Saturday, 17 May 2008

Answers too complex?

Why are petrol prices high? Are the reasons so terribly complex that most voters can not understand them? Given much of the coverage in the media you would tend to think so. But Thomas Sowell thinks otherwise. For him the problem isn't that the explanation is complex rather that it isn't emotionally satisfying. Petrol prices are high because demand is high. As Sowell asks
Is there anything complex about the fact that with two countries-- India and China-- having rapid economic growth, and with combined populations 8 times that of the United States, they are creating an increased demand for the world's oil supply?
He goes on to point out that
The problem is not that supply and demand is such a complex explanation. The problem is that supply and demand is not an emotionally satisfying explanation. For that, you need melodrama, heroes and villains.
What villains? Well oil companies are a good place to start. Just think about all those "obscene profits" they are making.
What about those "obscene" oil company profits we hear so much about?

An economist might ask, "Obscene compared to what?" Compared to the investments made? Compared to the new investments required to find, extract and process additional oil supplies?
But as Sowell notes
Asking questions like these are among the many reasons why economists have never been very popular. They frustrate people's desires for emotionally satisfying explanations.
Economists are not popular but politicians have to be.
A politician's problem is how to get more votes-- and one of the most effective ways of doing that is to be a hero who will save us from the villains.
Of course they may have to invent the villains, but that's no problem. If fact it can be useful. Its easier to save people from villains you created in the first place.

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