Prop. 87 - A Lesson in Liberal Economics

Virtually all modern Democrats have no background in economics, and the mechanics of supply and demand. There is perhaps no better illustration of this fact than the current efforts to tax oil production in California through Proposition 87.

From the SF Chronicle:

Prop. 87 would tax companies for oil pumped in California, based on the price per barrel. The tax would stay in effect until it raised $4 billion, which would be spent on programs and research designed to cut the use of petroleum in California by 25 percent by 2017. It also would bar oil companies from raising gas prices to cover the cost of the tax.

This misguided measure would essentially discourage oil companies in California from producing oil locally by taxing them unfairly, and then not allowing them to recoup their increased costs by charging higher prices. It would give them a huge incentive to import oil from outside sources (which would not be subject to the tax and follow-up price controls). Not surprisingly, the Democratic-supported initiative also would create a new state bureaucracy to administer the tax money.

What tax-and-spend Democrats seem to have forgotten is that oil producers have a choice between refining oil from either local or out-of-state sources. Given this choice between two sources of identical raw materials, a rational oil producer will always pick the lower cost alternative. Then add the prospect of price controls on California-dervied petroleum, and you have yet another reason to import your raw material.

In other words, supporters of Prop. 87 are shooting themselves in the foot by driving away California businesses such as refineries and oil drillers, and in the process making us even more dependent on foreign sources of oil. Just another election cycle in Moonbat Central.