Price controls on oil and gasoline will constrict supply


The free market solution
James K. Glassman writes on the proposed windfall profits tax.

The worst approach is one now being considered by the Senate: slap a windfall profits tax, or WPT, on oil companies.
 
The United States has tried this before, between 1980 and 1987, and the results were hugely counterproductive, according to a 1990 Congressional Research Service report.
 
"The WPT reduced domestic oil production between 3 and 6 percent, and increased oil imports from between 8 and 16 percent," says the report. "This made the U.S. more dependent upon imported oil."

The whole idea of a windfall profits tax is absurd. They want to tax people for making too much money? And when they know it will drive up prices?

Mr. Glassman continues.

The price of oil -- like the price of any commodity -- bounces around as a result of changes in supply and demand. In the early 1980s, a barrel of oil was more than $80 in today's currency. By the 1990s, oil was less than one-third the current price and gasoline was just over a buck a gallon. When oil fell to $9.39 a barrel six years ago, was Sen. Byron Dorgan, D-N.D., author of the current WPT, proposing a windfall losses rebate?
 
Nope. You take your own risks, and you're entitled to your own gains -- or losses.
 
Consider farmers, abundant among Dorgan's constituents. The December 2005 futures contract for a bushel of corn has varied, over its brief lifetime, from $2.05 to $2.89. Should a farmer who scores a big gain because of the movement of corn prices on the open market pay a WPT? Faced with such a penalty, why plant new acreage?
 
The same open market determines oil prices. Demand from emerging nations has boomed. ExxonMobil's Energy Outlook now forecasts that, between 2004 and 2030, energy use by China will rise 100 percent; India, 164 percent, and Latin America, 85 percent.

The market will sell where it can make the most money. If there are political restrictions, the market will go elsewhere. Just like it did when President Nixon imposed price controls on gasoline in the 1970s. In a free market, the tendency is for prices to drop over time. There may be spikes depending on local and temporary conditions, but prices drop.

— NeoWayland

Posted: Wed - October 5, 2005 at 06:06 PM  Tag


 ◊  ◊   ◊  ◊ 

Random selections from NeoWayland's library


Pagan Vigil "Because LIBERTY demands more than just black or white"
© 2005 - 2009 All Rights Reserved