China Gas Lines

The picture I put up yesterday showing gasoline lines in China got me to wondering what the problem was and it turns out the problem is fairly simple. China went the Jimmy Carter route. In the 70's Carter put on price controls in an effort to fight inflation. Not only that, he also added a "windfall profits tax" on oil and gas producers. China is doing the same. O.K. now here is the question. If the price of a barrel of oil in China is held $10 below the actual world price, where will the Chinese oil firms sell their oil? Bingo!!!

When Reagan became President the first thing he did was immediately repeal all Carter-era oil and gas controls and the excess profits tax. Oil prices went to their natural market value and through the magic of market forces, production rose, consumption fell and prices began to decline.