I've been in a lengthy discussion with a blog by William and Mary's American Constitution Society concerning the vices and virtues of a windfall tax for oil companies. Firms could assuage this tax, their post goes, as they shift money to developing sources of alternative fuel.
The author--Darren--notes that oil companies have a tremendous incentive to create the Next Energy Source but paradoxically concludes we should use the government to force them to do just that. I completely agree with Darren on his first point, thus I see little reason for the conclusion. As Julian Simon pointed out, increasing prices attract entrepreneurs and investors to employ or invent substitutes and stretch current technology.
No one knows how long it will take the new technology to surface, let alone become feasible. Our dynamic economy needs to be able to use a vast array of options to satisfy humanity's long and short term goals. One unintended consequence this tax could encourage too much development in an unrealized technology, forgoing an expanse in oil production now. At best Darren's idea does nothing. At worse, it sabotages the present and, in doing so, delays the future.
Saturday, February 17, 2007
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6 comments:
I agree that a windfall tax on any company is anticompetitive and punishes an industry for being successful, and I oppose it.
But...
The concept of "energy security", which was essentially the transformation of ExxonMobil's product from a commodity to a strategic national security issue was not the invention of the regulation-happy left-wing economic school of thought. It came from the pro-war hawks and new-world-order economists whose "voodoo economics" were so short sighted that they've created so many more problems than they ever anticipated.
Corporate welfare is an enormous problem, because, like the welfare-recipient-with-a-lexus myth that has been perpetuated by "conservative" thinkers, large corporations have come to expect the same largesse at taxpayer expense, but on a much much larger scale.
You know how much money was given to big oil last year as "exploration" incentive? At a time when ExxonMobil posted the larget *profit* (NOT revenue) of any company in the history of the world?
Look it up, I won't spoil it for you.
But just like the myth of the welfare mother pumping out kids to increase the size of the government check every month, the oil companies worked hard to create a justification for government assistance by transforming the perception of their product from a consumer good (absurdly excluded from "inflation" calculations) to a strategic asset.
So the government showers the most profitable companies in the history of capitalism with corporate welfare.
And the right-wing "economic thinkinners" think that's just fine. God forbid any hungry family in a trailer in Mississippi expect $100 a week without working for it, but giving billions to oil companies, pharmaceutical companies, electrical grid companies and other multinationals (half of whom are incorporated in the Bahamas to escape paying their fair share of taxes).
So, yeah, let's recoup some of the money you and I, in the form of overtaxed individuals give to them every year.
If you can think of a better way, let me know, but dammit, I want my money back. They don't need it.
I completely agree that government shouldn't subsidize oil companies, or any companies for that matter. But you're mistaken if those gifts are free-market capitalism.
It actually has more in common with socialism--when the state owns firms--than capitalism--when the state and the companies are independent from one another. As I note in an earlier post, when it comes to selling their wares, companies hate the free market. The free market bids prices down while pushing quality up. It's great when they are buying things, but it's hard when they sell. It's no surprise when they seek aid from government.
There are some economists who say subsidies are good ideas, but they are wrong (no surprise they tend to work for the government or the industry that "needs" the money). So instead of taxing them (which just means the government has more money to send to a new corporation), why not just eliminate their welfare and give you back your money? Sounds like a good idea to me. And it has the virtue of being a free market policy.
I read you earlier post on companies' perspective on free marketplace. It's not true, largely. Smart companies savor competition because it keeps them productive, entreprenurial and competitive.
Consider two opposing examples: toyota and GM.
GM was the laziest, most short-sighted, ideology-driven monolith in the marketplace. They were intransigent when it came to changes in the culture and they are paying dearly for it now. Somoene called GM a health insurance company that subsidized their business by selling cars. They fought the unions tooth and nail, rather than seeking compromise, and made no friends where they needed them.
Had GM worked FOR, rather than against nationalized healthcare during the Clinton years, they might still be a viable company because it would have dramatically offset the real cost of every car they make.
But they persisted in their ways, instead focusing on SUVs (which require a great deal more ever-more expensive raw materials), as their marketplace began to focus on rising gas prices (not measured in the inflation index!)and the environmental cost of 9mpg vehicles.
Which brings us then to Toyota.
No union problems, extremely efficient management, groundbreaking new technology (synergy drive - which incidentally was begun, then inexplicably abandoned by Ford), remarkable fuel efficiency and cars that sell like hotcakes.
Just like our pitifully mismanaged airline industry, which would be out of business if it weren't for taxpayer funded bailouts (save jet blue and a couple other forward-thinking discounters(, our auto industry is getting just what it deserves - screwed.
But then, like amtrak, their strategic significance must be considered. Like, who makes humvees and jeeps if we go to war with Japan (Heaven forbid, this is just a theoretical example)?
We can't rely on toyota factories in America to produce the machines we will use against them, so we NEED the capacity in this country.
They will turn to us, the taxpayer, through more corporate welfare handouts, to save them.
When, had they been even slightly self-serving, rather than ideology-serving, they would have stayed competitive.
The free market could have saved GM, it's welfare-mother-esque sense of entitlemt as doomed it.
I reiterate: stop believing what you read. If you ask "Why do they think that?" and answer it as cynically as possible, every time you read a press-release or post by someone with a vested interest in a topic, you will enjoy a much clearer view of the world, a healthier life (when you stop believing when the FDA says it's safe) and your real net worth will outpace the REAL rate of inflation (increase in money supply as 10% more dollars chase those goods every year).
Why is gold at $670 an oz?
Why is $CDN at 85 cents when it was recently 50 cents?
Why is copper at $6000 a ton?
Why has uranium gone from 10 to 75 in 6 years without a *single pullback*?
Why is oil at $60?
Commodities have been in a major uptrend...
Why would this happen in an economy that's chugging along so hunky-dory - IF in fact, the economy weren't in the toilet and the dollar weren't in a major, but invisible downtrend?
You answer these questions, then act on the answers, your heirs will thank you for the huge trust funds you leave them.
If you believe what the government and the financial pundits tell you, your net worth will shrink as quickly as do the dollars you're keeping in an equity shell-game.
First, let me say that "In Case of War" protection claim are overblown. I will explain why in a new post (either today--the 21st--or tomorrow). You are, as always, welcome to comment.
Second, for any short-term length of time commodity prices tend to increase when the economy expands (increasing demand leads to increasing prices). As prices rise, it become profitable to increase the effective supply--recycle, reduce, find substitutes, etc. But this adaptation process takes time and the long-term trend is downward. Be careful of relying on the snapshot, it will deceive you.
Third, I approached that and this post with the notion that corporations are greedy. Thus they want large profit margins: cheap inputs and high-priced outputs. Generally, this translates into the free market for the inputs and a monopoly (or other government help) for the outputs. (I consider corporate welfare as an effect of output because firms sell campaign contributions/political support to get them.) Now firms make mistakes and there are always exceptions but that's the general rule.
I don't consider 5 years of screaming uptrends in commodities to be short term. I agree with you about the "in case of war" protections, though our reasons are probably different.
As it is, a good bit of our flying forces are made in Japan. If we went to war with them, the Air force would be in deep trouble.
I look forward to your post.
I'm not even sure commodities have a "screaming uptrend" over the past five years, but I think five years is still short term. Invention and innovation take time; fifteen years at least would be better, though you might get away with ten.
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