TCS Daily


Prices, Profits, and Economic Literacy

By Pete Geddes - May 4, 2006 12:00 AM

What is it about rising gasoline prices that causes IQs and body temperatures to converge? Or are our national politicians just behaving as usual, i.e., cravenly and cowardly?

Democrats favor higher gasoline taxes and higher gasoline prices -- except when gasoline prices are high. While claiming concern about rising levels of CO2, they demand gasoline price caps to "protect consumers." Don't they understand that high gas prices provide the best incentive to transition to more environmentally friendly fuels? Democrats who object to higher gas prices simply aren't serious about dealing with climate change.

Republicans favor letting oil markets "work" -- except when gasoline prices are high. Don't they understand the cure for higher prices is -- higher prices? Sen. Arlen Specter (R-PA) threatens a "windfall profits" tax on "excessive" oil company profits. Hey Arlen, been there, done that.

If he needs a reminder of the sorry history of this policy, here's one from Nobel Laureate economist Thomas Schelling before the Joint Economic Committee in 1979. He explains the counter-productive incentives this policy creates:

"Any windfall profits tax ... is ... like the IRS treatment of casino gains and losses. The government proposes to capture only the 'excessive profits' of the lucky strikes.... If you gamble ... and win ... the IRS will share your winnings with you, and indeed the bigger you win, the higher the share the IRS takes. If you lose, you lose alone; the IRS neither commiserates nor shares in your loss.... This is a sure way to discourage risky enterprises.... We want people to ... risk capital in the search for new petroleum, and in the development of new technologies for liquid fuel."

Advocating a windfall profits tax is a transparently absurd act of political pandering. Can the GOP be surprised if principled conservatives remain on the sidelines this November?

The oil business is a notorious boom-and-bust industry. But with BP, ExxonMobil, and Shell reporting record profits, the Tax Foundation reminds us that the biggest beneficiaries of gasoline sales are federal and state governments, not the oil industry. They note, "There have been only three years (1980, 1981, and 1982) in which domestic oil industry profits exceeded government gas tax collections. In the remaining years, gasoline tax collections consistently exceeded oil industry profits, reaching a peak in 1995 when gas tax collections outpaced industry profits by a factor of 7.3."

Are price increases the result of oil company collusion? There is almost no evidence this actually happens. The Federal Trade Commission reports about 85 percent of the price of gasoline is explained by the cost of crude oil. U.S. oil companies account for only about 3 percent of world crude oil production. How can they possibly manipulate crude oil prices?

An unappreciated aspect of the market process is its ability to promote cooperation and civility among disparate people. Interfering with this process can lead to a breakdown in social order. For example, in 1979 gasoline price controls caused long lines at filling stations. At one in Levittown, Pennsylvania, tempers flared and a riot ensued. Commenting on the violence, the Wall Street Journal published an op-ed, "Buffer of Civility":

"... among the virtues of the price mechanism [is] that it avoided social strife. It did not set group against group.... In our lifetime ... we have generally allowed prices to allocate goods among different end uses. It worked so smoothly we did not understand [that].... In addition to its economic virtues, the price mechanism is a vital buffer of civility."

Will the buffer be breeched?

Pete Geddes is executive vice president of the Foundation for Research on Economics and the Environment (FREE). Contact him at: pgeddes@free-eco.org.

Categories:

52 Comments

I assume...
that you are a shill for Big Oil(!) or work with the evil, wealthy Cabal. How dare you try to explain actual economic facts and reality.

Just kidding. Great job. Now that you are done here, you think you could tell this to journalists and politicians (in that order)?

liberals and high prices
liberals only like high prices, when the profits generated by those prices flow to the govt.
When it's a private enterprise enjoying the fruits of high prices, high prices immediately become evil.

Those who know ...
Decades ago a reporter asked a Black Panther leader how many members there were. The answer was: "Those who know don't say. Those who say don't know." Think about the second half when evaluating what Mark says liberals think.

And, agreeing with Tlaloc, Pete Geddes probably is a "shill for Big Oil" and the "Foundation for Research on Economics and the Environment" an astroturf shell for oil company shill sponsorship. Feel free to provice _evidence_ to the contrary.

Rather than pushing for a "windfall profit" tax, I would settle for repealing perks and tax breaks for oil companies and asking them to pay a reasonable fraction of the Iraq invasion (since it was in part for their benefit).

Finally, note that the supposedly principled Republicans are pandering even more than the pandering Democrats. We should put "principled" together with "competent" and "honorable" on the list of qualities the Republicans wish they had, and that Bill Clinton's gang had ten times more of than Bush Jr's gang.

All we need to know...
>"And, agreeing with Tlaloc, Pete Geddes probably is a "shill for Big Oil" and the "Foundation for Research on Economics and the Environment" an astroturf shell for oil company shill sponsorship. Feel free to provice _evidence_ to the contrary."

LG doesn't need evidence to prove that Geddes works for Big Oil(!) but you must prove to him that he isn't.

It was once good practise to have evidence to back up your slanderous statements. LG just needs to have a feeling and anyone disagreeing must provide the evidence to counter such slander.

Such is the state of liberal "logic" and "critical thinking".

spelling nit
I think you want:
Will the buffer be breached?, not
Will the buffer be breeched?

Your current spelling is pants (Brit slang pun).

Let's see
I listen intently to what liberals say and what they say about what they believe.

Yet LG claims that I don't know what liberals think.

I think I'm hitting too close to home and LG is, once again, trying to change the subject.

I wonder when the liberals are going to drop the blood for oil nonsense.

It's been disproven so many times that only an AGW fanatic could possibly believe it.

to a liberal
working for big oil means that everything you say can be discounted. No effort to disprove is needed.

On the other hand, working for govt, and telling congressmen that your work proves that we need oodles of money for further research in your area of specialty, proves that you have only mankinds interest at heart, and anyone who questions you or your motives is an evil person who wants to destroy the world.

Blood for Value, Life, Comfort, Happiness
Hmm well I wonder when these leftists (hell and rightists and anyone who isnt a fire breathing capitalist) are going to get over the idea that money is the only profit. Money is indeed a beneficial value but so is the ready supply of fuel, heating oil, and petroleum-based products that make every individual American's life better, easier, and more comfortable. If that isnt a kind of profit to the ordinary citizen then I dont know what is. If that isnt worth the few bucks I pay at the pump then I must be insane.

Maybe if the rhetoric was shifted away from money and toward creation and trade of value everyone could see just how much these companies deserve every penny of profit they make. But this will never happen because of the phenomema of converging body temperature with IQ. Oh and the fact that so few seem to understand the root of all money is not evil greed but productive acheivement.

/done channeling Ayn Rand

shoot the media and politico types, don't waste time educating them
The pols should know. The 'journalists' only know what they are told and re-affirmed at their little cliquish dinner parties with 'Barbra'.

It's a total waste of time.

Dream on, sweet prince

A Case of the 'Frenzies'
Gasoline: The Dilemma of Political Action
Stratfor. May 4, 2006

...It is particularly damaging when government leaders act in a way that is popular with voters and cause people to think that a problem is fixed when it really is not. In the end, the perception among voters is not that government is incompetent, but rather that it is corrupt. This is the risk that Congress runs if action is taken now.

The most obvious solution, it would seem, would be for congressional leaders to dial back the public's expectations about what can be done on gasoline prices. Barring that, the next option would be to take a series of meaningless steps, carefully plotted so as not to have any deleterious effects on the economy or future energy strategy.

We do not expect either strategy to be pursued. During frenzies, federal policymakers tend to behave in shortsighted, unpredictable ways.

http://www.stratfor.com/

paid for opinions
Working for big oil means being paid or not depending on what you say. I'm guessing that this guy works for big oil because I've never heard of his outfit & I've heard of most of the legit ones. I'm more confident of that judgement now that none of you challenged it. (My factual error in an earlier thread -- PCB for CFC -- was agressively corrected).

The evidence
"It was once good practise to have evidence to back up your slanderous statements. LG just needs to have a feeling and anyone disagreeing must provide the evidence to counter such slander."

You're right. It's easy to see from the language when you're reading a paid infomercial. But it also takes evidence. Like this:

http://www.exxonsecrets.org/html/orgfactsheet.php?id=34

http://www.capitalresearch.org/search/orgdisplay.asp?Org=FRE100).

Well what do you know! It turns out that FREE accepts funding from "The American Chemistry Council, ExxonMobil, General Electric, General Motors, Merck, and Shell. (2002 Funders from FREE website). In the past, FREE has also received funding from Amoco Company Foundation, ARCO Foundation, Boeing Company, Burlington Resources Foundation, Coca-Cola Foods, IBM, Charles G. Koch Charitable Foundation, M.J. Monsanto Fund, Phillips Petroleum Foundation, Sarah Scaife Foundation, Shell Oil Foundation, and the Weyerhauser Company", per the Capital Research Council.

Their noncorporate sponsors include these foundations: Castle Rock Foundation (Coors), The Claude R. Lambe Foundation, The John M. Olin Foundation , The Lilly Endowment, M.J. Murdock Charitable Trust, The Carthage Foundation and The True Foundation.

FREE is that institution most beloved by fans of free market capitalism: a profit-oriented enterprise putting out a product much in demand.

Meeting the challenge
That was a good guess, LG. See my comment, "The evidence" above.

Excellent Roy...
at least you back up what LG merely believes. You have proven that funding comes from Big Oil(!).

Now prove that what he is saying is wrong.

Oh Puh-LEAZE
My response to all of the nefarious affiliations presented is a great big "So what?" What seems to be lost on (or perhaps deliberately ignored by) so many detractors to those speaking on behalf of (oh no!) the workings of Market Capitalism (and anti-Global Warming, etc.) is that FACTS ARE INDEPENDENT OF ASSOCIATION. Apparently some would like to think that if, for example, Hitler claimed "2 + 2 = 4," well then because of his known promulgation of apalling beliefs and practices, then his statement MUST be false. It's an old game -- attacking the messager and not disproving the message -- but one that doesn't fly in logical circles. Assertions must be proven false on their own merits, not based on the proclivities of those bearing them.

Speaking plainly
Actually, I knew what I would find before I even looked. And Liberal Goodman guessed the same, from the quality of the opinions expressed in the article.

The oil najors, particularly E-Mobil, devote quite a lot of effort and attention to keep the so-called debate going on sites like these. The arguments are shoddy, the data cherry picked and the conclusions reached before the article is begun. You may continue believing this rubbish if that floats your boat.

The alleged misdoings of the Democrats are perpetual fare, guaranteed to incite the faithful. But their views are actually pretty marginal to the debate. Suggesting confiscatory taxes is just playing to what they suppose to be their house, and makes no difference on the actual playing field. There is zero chance of the House and Senate passing a confiscatory oil tax on excess profits. And if they were to, the president would exercise his first veto.

What the author pointedly fails to elucidate is that the purely market forces that are producing high pump prices are due to no effort or expense on the part of the actual suppliers. They are just the recipients of market largesse. If you care to actually look into the issue, and not just be spoon fed opinions by the spinmeisters, take a look at what the majors are doing with their profits.

Nothing. They have no way to even spend all this free money. So my reasonable suggestion, in an era where we're financing one major and one minor war, both without forseeable end, entirely on deficit spending, is that Congress removes those incentives and allowances they have given to oil over the years, back when stimulus for exploration was actually a good idea.

Otherwise society allows cash to pile up in a corner where no one uses it, while elsewhere the system is starved for funds. It makes no sense to keep things the way they are.

still at it
anyone who works for big oil, or who LG thinks works for big oil, is automatically discredited and ignored.

yet the scientists who depend on scaring the public to continue their funding are not to be questioned.

one should also pay attention
to how others have shredded that same post

evidence
I'm see that roy still has his flexible standards regarding evidence.

IE, anything that backs what he wants to believe is evidence.

In a liberals mind, working for an oil company is prima facia evidence that one is lying. Roy and LG are so convinced of this, that they actually believe that showing links to oil companies is all the evidence they have to show, in order to show that the evidence presented is false.

It's funny, how links to far left political organizations and radical environmental organizations doesn't discredit any of their favorite profits.

roy continues his dense ways
roy is so convinced that any connection to an oil company is proof that the person is lying, that he can't even bring himself to supply any other defense.

Can't be done
What the author is saying is neither right nor wrong. It is opinion. And opinion can't be proven. It can merely be offered, as I have offered mine.

Aiming straight
Not quite right, Mark. Working for an oil company indicates that you have some special knowledge about the situation, so that your comments are not just hot air and chin flapping. WRITING for an oil company, on the other hand, insures that what you are writing is a one sided view.

It may have valid points. But it is still partisan speech.

BTW you are absolutely correct. Read anything the NRDC has to say about big oil, corporate predation or global warming and you will get the other partisan view.

Learn how to read critically, Mark. And I would start by reading neither one of these sources for advocacy. Just find someone with no axe to grind except for the elucidation of truth-- then read that person's views.

Sure it can...
Take the facts that the author states and provide a counter. Prove the windfall profit taxes are beneficial, prove that Big Oil(!) is involved in price gouging. Big Oil(!) has been investigated enough times (35+) over the decades that you should be able to come up with something.

But that is the point: you got nothing.

sources
you have neither proven that the person in question is in fact writting for an oil company.

you have noted that he writes for a group that has received a portion of it's support from an oil company.

wiggle as you might, the two are not the same.

Your basic assertion that a person who writes for an oil company is only producing propaganda is also not proven.

Regardless of who pays a person, an intelligent reader refutes the arguments directly.
This you have not attempted to do. Rather you keep telling us that we must ignore the writter.

I'm still waiting for you to tell us why if people who write for oil companies are hopelessly contaminated, why people who work for the govt, and who's continued funding is directly dependant upon keeping the population sufficiently paniced so that they vote to fund further research is not also hopelessly contaminated.

As usual, you are being very hypocritical on this distinction.

Inattention
You haven't listened to a GD thing I've said, have you?

It isn't just that I have never written in favor of the windfall profits tax, I have posted I know five or six messages in the past week to the effect that I disagree with this approach. Totally.

You're so blinded by ideology that you just assume you know how I think-- because the people who do your thinking for you tell you how I think. So there's no reason for you even to read me.

Forget it. You have no idea.

The Emotional Approach
"Just find someone with no axe to grind except for the elucidation of truth-- then read that person's views."

This is the exact converse of what one should do with regard to acquiring information. Read any view you can, then check out the facts presented. If discrepancies are found, THEN you can begin lobbing reasons for them, such as some unholy connection to a partisan organization. To seek out the views of only those with "no axe to grind" would be similar to a prosecutor telling a trial jury, "Pay no attention to the evidence provided by the defense -- after all, he's being paid by the defendant!" I repeat: To discredit merely because of ANY association is not logical, it's kneejerk emotionalism. Verify first, condemn later.

Determining who's telling the truth
Your analogy to the trial by jury process is an apt one. In our system of jurisprudence we choose twelve dimwits (you don't think they choose for intelligence, do you?) and have one smart guy lie for the defense, while another smart guy lies for the prosecution. The jury is supposed to muddle through all this with no outside help, and arrive at a fair conclusion. In fact if they do look something up outside the courtroom, it's grounds for a mistrial.

This is much the way the issue of climate change (for instance) is being argued. Partisans for either extreme spit calumnies at one another, and the interested observer is supposed to try to evaluate which one is lying the least? Why don't they just look at the science instead?

Science has a much better way of settling who's full of crap and who has a useful insight. The peer review process. Every scientist gets a crack at every other scientists's work. Until the new idea has been thoroughly digested by that process, it has no weight.

If a scientist does have an axe to grind, and it is the case that although they shouldn't, many do, he had better be prepared to point to the evidence and say "See? That is an axe."

But I digress. This article, as I recall, had something to do with the oil situation. And my comment was that the fellow came from the oil industry, so one can assume his position without even having heard it. It's like asking a cop about crime, or a hippie about dope. You already know what his answer's going to be.

And sure enough, he's of the opinion that the freedom of the oil companies to earn unlimited profits at the expense of their customers should be untrammeled. Fine, that's his opinion. Consider the source.

FREE
LG,

If you go to the FREE website it provides the organization's policies in excepting donations and lists corporate and foundation donors and the amounts donated. The only oil company listed is Exxon-Mobil and its donation amounts to less than 4% of FREE revenues. You have a weak case for Geddes being a shill.

No Subject
"...one smart guy lie(s) for the defense, while another smart guy lies for the prosecution."

This goes to the heart of my argument, here. Simply because one is an advocate doesn't mean they are by default "lying" about the basis of their stated position. We should hear their claims and verify for accuracy based on the known facts surrounding the issue. Once again, FACTS ARE INDEPENDENT OF SOURCE. They are subject to objective analysis and provide the same result every time (a la, as you suggest, the scientific peer review process). Hence, at the simplest level, if Rush Limbaugh or Al Franken or any other partisan mouthpiece utters "2 + 2 = 4," I'm not going to reflexively say, "No, it doesn't" simply because I may or may not be sympathetic to either of their political/ideological views; I can verify by taking two things and putting them with two more things and count that I indeed now have four things. Every time I do it.

Thus, with regard to the article at hand, your sophistry would impress me a lot more if instead of merely being critical of the author's position via pointing out his nefarious ties to various organizations, you could simply point out where within his article he makes assertions that are objectively, verifiably untrue; in essence, where he's said "2 + 2 = 5," and you can demonstrate why he's in error.

On proving an opinion
It's not so much that what Geddes is saying is "wrong", as though it were the incorrect answer to a math problem. He is recommending a policy, and recommending the mindset that frames that policy. There is no "right" or "wrong" in stating one's opinion. It's only that the various opinions frame arguments that benefit different constituencies.

His arguments favor the constituency that is now making the largest profits in dollar terms that any corporate entities in history have ever made. And as these entities are being favored over the other segments of our society, it is the rest of us who have to make up the shortfall to contribute to their success. Their dollars come out of our pockets, as we pay our taxes in full without the breaks they have gotten.

The only thing I have done is to remind everyone that this is the case. As a person representing the view that the burden of paying for energy should be shared more or less evenly by all segments of our society, I would be considered by many here as being a socialist. Fine by me. I favor the public over the corporate few.

And I not only vote, I publicise.

Hyperbole Alert
"And as these entities are being favored over the other segments of our society, it is the rest of us who have to make up the shortfall to contribute to their success. Their dollars come out of our pockets, as we pay our taxes in full without the breaks they have gotten."

The oil industry pays taxes under the same tax laws as other corporations. They are allowed the same deductions. Their profit margins are well within the range of reasonableness. The breaks they receive reduce their costs and reduce the prices we pay for their products and services. Their actual profits are large because they are very large businesses with enormous investments in E&P, transportation, refining and marketing. Their profits are either reinvested in the business, or distributed to their owners including individual stockholders, government employee retirement systems, etc.

Those of us who pay (income) taxes also receive "breaks" in the form of deductions, credits, etc. Some of us who don't pay income taxes receive payments, such as the EITC, food stamps, etc.

The money for every good and service we purchase comes out of our pockets, plus the money for the local, state and federal taxes embedded in and added to their prices.

I would be interested in the guidelines (controls) you would apply in your "workers paradise" for absolute profits, profit margins, executive salaries, etc. I remember much of the history of wage and price controls in the US; and, it ain't pretty.

End Of Story
" There is no "right" or "wrong" in stating one's opinion...."

Well then, my goodness, if you want to refute Geddes' stated opinion just rebut specific points he makes within his piece (as you finally hinted at with "His arguments favor etc, etc.") By relying instead upon merely saying, in essence, "His stance in invalid because he's got reputed ties to Evil X organization!" you disregard whatever opinions he may hold as INHERENTLY invalid, which no opinion is. ("There is no 'right' or 'wrong' in stating one's opinion," remember?) The way to refute a position is by parsing, not a reactionarily dismissive "guilt by association" tactic. (In stuffy Logical circles this is also known as a Circumstantial Argumentum ad Hominem Fallacy.) If you disagree with a stance, explain why it's invalid based on that stance's own merits or flaws -- not because of the delivery system through which it arrives. It will stand or fall based on the evidence you bring to bear with regard to your refutation. Otherwise your credibility in advancing your own beliefs is hard to take seriously.

Okay, okay
Okay, you've goaded me into it.

Geddes seems to think the oil companies will be singled out for special treatment if a windfall profits tax is created. He compares it to the IRS treatment of gambling winnings, where you must pay tax on your winnings but can't deduct your losses.

Preposterous on two counts. First, oil companies can't deduct the expenses they incur on dry wells as business expenses? Of course they can. Bad debts and losses of equipment? Yup. Just like the rest of us.

Second, they get to take a depletion allowance on the presumed stocks remaining in the ground. Do I get to take a depletion allowance on my job, since my working lifespan-- which is my capital-- is being depleted? Sorry, no. It doesn't work that way for mere mortals.

Two sets of rules. One for them, one for everybody else.

Then he says (using as his mouthpiece some Nobel Laureate economist) taxation is a sure way to discourage risky enterprises. Well I'm sorry. The oil business is not all that risky any more. We are in fact entering a much more predictable future, as nearly all the world has been examined and the petroleum geologists doubt any more major strikes will be found. We know where the oil is, and the companies just have to elbow each other out of the way to get some of it. The days of wildcatters risking all on an unproven field are pretty much over. Oil companies are assured profits in the billions range every quarter of their existence.

The same argument is used with Big Pharma, who somehow needs an incentive to get up in the morning and make startospheric profits. I'll give you a little tip: the cashier making seven bucks an hour has a very strong incentive to bust her hump down at the dollar store. She can't pay her rent if she stops working. Oil and pharmaceutical companies are exactly the same, and need no coddling.

Oil is awash in a sea of profits, to the degree that they have no way of spending all this excess cash. They don't need it for development of existing fields, for R&D or for any of the other noble purposes they paint themselves as fulfilling. So they settle for preparing their retiring CEO's $398 million gift packages. It would be apparent to an eggplant that no further incentives are needed.

And that they should resume having to pay royalties to the owners of the oil they pump out of Gulf waters-- the American public.

Expenses and Incentives vs. "Windfall Profits Taxes"
Incentives partially offset expenses and risk, reducing costs and thus prices. "It would be apparent to an eggplant" that reducing incentives would cause prices to increase. Royalties are also an expense, which adds to price. You want the price to go up, you've got the approach all figured out.

"Windfall Profits Taxes", on the other hand, steal "all this excess cash" from the stockholders, who would otherwise have received the portion "they have no way of spending" on the business; and, reduce the incentive to invest in the development of the deep, tight formation "We know where the oil is" future supply.

Prediction: A windfall profit tax which limits absolute profits, rather than profit margins, will result in the breakup of the large US-based oil companies into smaller companies which together can earn the same profits they do now without triggering the tax; or, the relocation of those companies offshore into "tax havens".

Apparently, you have no qualms about stealing market value and dividend distributions from your cashier's 401k, since you would be stealing even more from the executive's 401k. Ain't encroaching socialism wonderful?

peer review
only works when the reviewer has expertise in the area of review, and the reviewer has no axe to grind of his own.

Both those conditions are routinely violated lately.

now roy tells us
that earning a lot of money is proof that one is wrong.

As always, roy's opinion is backed first and formost by greed and jealousy.

as usual
roy declares that he knows more than the experts

There are a few nutcases who are declaring that we've found most of the oil that there is to find.
People in the industry say otherwise. To back this up, they are spending record amounts to search for new fields.

As to oil not being risky.
1) The price of oil still fluctuates wildly from decade to decade.
2) 70 to 80% of oil wells come up dry.

Fairness
This analysis doesn't convince because there is such a gap between production, refining and distribution costs and pump price. Of course the oil companies will still be making a bundle if supports are withdrawn. They need not raise the price because it is already far higher-- due to the workings of supply and demand-- than it would have been if it were based on cost plus a markup.

let's put it this way. You grow tomatos and can take them to market for $1.25 a pound. But in your area there are not many local growers, and you can get $3 a pound for them. If something happens to your costs, and they increase to $1.75 a pound, you're still making a lot of money. You don't "need" to increase your prices.

I expect this line of argument makes no difference to you. You likely have money in oil, and anything diminishing your rate of return is evil.

I don't like the windfall profits proposals, and think they would be bad policy of enacted. of course they will not be enacted-- there aren't the votes. It's just cheap politicking in an election year. But I do think it's past time for subsidies, depletion allowances and the like to be withdrawn. Oil no longer needs such supports in order to make a profit, and likely never will again at the rate things are going.

It's obvious also, now that you mention it, that companies doing business in the US must pay taxes in the US. Fictional Bermuda addresses are clearly against the spirit of our tax law, and should be outlawed.

I do think you can't talk about theft on the one hand and then glorify oil companies taking offshore oil that's owned by the American public, to sell back to us without payment of royalties to us. This is a classic example of corporate socialism, where the costs are socialised and the profits privatised.

Not an attempt to convince
I am too much of a realist to attempt to convince you of anything.

Not peer review, but an open review
I disagree. If a reviewer, whether credentialed or not, presents valid facts that can be verified, his comments are worth consideration. Obviously the IPCC will wade through a lot of questions that have already been answered, points that have already been addressed, etc. As well as lots of stuff that's just flat out wrong. But they feel they need to put their tentatove conclusions out to the general public for comment, and can only be thinking this will take the wind out of the sails of people who say they refuse to consider this or that, or are just a bunch of ivory tower types that talk to no one but each other.

I approve of this approach.

then why won't Mann
release the full contents of his data, and the source code of the program used to analyse his data?

That's the breaks
"The oil industry pays taxes under the same tax laws as other corporations. They are allowed the same deductions. Their profit margins are well within the range of reasonableness."

I somehow overlooked this comment you made last month. It deserves a response.

I wasn't comparing oil company profits with those of other corps. I was comparing them to the tax breaks available to actual, living people. So let's reframe the question and ask what sorts of breaks the oil companies enjoy that mere mortals don't. And I would offer depletion allowances.

This is an artificial construct. One can't really tell the rate at which an oil deposit is depleting until he begins to have trouble sucking the oil up through a straw. Yet they get depletion allowances on their taxes, based on the supposition that some day they might not be able to make as much money as they are today.

Based on the upward arc of their earnings, I would say this supposition was erroneous. The more they pump, the more they make.

However there can be no doubt that the wage earner is subject to the inexorable, one way arrow of Time. And it becomes certain that the day is coming up ahead when he is no longer able to work like he used to.

So do we get a working lifespan depletion allowance?

**

"The breaks they receive reduce their costs and reduce the prices we pay for their products and services."

No they do not. As you know, pump prices are dependent on supply (barely keeping up) and demand (ever increasing). They are in no way dependent on production costs, as we saw in the seventies when development costs were high and pump prices low.

Corporate Taxation
Taxing corporations is merely another way of making the total personal tax burden less obvious. Corporate taxation is a cost of doing business. The extimated amount of the tax is included in the prices charged by corporations for the goods and services they provide. Therefore, the tax is collected from customers, though it is collected by and paid by the corporation. However, there is no argument that corporate taxes increase the prices of goods and services.

The oil depletion allowance is an estimate, in the same way that depreciation is an estimate. The government sets depreciation rates for tax purposes. Some equipment loses its value (utility) at the allowed depreciation rate; some equipment loses its value faster or more slowly that the allowed depreciation rate. Some equipment becomes obsolete long before it is fully depreciated. Substantial electric utility generation investment, already fully depreciated, is being subjected to life extension projects which make use of those portions of the plants which have not lost their utility despite being fully depreciated.

"No they do not. As you know, pump prices are dependent on supply (barely keeping up) and demand (ever increasing). They are in no way dependent on production costs, as we saw in the seventies when development costs were high and pump prices low."

You are thinking locally, rather than globally, and assuming that the difference between the "lifting cost" of a barrel of oil and the selling price of that barrel of oil all goes to the oil producer. However, to use a simple example, the owner of a barrel of oil with an estimated investment cost (development cost) of $10 per barrel and the producer of a barrel of oil with an estimated lifting cost of $10 per barrel can each break even at a $20 per barrel wellhead price. Above that price, both can profit. However, the owner has the far greater upside potential than the producer. Below that price, the owner has the choice of accepting a lower price or closing in the well(s). The producer will likely not produce the well at a loss.

In the current world oil market, much of the oil in the ground is owned by governments, as is the case in Saudi Arabia and most of OPEC. The demand-driven price primarily benefits the owner of the asset. The current lifting price of oil in Saudi Arabia is less than $5 per barrel. The producers, transporters, refiners and retailers are primarily price takers on the supply side. The prices they charge for the services they provide and the products they sell are, in fact, affected by the taxes they pay.

The owner of an oil asset with a development cost of $10 per barrel is sitting pretty right now, though that has not always been the case. So is the owner of a modest home in Sacramento, CA who has seen the value of his/her home appreciate by ~125% in the past 5 years.

A flawed analysis
Your argument is undone by the general rule that prices are set by supply vs demand. Costs of production plus desired rate of profit has little if anything to do with consumer prices.

If a producer is unable to distribute something for sale at the going price of the product, he goes out of business-- or he takes cost saving measures like moving his plant from Massachusetts to Cambodia. But if he can sell his product for six times the cost of production, he can and will certainly do so.

Right now, corporations generally and energy corps in particular are awash in a sea of profits. Therefore if they are forced to pay a greater share of the costs of running the society that sustains them in good health, they will do so and still make a profit. Prices will not increase from the levels they are now-- that is, every bit as high as the market will bear.

So as corporate profits are now increasing vastly more than salaries plus benefits are increasing, it's time for a preferential tax tilt in favor of working stiffs and against the companies they work for. Anything else would be inequitable.

A Flawed Response
"Prices will not increase from the levels they are now-- that is, every bit as high as the market will bear."

This is a huge assumption, unsupported by fact. The market will likely bear higher prices - it does in Europe (roughly twice as high). Of course, virtually all of the difference in gasoline prices between here and Europe is taxes, which are passed on to the consumer in higher prices at the pump.

In a commodity industry, with very little perceived product differentiation, an increase in taxes imposed on all of the participants will result in an increase in prices by all participants, unless one or more of the major participants is willing to accept lower profits and see its market value decline. Or, unless one or more of the major participants is able to reduce costs somewhere in the supply chain to the extent that profit can be sustained without increasing price, thus placing the squeeze on their competitors.

What you are suggesting would likely require price controls in addition to the increased taxes on profits. The ultimate result would likely be taking the corporations offshore to more hospitable tax climates. While this would likely result in the corporations being called "Benedict Arnold" corporations (sound familiar?), the stockholders would probably be much happier. Of course, the asset-based refining, transportation and marketing operations would remain in the US, but they're not where the big bucks are anyway.

The crude commodity sale is where the big bucks are to be had. As long as there are willing buyers, the sellers can sell the commodity to any willing buyer at a mutually agreeable price. If the US refiners are unable to pay the world price for the crude they need, they will be unable to obtain the quantities of crude they require. Welcome to shortages and gas lines.

I realize that many politicians believe that the laws of economics can be amended or repealed when it suits their whim. No string of failed attempts has ever been long enough to convince them otherwise.

Managing the circulation of funds
I think price controls are the wrong way to go about things. And, as you point out, on the very few occasions they've been tried they haven't worked as planned. So I'm cold on any windfall profits tax.

However it is abundantly obvious that oil-- the example I think we are using-- is enjoying a lot of special benefits they don't need in order to be inordinately profitable. All I would do would be to level the playing field so they had to play by the same rules other companies do. No depletion of natural assets. And no free leases of assets underlying public land. If they are to take the nation's wealth and then sell it back to us, they can pay royalties for the privilege. We don't sell off the timber in our national forests for free, do we?

Fuel shortages won't come about because of constrictions in the oil majors' budgets. You're telling me with the billions they're making every quarter now they can't stand the slightest increase in taxes?

It's an excuse. They tell us they are "over a barrel" because of high crude prices, and the very next thing you hear is they've all had the most profitable quarters in history. Very few Americans are so credulous as to be duped by this kind of idiotic propaganda.

Fuel shortages, and naturally higher prices, will come about precisely because more humans on earth will be driving cars as time goes on, and production will begin to taper off as the world's major fields start becoming depleted. Inevitably the oil companies will be making unimaginable tons of money. And it will need to be recirculated among the rest of the population to avoid it all sloshing down to one end of the Big Bathtub. That, to me, means a removal of special breaks to the industry.

Crying poor mouth
The reason I made the statement that [in the event of a removal of special tax treatment for oil] ""Prices will not increase from the levels they are now-- that is, every bit as high as the market will bear." is that there already ecists a very large margin of profit. They don't have to raise prices to adjust for this kind of bump oin the road since their profits are already at windfall levels.

Yes, prices will be increasing as time goes on... but not because of anything to do with costs. Prices will continue going up according to a ratcheted schedule that is already apparent to consumers who haven't even seen the graph.

Pump prices lurch upward fifty, sixty cents at a jump one weekend, and everyone screams. Then over the next several weeks they go back down, but only by twenty or thirty cents. And people get used to the "new normal". It's the old frog on a griddle principle, by which the public is being cooked.

Since this will continue to be an established fact, and will continue so long as people still drive their vehicles, there has to be some mechanism by which all this sidetracked money gets funneled back into the general circulation. Otherwise we become a two-tiered society: those who have excess cash they can put into oil stocks, and those who put their gas purchases on their credit or debit cards.

Your contention that if oil companies are deprived of their depletion allowances they will be "unable to pay the world price for the crude they need" is ludicrous. It fails the laugh test. Even though, despite having enjoyed the most profitable quarter any company has ever had in the history of life on earth, Ex xon Mo bil was unable to find enough pennies behind the cushions to contribute into their employees' pension fund this spring.

Finally, you say (again) "I realize that many politicians believe that the laws of economics can be amended or repealed when it suits their whim. No string of failed attempts has ever been long enough to convince them otherwise."

You seem content to rail on about experiments that happened once, during the Nixon Administration. We're not getting any wage and price controls. Period. It's political poison.

Time to move on. Find some fresh parameters with which you can profitably view the situation as it stands today. Yesterday doesn't work any more.

No Subject
"All I would do would be to level the playing field so they had to play by the same rules other companies do. No depletion of natural assets. And no free leases of assets underlying public land. If they are to take the nation's wealth and then sell it back to us, they can pay royalties for the privilege. We don't sell off the timber in our national forests for free, do we?"

Depletion - http://www.irs.gov/publications/p535/ch10.html - not just limited to oil and gas - includes timber as well.

Oil and gas leases are auctioned by federal and state governments, which also collect royalties on the oil and gas extracted. No refunds for unproductive leases. Long court fights for recovery of lease payments on leases later "taken off the table".

The auction of a lease does not assure that there is oil and/or gas under the tract, or that it is there in economic quantities. The lease represents the opportunity to invest $ in search of potential "nation's wealth and then sell it back to us" after finding and producing it, if it is there.

Feds take ~35% of the profits (before taxes) now. The balance goes into E&P, or to shareholders, who occupy the other "end of the big bathtub". Many of these shareholders hold their shares through IRAs and 401k accounts. Many of the shares are also held by state employee and state teacher retirement systems.

Nearly half of all wage earners in the US pay no federal income taxes now; some of them get the EITC. How many more tax breaks do the bottom half need? Also, where in the Constitution is the federal government empower to "recirculate" money?

How many tax breaks do they need?
Re timber depletion allowances, I wouldn't see the need for such a thing either. They can and should be able to deduct hard costs, such as for reforestation. But to essentially get paid for having their crop grow during the time it's in the ground? Nuh uh. That's like paying a lettuce farmer for having to wait until next year's batch of lettuce comes in.

Same thing with hard rock mines. When it's run out of ore, it's run out. Should you get paid by Uncle Sam because God didn't make any more silver there?

Re the oil and gas royalty abatement program, this served a purpose way back when, when profit margins were slim. Back then they needed some sort of incentive to plunge all those multimillions into what could have been (and often were) dry holes at the bottom of the Gulf of Mexico. But that was then.

Now they are swimming in cash, and certainly need no incentive to go out and make more. They know just where the oil is now, so it's no loinger wildcatting but more shooting fish in a barrel. This giveaway amounts to theft from the taxpayers.

When you say the feds take around 35% of the profits "before taxes" I'm not sure what you mean. Might you spell that out a bit more explicitly? If you mean those areas where they still pay royalties, that doesn't address areas where they don't. Royalties vary from one place to the next. Here's something on how they do things up in Alaska:

http://www.dog.dnr.state.ak.us/oil/programs/royalty/royalty.htm

Then you ask, where in the Constitution does it spell out the government's need to redistribute money? In the part where it pledges to "promote the general welfare".

I interpret this clause as being to reserve to the government the right and the necessity to intervene when things are going too far in one direction. A good example might be at the beginning of Reagan's first term, when the air traffic controllers went on strike. We were plagued at the time with an intractable inflation led by wage increases, so the man intervened, fired the strikers and broke the backs of a labor movement that had gotten stronger than it should have been.

With me so far? He righted an imbalance in the direction of too much clout coming from labor.

Now let's fast forward to the present, where the imbalance is in the other direction. When a continuously increasing proportion of the US economy goes into the pockets of the oil industry and its shareholders, other sectors can become starved for cash. They must to some extent buy the product, thus they steadily lose money to this sector. I'm not saying that energy giants should pay MORE taxes than anyone else, I'm just saying that the time for extending breaks to them is over and past. For the general welfare of the country.

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