PATRIOT Act

We've heard how the value of the dollar affects gas prices – and indeed the price of everything. I was pleased that my request for a hearing on such was granted by the Financial Services committee and we were able to hear some very informative testimony. Certainly domestic policies, regarding off-shore oil drilling bans, ethanol mandates, refining capacity, and CAFE standards are interventionist and harmful enough in the energy market.

But how does foreign policy affect gas prices? One important factor is that oil on the world market has been priced in dollars exclusively since 1973. Only two leaders have gone against this arrangement - Saddam Hussein in 2000 and more recently Mahmoud Ahmadinejad with the recently opened Iranian Oil Bourse which trades in non-dollar currencies. But since oil is otherwise exclusively traded in dollars, this means that oil producers have vast amounts of assets held in dollars. Especially since the War on Terror and the PATRIOT Act, many oil-producing nations and banks are concerned the US government may freeze assets based on flimsy pretexts. This fear contributes to dollar weakness, and therefore also high oil prices.

One problem with politicians is that when problems they create come to a head, they typically feel this irresistible urge to DO something, rather than to UN-do something, or to simply back off to avoid exacerbating the situation. Too often, that which they end up doing has very little connection to the cause of the crisis, but plays well in the press and superficially makes everyone feel better. Bills that are rushed through Congress under duress are never studied enough, providing too tempting an opportunity to quietly slip in unrelated provisions that erode freedoms in ways that would never pass as a stand-alone bill. We famously saw this with the PATRIOT Act, but Washington learned nothing from that.

The current housing crisis and the corresponding big government fix are another prime example. First of all, the so-called solution will actually make the problem worse. The problem stems from easy credit and a rush to flood the housing and mortgage markets with money. Relaxed or non-existent lending standards led many into mortgages and houses they could not afford. As more foreclosures hit, the lending institutions will continue collapsing like dominoes under the weight of all the bad paper they underwrote. Some are reacting and reintroducing lending standards. Thus the number of buyers in the market for homes is beginning to shrink back to its natural size, and hyper-inflated prices are falling back down to earth. In these ways, the market is trying to correct itself in the wake of the mistakes government intervention encouraged them to make through easy credit. However, this correction is causing pain, especially to Wall Street investors and those who bought homes at the top of the market bubble, never expecting it to crash, always assuming they would easily be able to refinance.

It has been said that “he who lives by the sword shall die by the sword.” And in the case of Eliot Spitzer this couldn’t be more true. In his case it’s the political sword, as his enemies rejoice in his downfall. Most people, it seems, believe he got exactly what he deserved.

The illegal tools of the state brought Spitzer down, but think of all the harm done by Spitzer in using the same tools against so many other innocent people. He practiced what could be termed “economic McCarthyism,” using illegitimate government power to build his political career on the ruined lives of others.