Barack Obama’s Income Redistribution Plan

In a recent ad we hear the following:

“A windfall profits tax on big oil to give families a thousand-dollar rebate,” an announcer in the ad says.

(Source: MSNBC.com.)

The entire energy debate seems to have become a pandering game, with each candidate dulling any responsible suggestions he might make with various bribes to the public. McCain, who used to oppose off-shore drilling now supports it, and though he admits it’s more long term, he still brings it up in connection with current high gas prices. (I actually regard it as a short-term non-fix, because I believe “long term” should mean at least a century when we’re talking energy policy.)

Obama seemed to resist this particular idea, though he will now allow it as part of a compromise. Which leads me to a digression. In reality, any candidate is going to have to compromise on the actual laws he will propose. Little of what is promised by either candidate in the campaign will actually happen. Why are we so shocked when a candidate suggests he would accept something he opposes generally as part of a compromise package? What should annoy us is that the candidates pretend they will be able to somehow govern without significant policy compromises.

The problem here is that the debate is being framed in terms of managing gas prices. The capitalists among us should object to this, no matter how it is done. The way to reduce the price is to either increase supply or reduce demand, and the best means to accomplish that is the natural market forces. There are those who will object that foreign cartels change this equation. But in actuality capitalism does not call for people to be required to sell. That is simply one aspect of supply.

We can artificially push down the price of gas temporarily, but that will not solve our problems, because all of the factors that push gas prices up will still be present. The oil-drilling idea has the advantage that it will eventually increase supply. It will be useless (except psychologically) in the very short term, provide some value in the longer term, but will not provide a truly long term solution in my opinion. Nonetheless I would support limited drilling provided reasonable environmental concerns are dealt with.

High gas prices are the best possible thing for the long term because they will push us to change the way in which we consume and produce energy. There are many technologies becoming available, and as gas prices increase, they will become more and more economical. This is a good thing. If we artificially hold the prices down now, such an adjustment will have to be made sometime, and the longer we wait, the more painful it will be. It’s time now to do more than talk about breaking our addiction to oil.

But back to Obama’s redistribution plan. This is classic redistribution of wealth. Take the money away from the oil companies that are making profits, and give it to people who are having to buy the high-priced gas. This has many of the hazards of price controls, only it actually won’t work. The oil companies will find a way to get the money back, and a couple of years from now we’ll realize that the rebates did nothing more than attempt to buy our votes. (Buying my vote was unnecessary for Obama. Despite my strong opposition for his gas tax/rebate plan, McCain still annoys me even more.)

The whole notion of “windfall profits” is fairly ridiculous in any case. Just what is the windfall? The price of energy has gone up. I remember this discussion in a public policy toward business class when I was in college relating to excess profits. (Looking at the current situation, I suspect “excess profits” would be the better economic description for the situation. I fail to see the windfall, but perhaps I’m just not looking at it right.)

Excess profits appear to be fairly well defined (see Wikipedia for a decent, if rather abbreviated discussion). The problem is that while the definition is clear, calculating what would be an excess profit is much less clear, and in practice the term “excess profit” becomes synonymous with “windfall profit” and simply refers to any profit the person speaking doesn’t think the one making the profit should have.

Note in addition that very few people talk about the oil company profits in terms of percentages (see this report to congress for some numbers, though I haven’t checked them), because those would sound much less overwhelming. It’s easy to make any large company’s profits sound obscene, even when the return is not really all that far out of line with other industries. This is not to say the oil companies are not profiting. It’s just that I don’t think it’s bad for them to do so.

In the case of oil we have a choice similar to what we have in other industries–don’t buy their product. In this case I have to add “as much”, and in addition note that reducing our consumption will take time. And lest anyone think I’m suggesting something that I will not do myself, let me note that fuel costs have cut into my business severely. I have had to change the way I plan my days to avoid certain driving in order to handle the higher gas prices.

I believe we need to feel this pain now in order to change the way we produce and consume energy. I am disappointed with congress and with both our presidential candidates, though I’m not surprised at their action. We, the voters, are demanding that they behave irresponsibly, and they’re just doing what we ask. No, not what we say we want. What our actions show we want.

Unfortunately, what many of us want is lower gas prices tomorrow. What we’ll get is an even worse problem a few years in the future.