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No Monopoly on Economic Nonsense:

In today's WSJ, Karl Rove observes both John McCain and Barack Obama are proving "that in close elections during tough economic times, candidates for president can be economically illiterate and irresponsibly populist." He criticizes Obama for embracing a Carter-esque windfall profits tax, and McCain for seeking to direct how oil companies invest their own profits. He concludes:

Messrs. Obama and McCain both reveal a disturbing animus toward free markets and success. It is uncalled for and self-defeating for presidential candidates to demonize American companies. It is understandable that Mr. Obama, the most liberal member of the Senate, would endorse reckless policies that are the DNA of the party he leads. But Mr. McCain, a self-described Reagan Republican, should know better.

Rove is not known for his mastery of energy policy or economic principles, but in this case he's right on target.

Related Posts (on one page):

  1. A Prize for McCain:
  2. No Monopoly on Economic Nonsense:
  3. McCain's Energy Speech:
Al Maviva (mail):
Oh, come on, Jonathan. What harm could possibly come from the federal government seizing the oil refineries from Big Oil and creating a government-owned-and-operated, horizontal monopoly on refining capacity in the U.S.?
6.19.2008 8:11am
PLR:
Oh well, two fewer votes for McCain, I suppose.
6.19.2008 8:40am
Jack S. (mail) (www):
free markets...yeah...right.
6.19.2008 8:47am
Redlands (mail):
When it comes to government run oil production and marketing one need only look to Mexico. At a time when oil is producing very "nice" profits, Pemex has managed to lose about 1 billion dollars (I seem to recall reading somewhere). Well, O.K., it's Mexico, but there has to be some kind of a lesson there, right? Even if only a little one?
6.19.2008 8:58am
Crust (mail):
Isn't Rove an adviser to the McCain campaign? Yes, I know, officially he's an "informal" adviser. Still, it seems a little strange for him to take on McCain (even if it is in the same breath as taking on Obama).
6.19.2008 9:46am
Houston Lawyer:
And if the federal government ran big oil, Parkersburg, West Virginia would become the oil capitol of the world.
6.19.2008 9:48am
byomtov (mail):
And if the federal government ran big oil, Parkersburg, West Virginia would become the oil capitol of the world.

I'm not endorsing a takeover, but I would much rather send my money to Parkersburg than to Riyadh.
6.19.2008 10:01am
Layedback (mail):
Here here AL Maviva. Listening to CSPAN last afternoon, I realized that this whole hoopla is directed toward that end. Supply and demand has dictated these prices, "ecological concerns" have hamstrung private response to this phenomenon, and, ironically, large oil has lots of land with available oil and refuses to utilize it. Oil is the lifeblood of the economy. This is an incremental command economy takeover. "Big" oil has allot to gain from becoming part of the government, just ask Bush. One more giant step towards "Big Brother."

The facts are that huge economic interests have a long precedent of "becoming" government. Look at the original board of the Federal Reserve. The only thing to be lost by oilmen from this transition are the taxes paid and the cost of R&D (which of course you and I will now pay). Money lost its import in these people's lives a long time ago, and they have come to realize that oil is power. Will the same people be in charge of this staple of our infrastructure if indeed it becomes nationalized? Of course they will.
Its just daunting when one drops one's party loyalty and realized we are all being enslaved slowly. This is simply a mechanism to relieve us of yet another aspect of our autonomy. We will pay for oil whether we want to or not. Even if you ride a bike or walk, in a socialized petroleum system, you will be an oil consumer. Makes allot of sense for "Big" oil to throw this game and turn to government for "help."
6.19.2008 10:13am
Smokey:
Will the same people be in charge of this staple of our infrastructure if indeed it becomes nationalized?
There is no doubt whatever that the same bureaucrats who run the DMV will run a nationalized oil industry.

Could the people proposing this be any more stupid??
6.19.2008 10:43am
The Unbeliever:
officially he's an "informal" adviser
My inner grammar teacher just had a minor stroke.
6.19.2008 10:52am
Jmaie (mail):
The only thing to be lost by oilmen from this transition are the taxes paid and the cost of R&D (which of course you and I will now pay).

You and I are currently paying these costs...
6.19.2008 11:00am
Bad (mail) (www):
Funny how Rove said none of this when his administration was protecting the steel industry, when his boss was bailing out failing investment banks, and so on, or when Bush forgot how to veto for most of his Presidency.

Even sillier given that the fortunes of the oil industry are currently driven mostly by the whims of a foreign monopoly, not any sensible sort of market.
6.19.2008 11:04am
Alan K. Henderson (mail) (www):
Wouldn't nationalized oil enjoy the same level of efficiency as nationalized education?
6.19.2008 11:43am
StevensAve. (mail):
As Rove is no energy expert, neither is Prof. Adler, so his affirmation of Rove's comments is not worthy of serious consideration.
6.19.2008 11:45am
gab:
I'm sure Karl Rove never proposed that his ex-boss say something utterly irrational in the hope of getting elected...
6.19.2008 12:31pm
CheckEnclosed (mail):
I am consistently interested in how often people think that companies in the oil business should invest in energy technologies that will compete with oil. If you own Exxon-Mobil stock, or your penison plan does, do you really want its managment to spend profits on technologies that could put it out of business? Wouldn't you rather have that profit distributed as a dividend so that you could decide whether to buy stock in an "alternative energy" company?

What if Exxon-Mobil did invent and patent breakthroughs in alternaitve energy technologies -- would that make those on the left happy?

One difference between private industry and government is that in private industry resources are funnelled into successful ventures, and failures are starved of resources, but in government, it is the other way around.
6.19.2008 12:33pm
R Gould-Saltman (mail):
CheckEndorsed:

What are these "technologies that compete with oil"? which could put Big Pete out of business? Ain't none. Rational long-term economic planning dictates that, however, oil, a depletable extractive commodity, get used less as a source of stationary, or even portable energy, and more as a chemical feedstock, since we know it is replaceable as the former, but not as the latter.

What is being proposed is that Big Pete, which exists nowhere without substantial government subsidy, assistance and supervision, start addressing long-term economic issues, rather than engaging in fire-sale tactics to maximize profit now, and to hell with next year.


. . . and Karl Rove? "Follow the money...". I have no reason to think that Rove is saying any of this because of his deep philosophical attachment to neo-Friedman-esque views of the effect of regulation on markets; rather, I suspect that, as always, like his predecessor Chuck Colson, he'll say whatever, and do whatever, (including walking over his own grandmother) to accomplish the will of his employers.
6.19.2008 1:03pm
Smokey:
I am consistently interested in how often people think that companies in the oil business should invest in energy technologies that will compete with oil.
True dat. It's no different than having the government dictate that McDonald's must also start selling chop suey.

And:
Rational long-term economic planning dictates...
That sounds just like the Politburo's Supreme Soviet 5-Year Plan. And implying that oil companies would not exist without substantial government subsidies is ridiculous. Companies are expert at planning for the future; government is not only inexpert, it is inept.
6.19.2008 1:47pm
Robert Lutton:
Jonathan,

Is
"Mr. Obama, the most liberal member of the Senate"
really right on target?

I don't think so...
6.19.2008 1:56pm
R Gould-Saltman (mail):
"That sounds just like the Politburo's Supreme Soviet 5-Year Plan."


Smile when you say that. I believe I've just been Red-baited, on the basis of a five-word phrase; not even a complete sentence! Actually, I meant "rational" in the pure "economics" sense, as in "economically rational decision-making".

SNARKY SARCASM FOLLOWS

(Secret Communique to Commie Over-Lords: The running dog lackeys of the imperialist insect that feeds upon the people are onto us! Posting to VC ineffective as propaganda tool; unlikely to win additional dupes, or get additional fellows to travel! Commence plan B: corrupting youth through insolent music and hairstyles!)

END OF SNARKY SARCASM


. . . and, Smokey, these oil companies, which presently exist without having received government subsidies and assistance, they're which ones, where? Didn't claim that it is inconceivable that oil companies would exist, in some form, somewhere, without both forms of government intervention; I made an empirical claim that the existing ones historically got both.


r gould-saltman
6.19.2008 2:12pm
Rod (mail):
R. Gould-Saltman,

I run an independent oil company. We do not receive any subsidy from any government at any level. I do not know of any oil company that does (other than foreign oil companies).

Please tell me where to file for these subsidies. I feel really dejected to have been missing the gravy train for all of these years.
6.19.2008 2:51pm
Wahoowa:
Rod:

In some people's parlance "tax breaks" and "subsidies" are the same thing. I discovered this in a sociology textbook this past semester.
6.19.2008 3:19pm
Snarky:
There is no economic harm in taxing windfall profits if they are truly windfall profits and were not produced by active efforts.

But, I wouldn't expect the non-economist Adler to know much about that.
6.19.2008 3:49pm
PC:
Companies are expert at planning for the future; government is not only inexpert, it is inept.


The irony of reading this on the Internet is not lost.
6.19.2008 4:51pm
Jagermeister:
There is no economic harm in taxing windfall profits if they are truly windfall profits and were not produced by active efforts.
Your statement defies quantification. How do you propose to define "windfall profits" for a commodity whose price is set by the market? You would first need to determine a "fair" price level, and then seize any monies that result from a higher price. This is so anti-market that you might as well just come right out and nationalize the whole shebang.

I don't mind your advocating socialist policies. That's your right to free speech. But don't pretend that its anything other than envy based income redistribution and try to dress it up with specious claims about "no economic harm" and "active effort". By your reasoning, there's little economic harm in forced slavery either.
6.19.2008 5:46pm
Smokey:
RG-S:

Your snarky parody made me lol. You've got commiespeak down better than I do.

C- in econ, though. Rod should be your prof.
6.19.2008 5:50pm
Tony Tutins (mail):
Wouldn't nationalized oil enjoy the same level of efficiency as the Library of Congress, the National Institutes of Health, the Center for Disease Control, the Air Traffic Control System, the General Accountability Office, the Circuit Courts of Appeal, or the Army, Navy, or Air Force?
6.19.2008 5:56pm
Dilan Esper (mail) (www):
In some people's parlance "tax breaks" and "subsidies" are the same thing. I discovered this in a sociology textbook this past semester.

Economically, they are, except for transaction costs and differences in the rates of persons or entities who claim the benefit.

For instance, if the government decides to write a check to each oil company based on the depletion of its reserves, that is exactly the same as allowing a deduction for such depletion.

The only difference is that tax cuts poll better than spending programs.
6.19.2008 5:59pm
R Gould-Saltman (mail):
Smokey:
Thanks for the compliment. I make qualify as a leftist trouble-maker, in this environment, but I'm also a pretty self-aware one.

Econ: Nah, I'll take Mr. Esper's class, first.

Some other time, I'll scare up a discussion as to whether car-friendly infrastructure development, paid for by tax dollars, isn't an indirect subsidy for the oil industry....
6.19.2008 6:44pm
SG:
Wouldn't nationalized oil enjoy the same level of efficiency as [...] the Army, Navy, or Air Force?

Unless I'm missing the irony, I've never heard the US Armed Forces referred to as efficient. Effective, sure, but not efficient.
6.19.2008 6:49pm
Rod (mail):
R. Gould-Saltman made the empirical claim that oil companies only exist on government assistance and subsidies.

I have stated that my oil company receives neither, and enquired where I might receive this largesse that my competitors are receiving.

Mr. Esper then made a statement that is true, but is nevertheless misleading. As usual, we have to start with Econ 101 to get the whole truth.

If a business can manufacture and market a product at a cost of $90, and a sales price of $100, then the business makes a $10 profit. This would clearly be a viable business without any government assistance. If government places a tax of 50% of profits on all businesses, the $10 profit would be reduced to $5. The after-tax profit of the business is significantly reduced, but a 5% profit on a $100 sale is still a viable business.

Suppose the government decides to favor certain industries (we all know this would never happen in the real world) and grants these favored businesses a 20% tax subsidy. The company would save $1 for every $5 of taxes. It does not matter whether the company gets to deduct the dollar before they remit taxes, of if they get a rebate check afterwards. [This is the truth of Mr. Esper's statement.]

The tax subsidy does help the profit of the business. The after-tax profit has now risen to $6.

The oil industry receives numerous tax subsidies. These do serve to increase the profit of the oil companies. However, every tax subsidy my company receives only serves to reduce the amount of tax we would otherwise owe. Every oil company must earn a profit on its own to remain a viable business. Others may make empirical assertions to the contrary, but Volokh denizens should ask that they show their work.
6.20.2008 12:43am
Alan K. Henderson (mail) (www):
Is
"Mr. Obama, the most liberal member of the Senate"
really right on target?
It is if one goes by National Journal's 2007 ratings.

That just covers one year, though. Obama's lifetime American Conservative Union score is 7.67%. Here's the ACU's bottom 20 (source):

Whitehouse 0
Kennedy 2.39
Boxer 3.04
Murray 3.11
Klobuchar 4
Lautenberg 5
Kerry 5.56
Cardin 5.63
Leahy 5.87
Schumer 5.99
Mikulski 6.12
Sanders 6.34
Durbin 6.45
Reed 6.8
Levin 7.03
Inouye 7.04
Akaka 7.2
Obama 7.67
Clinton 7.71
McCaskill 8


Sheldon Whitehouse is a mere freshman Senator, so his ACU score isn't as telling as, say, Kennedy's.
6.20.2008 8:32am
dcuser (mail):
Since when does Rove -- architect of such stupidities as Bush's steel tarrif (to boost Bush numbers for an election) and deficit-ballooning budgeting -- get to lecture anyone about economically unwise pandering to get votes?
6.20.2008 10:30am
Alan K. Henderson (mail) (www):
dcuser,

Non sequitur. Rove can be wrong on one issue (the tariffs) and dead right on another (the energy policy issues addressed in his article.)

What was Rove's role in Bush's liberal spending policies?
6.20.2008 2:15pm
12345:
This is the funniest part about that statement is that he's calling it a "close election". Wishful thinking, I suppose.

It's pretty clear that statement is a compliment to McCain disguised as an equal opportunity insult.
6.20.2008 3:41pm
R Gould-Saltman (mail):
Rod: I understand (a) the distinction between a deduction and a credit and (b) the difference between what I said, and what you seem to think I said.

I made what I intended as a historical claim to the effect that all of "Big Pete" (i.e., the major oil companies) got where they are today with substantial direct and indirect subsidy. While there are, no doubt, independent oil companies around today who never got much direct subsidy, there are stockholders,and children and grandchildren of stockholders and investors (in the oil companies whose names I see on tall buildings) who got the benefit of 50 (actually 49) years of percentage-based depletion allowance in their dividends.

If the government taxes my oil business at .30 on the dollar of gross, and taxes your widget-making business at .40 on the dollar of gross, that differential is going to affect who invests how much in whose shares. If, additionally, for instance, (whether for reasons of national security, common welfare and convenience, or as part of a vast conspiracy) the same government uses tax revenues to build infrastructure, and develop other tax policies, which encourage people to burn oil, but not to use widgets, then the effect becomes still greater.
6.23.2008 6:47pm