The average price of a gallon of gasoline reached $3.76 yesterday. “The best thing we could do is to resolve that situation,” Federal Reserve Secretary Ben Bernanke told Congress of the Iranian crisis on Wednesday. “But that’s beyond my capacity or, probably, anyone’s capacity.”
But the expense of oil is not beyond his capacity. In fact, doubling gas tabs under President Barack Obama has far less to do with Mahmud Ahmadinejad than with Ben Bernanke. Priming the pump propels prices at the pump.
Exorbitant charges for gasoline are a function of supply and demand. But high prices involve the supply and demand of what you give the service station attendant and not just the supply and demand of what the attendant puts in your car.
The Federal Reserve has dramatically increased the monetary base since 2008’s financial crisis. Creating money enables the government to afford its operations. It impedes Americans from being able to afford gasoline. Cheap money means expensive fuel—and meat, and clothes, and gold.
Ben Bernanke didn’t seek to inflate fuel bills. But he did. This is the law of unintended consequences. Government actors seek to solve one problem not realizing that they may be creating a dozen other problems in doing so. But as Bernanke’s blunder shows, unwanted side-effects aren’t always unforeseeable.
Illinois Senator Dick Durbin blasted Bank of America last week for proposing checking fees to new customers. He railed, “This brazen return to new monthly fees is a challenge that cannot go unanswered.” Bank of America executives probably said something similar in response to Durbin’s amendment to the Dodd-Frank legislation, which limited the debit-card transaction fees that banks can charge merchants. The checking fees imposed on customers are the bankers’ answer to Durbin’s price controls.
It must have felt cathartic for Durbin to punish the banks. But his therapy comes with a heavy bill. Now he blames the banks for their predictable response to the punitive legislation he crafted.
The politicians who employ the nastiest rhetoric about bankers strangely rely on the most idealistic visions of them when crafting policy. Did the senator really think that BofA would eat the losses instead of passing them on to customers?
The Federal Reserve Bank of New York reported this past week that America’s accumulated student debt is $867 billion. For the students who can count and grasp geography, they know that they owe slightly more than the gross domestic product of the Netherlands.
After Congress passed the Higher Education Act of 1965, Lyndon Johnson claimed that the legislation meant that “a high school senior anywhere in this great land of ours can apply to any college or any university in any of the fifty states and not be turned away because his family is poor.” Back then, private colleges charged an average of $13,000 in inflation-adjusted dollars for a year’s worth of tuition, fees, room, and board. Today, the figure is about $35,000 for private, not-for-profit schools.
All this helping seems to be hurting, a fact not entirely lost on the vice president. “By the way, government subsidies have impacted upon rising tuition costs,” Vice President Joe Biden admitted last month at Florida State University. The vice president contended that reducing student aid would bring down college costs but at the expense of making aid unavailable for the poor, a situation he termed a “conundrum.” He conceded that “in a pure free-market the college tuition would have to be lower.”
More “unforeseen” consequences are foreseeable on the horizon.
Due to new ObamaCare taxes, the expiration of the Bush tax cuts, and a cap on itemized deductions, the top capital gains tax rate is set to increase from 15 to 25 percent on January 1, 2013. Such steep rises in rates in the past have paradoxically resulted in declines in collections, a fact pointed out by ABC News’s Charlie Gibson to Barack Obama during the 2008 campaign. “Well, Charlie,” Obama responded, “what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.” In other words, the president cares more about intentions than results.
It’s easy to keep making the same mistakes when somebody else keeps paying for them. We pay more to gas stations, colleges, and banks because government problem solvers are really government problem makers.
Meaning well is no substitute for doing well.
It’s important for politicians to have good hearts. It’s important that they have good heads, too.