Monday, October 27, 2008

Windfall profits

Today while getting a haircut I overheard CNN blaring in the background, which was doing a segment on each energy policy. The correspondent mentioned something that I had forgotten about -- Obama's plan to impose a windfall profits tax on oil companies.

Let's think about windfall profits for a second. If a company obtains windfall profits it is typically because either they were the beneficiary of a sudden change in market conditions, are making a product that is wildly popular, or has monopoly or near-monopoly control over a market that has seen a sudden demand spike. Possibly a combination of all three.

Oil companies were subject to a sudden shift in market conditions (which the Wall Street Journal editorial page argues was a product of fed policy), make a product that just about everyone needs and operate in a global market that is subject to all sorts of government distortions (prohibitions on domestic oil drilling, lots of countries that prohibit outside investment).

Now, if Obama simply believes that they should fork over some of their cash because they were lucky rather than smart, then where are his similar demands for such taxes on corn, soybeans or wheat? In a similar vein, should oil companies now get some kind of federal handout due to the recent slump in oil prices?

More fundamentally, why should companies that made smart investments into a product that people need and want be punished? And remember, these aren't faceless corporations that are punished, these are publicly traded stocks, meaning that the investors are just as likely to be middle class people planning for their retirement as anyone else (not that it should matter).

In the final analysis, this really comes down to nothing more than "they've got it and we want it." Shouldn't be a big surprise to anyone, coming from the guy that believes in spreading the wealth around.

No comments: