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Americans are feeling the pain at the pump and the grocery store. In just the past month alone, gasoline prices have soared by 13.7 percent. The average price of a gallon of gasoline stands at $3.56. Food prices rose 3.9 percent last month which is the largest gain since November 1974. Most politicians have placed the blame on everyone but themselves. The policies of the U.S. government are largely to blame for the spike in gasoline and food prices.
Rising gas prices are not the result of the free market. The oil industry is subjected to more federal subsidies and regulations than any other industry. These government regulations have ultimately distorted the oil market. One way to quickly and immediately lower gas prices would be to get rid of the gasoline tax. The federal government levies an 18.4 cent tax per gallon of gasoline. The combined federal and state gasoline tax averages 48.1 cents per gallon. These taxes are shifted onto consumers in the form of higher prices.
The laws of economics teach that competition will ultimately bring down the price of goods. Yet, the federal government has restricted U.S. oil production by harmful tax rules, regulations that restrict refining and off-shore drilling bans. Oil drilling is indeed a messy business. Due to advanced technology and lack of corruption compared to developing countries, the U.S. will likely drill for oil in a safer manner. U.S. oil spills will likely be a far rarer occurrence than they are in third world nations. According to the Guardian, in countries such as Nigeria “more oil is spilled from the delta's network of terminals, pipes, pumping stations and oil platforms every year than has been lost in the Gulf of Mexico.”
It’s troubling that most Americans hypocritically use gasoline on a daily basis but some refuse to allow refineries in their own backyards. We all share the same earth. Shouldn’t the goal be to minimize oil spills? If Americans demand alternative forms of energy, the market will rush to provide it.
U.S. monetary policy is also to blame for rising gasoline and food prices. The new Consumer Price Index (CPI) released today states that inflation increased 0.5 percent from January to February. This government statistic is preferred by the Federal Reserve to measure inflation. On Tuesday, the Federal Open Market Committee claimed that inflation had remained relatively stable. Don’t be fooled by the government’s numbers. The core CPI excludes changes to food and energy prices even though these are most commonly bought items. The Wall Street Journal states “keep in mind the Fed doesn’t think food and gas prices matter to its policy calculations because they aren’t part of ‘core’ inflation.”
The Domestic Monetary Policy Committee held a hearing last week to examine the relationship between monetary policy and rising gasoline and food prices. Chairman Rep. Ron Paul (R-TX) stated:
It is unconscionable that published government statistics mislead Americans regarding the true rate of price inflation, which is much higher than commonly-reported CPI numbers. It is also unconscionable that Federal Reserve Bank officials continue to deny the effects of their monetary expansion on consumer prices. Inflation, properly understood, is a monetary phenomenon. The price inflation Americans suffer today is largely the direct result of relentless monetary expansion by the Federal Reserve over the past decade. Our witnesses will explore how current monetary policy, including QE2, directly impacts the standard of living of Americans in ways that are not reflected in official government data.
The witnesses to the monetary policy subcommittee hearing included:
Mr. Lewis E. Lehrman, Senior Partner of L.E. Lehrman & Co. Mr. James Grant Editor, Grant’s Interest Rate Observer Professor Joseph T. Salerno, Pace University, New York
All three witnesses stated that current monetary policy including QE2 was directly to blame for rising prices. Moreover, all three advocated a return to the gold standard to decline prices. Professor Joesph Salerno stated “under a gold standard, prices naturally tend to decline as ongoing technological advances and investment in additional capital rapidly improve labor productivity and increase the supplies of consumer goods while the money supply grows very gradually.” Mr. James Grant added “The verdict of monetary history resoundingly seconded the wisdom of the lawmakers: Paper currencies unbacked by anything except the issuing politicians’ good intentions invariably lost their value.”
Government officials are largely to blame for rising gasoline and food prices. To provide Americans some relief at the pump and the grocery store, the federal government should get out of the way and let the free market provide affordable goods and services. Simultaneously, we need to push for a true and comprehensive audit of the Federal Reserve to find out what the Fed is doing behind closed doors. Call your representatives and tell them to cosponsor the Federal Reserve Act of 2011.
To read Dr. Judy Shelton's A Guide to Sound Money co-published by FreedomWorks and the Atlas Economic Research Foundation please see: http://www.soundmoneyproject.org/wp-content/uploads/2010/11/Booklet-SMP-Guide...