Planned Economies Do Not Work - Part IV
|
Submitted by: Kenn Jacobine  Subscribe to this Author Paste this code into your site to promote this story! |
Type of Content: Article Kudos to Congressional Republicans for defending capitalism and rejecting central economic planning. On Tuesday, Senate Republicans denied their Democratic colleagues the 60 votes needed to end debate and pass a windfall oil profits bill. The bill would have put a 25 percent tax (windfall oil profits tax) on profits over what would be determined "reasonable" when compared to profits several years ago. It would have regulated energy futures traders in order to limit market speculation. It would have made price gouging of oil and gas a federal crime during a declared energy emergency by the president. Lastly, it would have given the Justice Department authority to bring charges of price fixing against countries that belong to the OPEC oil cartel. The measure was meant to address and punish those that are responsible for high prices at the pump – namely big oil companies, speculators and oil producing countries. Of course, these Washington contrived villains are not ultimately responsible for high gas prices. Even if they were, the measure would not have solved the problem. It would only have made it worst. It is amazing what short memories proponents of a windfall profits tax have. In 1980, Jimmy Carter enacted one and from 1980 to 1988 (the last year of the tax) there was a 3 to 6 percent decrease in domestic oil production. This happened because the tax increased the marginal cost of production, thereby reducing the quantity of gasoline produced. A decrease in gas supplies without a corresponding decline in demand means even higher prices at the pump. In a best case scenario, if the tax had been enacted oil companies would pass the tax expense on to consumers in the form of higher prices and we wouldn’t have to wait in long lines to fill up or be subject to rationing. Windfall profit taxes are also bad because 41 percent of oil company stocks valued at over $267 billion are currently held in various forms of pension plans and retirement accounts. The tax would cause the values of these accounts to dwindle causing negative effects on national savings and our senior population. Rest assured, while the Democrats believe a windfall profits tax is the right thing to do, the measure’s vengeance would have been mostly felt by the American consumer. The Democratic bill would have also required traders to put up more collateral in the energy futures markets and would have opened the way for federal regulation of traders who are based in the United States but use foreign trading platforms. The Democratic leadership in Congress clearly believes that a group of speculators have gotten together all of a sudden to conspire to inflate the price of oil futures in order to reap huge gains at the expense of the rest of us. Talk about conspiracy theories. This belief ignores the relationship the current value of our dollar has with oil prices. The rise in oil futures is a direct result of investors trading debased dollars for a commodity that has had, has, and will have into the future enormous value because of its necessity for the world economy. If the government attempts to control the price of oil through regulation of futures trading, it potentially will have the same result that price controls have had in other sectors of the economy – a shortage of the product because the profit motive for producers is either limited or eliminated altogether. Once again the opposite effect of what Congress is trying to accomplish will happen. The price of gas will increase because Congress’s policy will cause a decrease in supply. Two other provisions of the bill would have made domestic gasoline price gouging a federal crime and given the Justice Department the authority to sue countries in the OPEC oil cartel that price fix. Common sense indicates that when the raw material that goes into a finished product increases significantly in price, the price of the finished product will also increase significantly. There is no doubt that oil companies make large profits, but that profit is needed by them to carry out exploration, excavation, and refining of their product. As to the Justice Department having the authority to sue another country, this is just indicative of how arrogant and wacky supporters of the bill have become. In essence, the Democratic windfall profits bill was nothing more than election year pandering. It was an attempt to show the electorate that Democrats are on their side when it comes to dealing with bad guys – oil companies, speculators, and OPEC. However, not only would the bill have exasperated the current energy crisis by adding costs to oil production, depleting national savings, and causing gasoline shortages, it was misdirected in terms of who is ultimately to blame for high gas prices. The primary culprit responsible for high oil prices are the monetary central planners at the Federal Reserve Bank. According to Ron Paul, the Fed has roughly tripled the amount of dollars and credit in circulation since 1990. It has added 4 trillion dollars to the money supply in the last 3 years alone. This has caused a serious devaluation of the dollar. The Kwacha, which is the Zambian currency, has gained 33% against the dollar in 3 years. Zambia is a much poorer country than the U.S. and its money is on the rise against our greenback. Because the dollar is the international currency of exchange for oil, the debasement of the dollar is responsible for the high price of oil. It is also easy to understand why investors (speculators) are dumping dollars in favor of commodities, specifically oil. So while the politicians in Washington and their friends in the media continue their campaign of blaming greedy business men, unscrupulous investors, and shady foreigners for our gas woes, remember that a rise in prices almost always is caused by too much money chasing too few goods. The supply of oil is fine; it is the too much money part that Congress needs to deal with. Kenn Jacobine teaches History and English for the American International School of Lusaka, Zambia. Send him email at lovesliberty@gmail.com.
Created 27 weeks 3 days ago
Made popular 27 weeks 2 days ago |
- Flag as offensive
- Login or register to post comments
- 80 reads
****
The following was written by Bill Phillips. Mr Phillips spent nearly 50 years in the US oil and gas industry; most of his career was with the Phillips Petroleum Company.
May 28, 2008
"Big Oil"
Did you know that the United States does NOT have any big oil companies. It's true: the largest American oil company, Exxon Mobil, is only the 14th largest in the world, and is dwarfed by the really big oil companies--all owned by foreign governments or government-sponsored monopolies--that dominate the world's oil supply.
(...)
With 94% of the world's oil supply locked up by foreign governments, most of which are hostile to the United States, the relatively puny American oil companies do not have access to enough crude oil to significantly affect the market and help bring prices down. Thus, ExxonMobil, a "small" oil company, buys 90% of the crude oil that it refines for the U.S. market from the big players, i.e, mostly-hostile foreign governments. The price at the U.S. pump is rising because the price the big oil companies charge ExxonMobil and the other small American companies for crude oil is going up as the value of the American dollar goes down. They will eventually bleed this country into printing even more money and we will go into runway inflation once again as we did under the Carter Democratic reign.
This is obviously a tough situation for the American consumer. The irony is that it doesn't have to be that way. The United States--unlike, say, France--actually has vast petroleum reserves. It would be possible for American oil companies to develop those reserves, play a far bigger role in international markets, and deliver gas at the pump to American consumers at a much lower price, while creating many thousands of jobs for Americans. This would be infinitely preferable to shipping endless billions of dollars to Saudi Arabia, Russia and Venezuela to be used in propping up their economies.
So, why doesn't it happen? Because the Democrat Party--aided, sadly, by a handful of Republicans--deliberately keeps gas prices high and our domestic oil companies small by putting most of our reserves off limits to development. China is now drilling in the Caribbean, off Cuba but our own companies are barred by law from developing large oil fields off the coasts of Florida and California. Enormous oil-shale deposits in the Rocky Mountain states could go a long way toward supplying American consumers' needs, but the Democratic Congress won't allow those resources to be developed. ANWR contains vast petroleum reserves, but we don't know how vast, because Congress, not wanting the American people to know how badly its policies are hurting our economy, has made it illegal to explore and map those reserves, let alone develop them.
In short, all Americans are paying a terrible price for the Democratic Party's perverse energy policies. I own some small interests in tiny, 4 barrel-per-day oil wells in Wyoming. We have 14 agencies that have iron-hand jurisdiction over us. If we drop any oil on the ground when the refinery truck comes to pick up oil from our holding tanks, we are fined. Yet down the road the state will spray thousands of gallons of used oil on a dirt road to control dirt. When it rains that oil runs into rivers and creeks. Yet a cup of oil on the ground at our wellhead is a $50,000 EPA fine plus additional fines from state regulating agencies. They treat oil as if it were plutonium that has the potential to leak into the environment. We are fined if our dirt burms are not high enough around a holding tank, yet the truck that picks up our oil runs down the road at 60 mph with no burm around it. People wonder why there is no more exploration in this country. It's because of the regulators; people who have lived their whole lives doing nothing but imposing fines on small operators like us for doing mostly nothing.
So, America enjoy your $4.00 per gallon gasoline. Your dollar is now worth 0.62 Euro-Cents. The lack of American production of GNP, the massive trade deficit (as labor markets have moved overseas to fight insanely high union imposed labor costs in America) and the run away printing of money (backed by nothing of value here in America) has caused the dollar to become more worthless on the international market. And that's where our oil comes from. It's paid for with dollars that become more worthless everyday. If we had just kept par with the Euro we'd be paying $62 dollars per barrel for oil (42 gallons) or about $1.50 instead of $2.50 a gallon for crude oil.
What the US government also does not tell you is that it is the leaseholder and royalty recipient of most oil production and receives 25% of the gross oil sales before we pay for electricity to lift the oil, propane to keep the oil-water separators from freezing in the winters. We pay a pumper to visit each well everyday plus we have equipment failures all the time. We pay for that out of our 75% of gross sales. The government does not share in any expenses to run any production well. So, if the Big Oil Companies are making record profits, then so is the federal government from it's 25% tax on every molecule of oil sold to a refinery in this country. Why isn't the government on the stand for "Record" profits? What you don't see is this 25% of the sales price of crude oil being siphoned away by the government. That money plus the road taxes, state taxes, etc. amounts to over $1 per gallon of gasoline you are buying while the governments only admit to about 50 cents per gallon.
To all you Democrats, when you go vote for your candidate (...), just keep in mind that their liberal spending habits will further decrease the value of the American dollar on the world market and your gasoline costs will hike even higher. As they introduce more give-away programs, raise taxes on everyone to pay people not to produce or work, your dollar will continue to dwindle on the world market and you will be paying $10.00 per gallon at the next election. Cheap hydrocarbon fuel is all over. Enjoy! Enjoy the fruits of your decision to elect these folks when you are there in that voting booth and you stab your pin through a Democrat's name.
William "Bill" Phillips