Friday, April 28, 2006

Energy Insanity: Taxing "Windfall Profits" and Other Stupidity

I've known for a long time that this day would come. I've been preaching it for years. That a permanent structural scarcity in the supply of oil was nearly upon us was evident to anybody who cared to look and reason.

Equally obvious was that oil prices would soar, driving up oil company profits. Hindsight is 20-20, but foresight was all that was required. Anybody who cared to do so could have made a ton of money in this developing market.

Call me foolishly idealistic, but I chose to not buy oil company stock out of principle--the way one might avoid investing in tobacco companies because they are purveyors of addiction and disease.

Indeed, I have no love for oil companies. I believe the manner in which we use oil--all energy, for that matter--is undisciplined, irresponsible, and incredibly destructive. Oil companies will happily exploit our weakness and addiction, regardless of the harm it causes. There's no way I'm going to hang with that crowd, much less profit from their filthy business.

Still, the problem is not with them. It's with us. That's why I bristle at the notion of a windfall profits tax on big oil.

The impulse to reach out and grab a piece of these stratospheric oil profits is a pathetic response, by incompetent politicians and an ignorant populace, to the predicament in which they have placed themselves.

I'm tired of whining consumers who act as if high gas prices came out of nowhere. Everybody's looking for some villain to blame. Look in the mirror.

I'm tired of pandering politicians who've done nothing--nothing--to lead the nation toward to a sustainable energy path. Now they're running scared from an outraged populace, and God knows what manner of idiotic kneejerk responses will result.

No, the oil companies made their unseemly profits fair and square; keep your mitts off of them.

Of course, they have had plenty of unnecessary help from sycophantic politicians, mostly of the Republican variety, in the way of royalty and tax breaks. But that's our fault for allowing it, not theirs for accepting it or even seeking it.

Even if you grant that some incentives are necessary under some circumstances, why the hell weren't they indexed to the price of oil? Now a red-faced Congress finds itself trying to explain and unwind a subsidy structure that is still operating in the face of record oil company profits. Since the incongruity of these subsidies transcends mere incompetence, one can only conclude that they stem from a basic philosophy of shoveling public assistance toward big business fat cats whenever possible. Interestingly, those same politicians are repulsed by shoveling public assistance at poor people. I wrote last August that the newly minted Republican energy bill was a "massive corporate welfare program." When you're right, you're right.

The stupidity keeps spewing like an uncapped gusher.

Now we hear of politicians suggesting a temporary moratorium on the eighteen cent Federal gas tax. That's a good one.

Let's think this through: Gas prices are high because supply is tight. Only high prices can bring supply and demand into balance. So let's lower prices by eliminating the tax. Yeah, that will help.

The Senate Republicans, for their part, are proposing a $100 tax rebate. That has at least this one small merit: high gas prices are extremely regressive in that they impose a much greater burden on low income individuals and families. The across-the-board $100 rebate would most benefit those who are most hurt by high prices. Sort of like the Bush tax cuts in reverse.

Unfortunately, the Republican rebate plan is tied to drilling in the Arctic National Wildlife Refuge. Here we go again.

Even President Bush now admits that America is "addicted" to oil. If that is a true characterization of our situation--and how can you think otherwise?--then the proper response is not new drilling in the Arctic. That would just prolong our addiction. The moves we need to be making now involve increased conservation, increased efficiency, and the development of alternative, sustainable energy supplies.

As we sort all this out, we're going to have to get used to what will feel like obscene oil company profits. More important, we need to understand that for the past century energy has been artificially, unsustainably, cheap. Things can never, ever, be as they were. We need to adjust our expectations to this reality. It will be a bitter pill to swallow, but the sooner we do it, the better.

I've written previously on these topics. For a discussion of increasing oil scarcity, see my post entitled "Hubbert's Pimple" (April 1, 2005) . On the role of price, see "Hoping For Higher Gas Prices" (May 8, 2005). And on drilling in the Arctic, see "Refuge At Risk" (March 22, 2005).

Copyright (C) 2006 James Michael Brennan, All Rights Reserved


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