Sunday, November 20, 2005

Windfall Profits Tax on Oil is a Wrench in the Works

I can't believe that intelligent people who should have at least a beginners' knowledge of economics -- people like those representing us in the Senate and House -- would think up a scheme like penalizing the oil companies with a windfall profits tax.



Imagine you have found a way to cultivate corn in the desert. You bring your corn to the market. Then there is a huge volcano that opens up and buries all the corn fields of Iowa.

Suddenly, the corn you raise becomes the only corn in town. You're not stupid; you can see that there is a chance here to raise the price. And don't think you're a bad person for doing so, you're simply a human, i.e. a capitalist.

Corn is in short supply. You double your price of corn. Your foreign competitors do likewise. It sells. You all start to become rich.

Then your capitalist instincts kick in again. You say to yourself, "Hey, if we can all make so much money growing this much corn, I'll do more of it." You double your plantation. You double your production. You start to double your millions.

At the same time, however, others have seen you raking it in. They buy up some desert and start to cultivate corn, too. And because they also forgot to be stupid, they price their corn below yours.

It sells better. A price war ensues. You all end up restoring market supply and selling it pretty much at cost (which includes a normal salary for yourselves, of course.) END OF STORY.

But in fact, I don't blame the Senate. I blame us. We don't care to look that far to the end of the story, we just resent a disruption of our daily lives and want to see no further than our anger and distrust will let us. We don't think for ourselves. Instead, we react like a frustrated bull who sees a fluttering red cape.

I will beg you next time to be a smarter economist than your government. When you get the urge to cheer when a senator starts to needle a rich capitalist, stop yourself in your tracks, and ask yourself, "Am I reacting out of logic and common sense here, or am I letting deep negative emotions like envy take over? Have I put even one penny aside for such normal shortages, or am I trying to find a scapegoat for my own folly?"

One thing is certain: politicians are by definition the most shortsighted profiteers of them all: They will turn your negativity to their own advantage every time (1) to get reelected, (2) to increase the size of government, and (3) to acquire more power at the expense of our freedom.

We need such economic crises to encourage those capable people in the know (the energy companies, not the politicians) to find alternative sources of energy. Until they find it, we need more petroleum. Who is in a position to find it? Those "rich" oil magnates with their "nasty" capitalist instincts.

Now, LISTEN CAREFULLY, for this is the punch line. This may seem counterintuitive, but IN THE LONG RUN CAPITALISM IS NOTHING MORE THAN THE HARNESSING OF HUMAN NATURE FOR THE GOOD OF ALL MANKIND. It's a no-brainer.

For an excellent article on this, see here. You may have to sign up for the Orange County Register first, but it's worth it. They're one of the few sensible newspapers in the country.

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