As intelligent as he may be, Senator Obama has turned back to the basest form of vote-buying: elect me and I'll take their money and give it to you.
For him to toss around words like "windfall" without bothering to define what that means is dangerous. The Wall Street Journal puts it much better than I can:
The point is that what constitutes an abnormal profit is entirely arbitrary. It is in the eye of the political beholder, who is usually looking to soak some unpopular business. In other words, a windfall is nothing more than a profit earned by a business that some politician dislikes. And a tax on that profit is merely a form of politically motivated expropriation.
It's what politicians do in Venezuela, not in a free country.
Monday, August 04, 2008
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9 comments:
I thought of you this morning as I was reading this story. I wondered if you would say anything about it. Maybe I was putting ideas into your head from North Carolina while you were still sleeping.
I totally agree with the piece and think that the windfall profit tax idea is absolutely horrible.
Obama's also proposing an "energy rebate" of $1000 or something... talk about vote-buying. And the Repubs seem to think that opening offshore drilling is going to solve all our problems, despite the fact that it won't become profitable to explore and drill on the currently closed parts of the OCS until oil becomes much more expensive...
At least 2009 won't be an election year, so we'll be a lot more likely to see people talk from an orifice other than the one on their backside. Right?
Not that I'm supporting the windfall tax, but that's not the definition of windfall profits.
A windfall profit is "a profit that occurs unexpectedly as a consequence of some event not controlled by those who profit from it."
http://tinyurl.com/5nbgpm
The argument would be that the increase in profits oil companies have experienced over the last 6 or so years have nothing to do with some change in behavior on their part. It had to do with factors outside of their control like the falling value of the dollar and growing demand in the developing world. Thus, their profits were a windfall, not the result of their business practices. Thus, a tax on something they did nothing extra to earn is not unfair and should not change their behavior any.
That's the argument advanced by policy folks who support a windfall profits tax on oil companies. Again, I'm not saying I buy that argument. But "they're making too much money, let's tax 'em" is not the main rationale behind the proposed tax, even if some folks are using that argument.
(Not that I have a problem with the concept of redistribution in principle. But whether redistribution should happen in fact depends on the circumstances.)
Actually, from waht I see, the "they make too much money, period" is exactly what the major political movers and shakers behind the windfall profits tax are supporting.
I forget who the chair of the House energy committee is, but I believe the words were along the lines of "Exxonn's profits are excessive, BP now stands for Bloated Profits, and Shell's leaving us shellshocked."
The "windfall" is being pushed as a purely punitive tax, on the level of profits, not their nature.
But by the same "did nothing to earn it" argument, you could say that anyone who buys stock in a company that then goes "big-time," like Macintosh in the 80s, or IBM, or Netscape, or Google should have their "unearned" profit that comes about simply because that which you own (a share of the company) is now in more demand. Lotteries and other forms of gambling would be similarly taxed completely, because those who play can't do a thing to affect the outcome.
If I own something that more people want, and which suddenly commands a higher price - be it stock or oil processing plants - I think the only difference left is one of degree, not of kind. Unless we want to apply the same principle - that any stockholder ought to gain no more than a fixed return on the investment they make before the profits are siezed as a windfall (since you don't, as a stockholder, cause the demand which makes your shares more valuable... though you do take on the risk, as Exxon et al. did, in advance without the guarantee of such profits).
The counter-argument I would make is that prior investment in a valuable commodity is what Exxon et al did to "earn it," so their profits are now as justified as people who went to work at Google, got stock as compensation, and retired multi-millionaires a few years later.
Risk, simply, justifies reward.
Strangely, under the argument you relay to us here, the only way in which Oil's Profits are justified(ie, "As a result of business practices") is if they have colluded to drive up the prices. It also take as odd approach to risk vs reward. In the "yes, it is unfair" argument, the risks that the company takes in uncertain and externally-driven markets are precisely what justifies the profits. In investing, it's generally true that risk and reward go hand in hand. Risky creditors need to pay high interest rates not as a punitive measure, but to ensure enough reward to encourage lenders to assume the risk.
The definition of windfall may hold, but the moralistic decry that "Big Oil's" profits are "unconscionable" in the same breath inserts a judgemental tone into this otherwise neutral adjective. And it's the popular usage that the politicians responsible for such putresence appeal to, so it's that usage to which I will respond.
It's not really true that the only way business practices could lead to higher prices is through monopolistic collusion.
The usual practice is that a business will invest in some product, improve that product, and be able to sell it at a higher price because of its improved quality. That is manifestly not what happened with oil. Prices went up because of external factors, principally the growing demand in India and China and the sustained demand in the U.S. It's not that oil companies are offering an improved product.
Again, I'm not saying I agree with this argument. Just trying to say it's not crazy. It's certainly not "putrescence."
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On a related, but not the same, note: At some point you and I need to hash out our views on the relative value of populism as a way of understanding the world. I'm of the view that the world is dominated by the rich and powerful whose main motivation is staying rich and powerful....that government generally operates as their tool but also can be a check against them.....that oppression is the norm in our dark, sin-filled world but that as Christians it is our duty and privilege to combat it as metaphorical soldiers in the Kingdom of God.....that free markets, while the best means to harness humanity's selfishness to the common good, are still flawed and sometimes require government intervention.......and that property rights, while important, are of secondary importance and must sometimes give way to more important values. (Sometimes. Not all the time. Property rights should sometimes triumph, too...depending on the case.)
There, that should be the beginnings of an interesting philosophical debate. I hope I remember that I started it. If you intend to respond, mind dropping me a line on my blog reminding me to come back and continue the conversation? Since I check this blog with spotty regularity, I could so see myself leaving this comment and then forgetting about it.
On your second point, I'll try to recall it and make another post about it so that any comments on it can be appropriately sorted so I can find them again someday.
On your first point, I must have been unclear. I didn't mean that collusion was the only possible way that profits can be obtained. Rather, I meant that it would be the only justifiable explanation for the current magnitude of oil's profits in the current environment.
That is to say, collusion has often been speculated by those who are also suggesting windfall taxes. This is strange at first, but I do think it perhaps reveals something about the worldview of those that agree. What, exactly, I can't quite grasp... but it's along the lines of the assumptions they make about the ability of oil companies in particular - and people in general too, perhaps - to control their environment.
Finally: "The usual practice is that a business will invest in some product, improve that product, and be able to sell it at a higher price because of its improved quality."
That's true, of profits that come from production. But there is a large part of the economy where this is not true at all. Profits can also come, as I mentioned earlier, through risk. There's the financial system, where risk is the driver instead of product (though I'd argue it's equally important in our economy). There's also raw material production (in mining, oil, and arguably agriculture) where instead of altering a given product, profit is found in finding things that people want, and obtaining it. It's this well-worn channel that oil's profit's come through... not so much in refining and the end product.
Oil, not gas, is driving profits.
Increased profits are justifiable simply for having a demanded resource in such situations, because it's the motive of profit that encourages more efforts to obtain the food/mineral/oil/raw material that people want.
PostScript: If I argue vociferously for my point, it's not personal. I do, however, have yet to see a single proposal laid out for additional taxation of oil companies right now that is anything but the most base, offensive vote-buying.
It's everything I find most foul in politics - using government power to take from one group to give to another group for the primary purpose of aquiring and consolidating power. When Republicans went on a spending spree to try and do the same thing, it was equally wretched.
It's that aspect of it... clearly evident in the "I'll take from the evil oil companies and give to you" aspect of Obama's proposal that I consider utterly vile and putrid.
And to use the chance to borrow a phrase from The Princess Bride... that, I simply can't resist.
I'd be interested to see a continuation of the debate you and Matt Novak were having over at Jeff's blog. He seems to be of the opinion that oil companies are, in fact, engaging in "evil" practices that lead to them getting profits they don't deserve.
The fact that I missed the Princess Bride reference is simply inconceivable.
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