of ignorance and arrogance will have political repercussions for Democrats in 2022 and 2024 and economically for all Americans in the coming years if not reversed quickly.
Inflation expectations are at their highest levels since 2013, gasoline prices up more than 40 percent since January, and consumer prices in July rose 5.4 percent, the most significant jump since 2008. Yet, the Biden administration continues to push the economy to net-zero emissions by 2050.
Net-zero means the country’s total carbon dioxide emissions by 2050 will need to be dramatically cut through carbon offsets, unproven carbon capture technologies, and much slower economic growth.
The Biden administration isn’t just virtue signaling its way toward decarbonization; it’s blazing a trail through America’s economy.
On President Joe Biden’s first day in office, he placed a moratorium on new federal oil and natural gas leases and canceled federal approval of the Keystone XL pipeline. More recently, his Treasury Department started enmeshing big Wall Street banks and financial institutions in a new web of regulation to force all publicly traded corporations onto a carbon diet.
Democrats may not realize it, but constraining investment in the U.S. oil and gas patch is a repeat of the same mistake made under Republican President Richard Nixon in the 1970s. At that time, Democrats dominated Congress, and Nixon gave into his internal political contradictions, allowing his administration to impose wage and price controls across the economy, ban oil exports, and block the use of natural gas to generate electricity.
Such behavior introduced cost-push inflation to the economy by increasing the cost of energy where no suitable alternative was available.
The wage and price controls on energy commodities forced American producers to subsidize more costly imports, eventually weakening the dollar and the broader economy.
In his history of the global oil industry, ''The Prize,'' Daniel Yergin wrote that ''owing in part to the deep and dark suspicions about conspiracy and monopoly in the energy sector,'' oil and gas price controls were kept in place for years after the government lifted price controls on other sectors.
Not coincidently, during the eight years between 1973 and 1981, U.S. economic growth fell from 4 percent to 2 percent annually, inflation doubled to 8 percent, and unemployment grew as the economy stagnated.
The same thing could happen again because U.S. oil production has become as critical to global supply as it was five decades ago, thanks to the hydraulic fracturing revolution.
According to the Energy Policy Research Foundation, between 2010 and 2019, the United States provided over 80 percent of the global expansion of petroleum output, equaling 9.5 million barrels a day of hydrocarbons out of a total of 11.7 million barrels a day.
In the absence of that expansion, oil — and gasoline — prices would have been much higher than today. If production in the United States stays flat over the next several years due to Biden administration actions, OPEC and Russia would happily keep their oil in the ground to see prices rise over $100 a barrel.
If the case of $100 a barrel oil isn’t scary enough for Democrats, the Democratic and Nixonian failures of the 1970s led directly to the Reagan Revolution of the 1980s, a move that Republicans — and most of the country — would welcome again.
It’s a little absurd to believe transitioning the world’s largest economy to a post-carbon economy in a short amount of time — while ignoring economic laws regarding price signals and consumer inflation expectations — can work without damaging the economy and America’s geopolitical prospects.
At least some Democrats, including West Virginia Sen. Joe Manchin, recognize inflation's threat to the party. Manchin has criticized plans to spend $3.5 trillion on infrastructure and social programs put forward by Senate Democrats as being more suited to the Great Depression or Great Recession — not an economy on the verge of overheating.
It was President Jimmy Carter, a Democrat, who started to unwind price controls. Yet, President Ronald Reagan, a Republican, gets the credit for its positive consequences as economic growth took off in the 1980s.
If there is one major difference between conservatives and progressives through the decades, it is that the left is easily convinced that the consequences of a policy will always outperform any unintended consequence caused by top-down government mandates.
Conservatives, meanwhile, recognize this is delusional. Instead, the unintended consequences can lead to terrible societal tragedies and national decline, as seen during the 1970s.
The Biden administration has somehow convinced itself that constraining American energy supplies will deliver a faster transition to a post-carbon economy.
Yet, it is unwilling to admit these policies will directly hurt tens of millions of working and middle-class voters who live paycheck to paycheck and depend on affordable energy.
Speaking to Bloomberg, energy analyst Kevin Book said it best when he said: ''In my experience, high prices tend to usher out incumbent politicians faster than they issue in new technologies.''
It’s only a matter of time before the law of supply and demand rears its head once again.
Dan K. Eberhart is CEO of Canary oilfield services and private equity firm Eberhart Capital, which has manufacturing, trucking and construction operations across the Heartland. Dan writes regularly on the intersection of energy policy, the economy and politics. He’s author of two books on energy. He lives in Phoenix, Arizona. Follow him on Twitter @DanKEberhart. Read More Here.
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