For those of you in the United States, you may or may not have heard of Senator Obama’s “Windfall Profit” tax. Oil companies recently released their earnings, which were extremely high. Senator Obama therefore suggested that a portion of these profits be doled out to American people and families ($500 and $1,000 to each respectively). The reasoning being that oil companies can afford to do so, while average Americans need this money more.

After having pointed out how other presidential hopefuls have muddled up their economics, it is time to do so for Senator Obama.

This can be simplified to basic Economics 101: Supply and Demand. Demand for oil is higher than ever, while supplies are dwindling or stagnating at best. This is a classic case for high prices and the best solution is to either increase supply, decrease demand, or both.

Unfortunately, Obama’s does the opposite. Taking money from oil companies means they will have less available for exploring and drilling new sites (whether controversial or not), which is where most oil company profits usually end up going. The one time boost in spending, on the other hand, will create a (likely) increase in Demand. The outcome of these two factors will undoubtedly raise oil prices even more in the medium term.

Might we suggest Senator Obama decide to either go the whole nine yards and nationalize all oil companies, or just leave markets alone?