Windfall-Profit Nonsense

[Tigermike 3,041]

May 28, 2008

Windfall-Profit Nonsense

By John Stossel

Hillary Clinton and Barack Obama want to raise the price of oil, as well as most everything else, and lower the value of the pension and mutual funds that union members and retirees depend on.

Of course, they don't describe their plan that way. Instead, they call for a windfall-profits tax on the oil companies.

But it's the same thing.

Taxing a "windfall" sounds appealing, but stock prices are based on expected profits. Throw a new tax on profits, and retirement portfolios of regular people take a hit.

"Hillary will impose a windfall profits tax on oil companies and use the money to temporarily suspend the 18.4 cent per gallon federal gas tax and the 24.4 cent per gallon diesel tax during the upcoming peak summer driving months," says her website.

"They sure can afford it," she told an audience in Indianapolis.

Whom does she think "they" are?

Obama says: "It isn't right that oil companies are making record profits at a time when ordinary Americans are going into debt. ... That's why we'll put a windfall profits tax on oil companies...".

Taxing "windfalls" is politically rewarding, but in the final analysis, only people pay taxes. When a corporation is taxed, the burden falls on workers (through smaller raises), consumers (through higher prices) and shareholders (through lower stock prices).

Do Clinton and Obama really want to tax these innocent people just to spite oil executives for high profits?

Anyway, what is a "windfall"? Any answer is arbitrary. Obama says it's the profit made off oil that's priced above $80 a barrel. Why not $70? Or $90? Did he pull that number out of a hat?

At least he's honest enough to call his tax a windfall profits "penalty." But why do the companies deserve to be penalized? Have they behaved badly?

It's not their fault that demand for oil skyrocketed because of booming economies in China and India, and that tensions in the Middle East pushed prices up. It's not their fault government regulation keeps them from drilling in promising locations like Alaska and offshore, and harasses them when they want to build new refineries or expand old ones. It's not their fault the dollar has deteriorated dramatically.

Being in the oil business is profitable, but not as profitable as you may think. Last year, average earnings in the industry (net income divided by sales) were 8.3 percent. (They are lower this year.) Other industries have done better. Beverage and tobacco firms had returns of over 19 percent.

Yes, oil company profits have surged as the price of oil rose, but bigger profits are good for America. The vast majority of the money goes not to the pockets of oil executives, but to exploration for new oil. If you take the money away, who is hurt?

We don't have to speculate because we have experience to draw on. "We tried this windfall profits scheme in 1980," The Wall Street Journal writes. "It backfired. The Congressional Research Service found in a 1990 analysis that the tax reduced domestic oil production by 3 (percent) to 6 (percent) ...".

Repeating that would not be a good thing for the harried working families Clinton and Obama claim to champion.

Spiking prices and profits encourage investors to take risks to find more oil, develop oil substitutes and increase efficiency. We don't need a "national energy policy" because we already have one. It's called the free market. When oil prices rose a few years ago, old fields with hard-to-reach oil in Oklahoma were suddenly worth operating.

Economics 101: incentives matter. Now that the price of oil has reached a new high, oil companies and other entrepreneurs have more incentive to find new sources of energy.

Only that -- letting the profit-motive work -- will bring the price of oil down.

Interfering with markets may be good for politicians, but it's bad for everyone else.

http://www.realclearpolitics.com/articles/...t_nonsense.html

OK, have at it.

[AUTiger1 0]

Remember the Thomas Sowell article you posted a few weeks back that no one read or commented on? It just makes us feel better to say "damn that evil big oil". Remember its all about being "emotionally satisfied" and attacking the oil companies as they are doing sounds good, makes for good political hay, and it makes the people feel better.

[autigeremt 6,653]

Not me! Drill for that black gold and let's be dependent on American Oil! GO BIG OIL!

[AUTiger1 0]

Not me! Drill for that black gold and let's be dependent on American Oil! GO BIG OIL!

That's not very eco-friendly of you autigermt I am in agreement with you though, wish we would have done it ten years ago.

BTW, Sowell wrote two follow up articles that were very good reads.

[Tigermike 3,041]

Not me! Drill for that black gold and let's be dependent on American Oil! GO BIG OIL!

That's not very eco-friendly of you autigermt

Speaking of eco-friendly, here is an interesting piece.

May 28, 2008

Blue Planet in Green Shackles

By Vaclav Klaus

Presentation of the book "Blue Planet in Green Shackles", National Press Club, Washington D.C., 27. May, 2008

It is a great pleasure to be here. Let me thank all those who helped to make the English translation and publication of my book "Blue Planet in Green Shackles" possible, especially Fred Smith and his Competitive Enterprise Institute, and those who co-organized the presentation of it in this very prestigious place. I am really excited to finally hold in my hands - after the Czech, German and Dutch editions - the English version of my book.

The authors often claim that their books speak for themselves. I cautiously agree and will, therefore, speak not about the book itself but about my motivations to write it.

To make my position and my message clear, I should probably revoke my personal experience. My today's thinking is substantially influenced by the fact that I spent most of my life under the communist regime which ignored and brutally violated human freedom and wanted to command not only the people but also the nature. To command "wind and rain" is one of the famous slogans I remember since my childhood. This experience taught me that freedom and rational dealing with the environment are indivisible. It formed my relatively very sharp views on the fragility and vulnerability of free society and gave me a special sensitivity to all kinds of factors which may endanger it.

I do not, however, live in the past and do not see the future threats to free society coming from the old and old-fashioned communist ideology. The name of the new danger will undoubtedly be different, but its substance will be very similar. There will be the same attractive, to a great extent pathetic and at first sight quasi-noble idea that transcends the individual in the name of something above him, (of something greater than his poor self), supplemented by enormous self-confidence on the side of those who stand behind it. Like their predecessors, they will be certain that they have the right to sacrifice man and his freedom to make their idea reality. In the past it was in the name of the masses (or of the Proletariat), this time in the name of the Planet. Structurally, it is very similar.

I see the current danger in environmentalism and especially in its strongest version, climate alarmism. Feeling very strongly about it and trying to oppose it was the main reason for putting my book together, originally in Czech language, in the spring of 2007. It has also been the driving force behind my active involvement in the current Climate Change Debate and behind my being the only head of state who in September 2007 at the UN Climate Change Conference in New York City openly and explicitly challenged the undergoing global warming hysteria.

My central concern is - in a condensed form - captured in the subtitle of this book. I ask: "What is Endangered: Climate or Freedom?" My answer is: "it is our freedom." I may also add "and our prosperity".

The book was written by an economist who happens to be in a high political position. I don't deny my basic paradigm, which is the "economic way of thinking", because I consider it an advantage, not a disadvantage. By stressing that, I want to say that the Climate Change Debate in a wider and the only relevant sense should be neither about several tenths of a degree of Fahrenheit or Celsius, about the up or down movements of sea level, about the depths of ice at North and Southern Pole, nor about the variations of carbon dioxide in the atmosphere.

The real debate should be about costs and benefits of alternative human actions, about how to rationally deal with the unknown future, about what kind and size of solidarity with much wealthier future generations is justified, about the size of externalities and their eventual appropriate "internalization", about how much to trust the impersonal functioning of the markets in solving any human problem, including global warming and how much to distrust the very visible hand of very human politicians and their bureaucrats. Some of these questions are touched upon in my book.

My deep frustration has been exponentially growing in recent years by witnessing the fact that almost everything has already been said, that all rational arguments have been used and that global warming alarmism is still marching on. It could be even true that "We are now at the stage where mere facts, reason, and truth are powerless in the face of the global warming propaganda" (R. McKittrick, private correspondence).

We are regretfully behind it. The whole process is already in the hands of those who are not interested in rational ideas and arguments. It is in the hands of climatologists and other related scientists who are highly motivated to look in one direction only because a large number of academic careers has evolved around the idea of man-made global warming. It is, further, in the hands of politicians who maximize the number of votes they seek to get from the electorate. It is also - as a consequence of political decisions - in the hands of bureaucrats of national and more often of international institutions who try to maximize their budgets and years of careers as well regardless the costs, truth and rationality. It is in the hands of rent-seeking businesspeople who are - given the existing policies - interested in the amount of subsidies they are receiving and look for all possible ways to escape the for them often merciless, but for the rest of us very positive, general welfare enhancing functioning of free markets. An entire industry has developed around the funds the firms are getting from the government.

The basic questions of the current climate change debate are sufficiently known and well-structured:

1) Do we live in an era of a statistically significant, non-accidental and noncyclical climate change?

2) If so, is it dominantly man-made?

3) If so, should such a moderate temperature increase bother us more than many other pressing problems we face and should it receive our extraordinary attention?

4) If we want to change the climate, can it be done? Are current attempts to do so the best allocation of our scarce resources?

My answer to all these questions is NO, but with a difference in emphasis. I don't aspire to measure the global temperature, nor to estimate the importance of factors which make it. This is not the area of my comparative advantages. But to argue, as it's done by many contemporary environmentalists, that these questions have already been answered with a consensual "yes" and that there is an unchallenged scientific consensus about this is unjustified. It is also morally and intellectually deceptive.

Václav Klaus is President of the Czech Republic.

http://www.realclearpolitics.com/articles/...n_shackles.html

[CCTAU 3,336]

Not me! Drill for that black gold and let's be dependent on American Oil! GO BIG OIL!

That's not very eco-friendly of you autigermt I am in agreement with you though, wish we would have done it ten years ago.

BTW, Sowell wrote two follow up articles that were very good reads.

Ahh. But what does Sowell know? He's just a traitor to his roots.

No lib reads him. They already know he is a sellout...