I think you will agree that its a much politically smarter policy than the gas tax holiday, even if its bad economic policy. The fact that the average Joe is really suffering from high gas prices, and at the exact same time that is happening Exxon - Mobile reported the highest single quarter profit ever by any company in the history of the United States.

Now I confess that I am beginning to understand your point about taxes. The job of the CEO and board of any company is to increase shareholder value, period, end of discussion. I understand that. The Econ book I am reading focuses a lot on the negative effect of higher Marginal Tax rates and I confess 1) I don’t fully understand yet what the marginal tax rate is 2) whether or not The concept of marginal tax rates is applicable to businesses. The book lists three reasons why high tax rates are bad. It says

1. “High tax rates discourage work effort and reduce the productivity of labor”
2. “High tax rates will reduce both the level and efficiency of capital formation”
3. “High marginal tax rates encourage individuals to consume rtax-deductible goods in place of nondeductible goods, even though the non-deductible goods may be more desirable”.

I sorta kinda understand the points being made, but as I consider it, and correct me if I am wrong, its seems that when we are talking about a big tax on a big oil business, its only the second point that will have a direct impact.

All that being considered, I have to go back to the fact that if we did tax profits over a certain amount from the OIL companies, and that did ultimately have the effect of increasing gas prices. I personally would be okay with that for one simple reason. I want gas prices to remain high.. Forever. The higher gas prices are, the more it will create an incentive for investments into clean alternative energy companies and technologies and cause consumers of energy to change their lifestyles and buying habits.

The fact is, I want that for two reasons I do believe in Anthropogenic Global Warming and think its potentially very serious and I think our long-term national security is dependent on us no longer being at the behest of foreign oil.

So I think I support the following.

• Cap and Trade
• Taxing Oil Companies
• Providing incentives to investment in alternative energy
• Providing incentives to consumers to change their lifestyles and buying habits.

As for economic growth, I guess I would just have to hope that the proper balance would be achieved of the various policies to keep the economy growing. I would be remiss to say that I’m no expert on any of this and that I hope whoever is the next president will surround himself with smart people who can find the right combinations of taxes and incentives and investments to bring about real change without causing too much harm to economic growth.

The lead article in the September 10th Money Section of USA Today was a brief synopsis of the candidates policy positions on energy related issues entitled: To win the presidential race, it takes energy: What the candidates think about the top 6 energy issues. I am going to assume that the paper has its data correct and provide a scorecard for both candidates on the issues.  Only one candidate can win each section, although notable policies of either candidate will be mentioned in the conclusions.

Part 1-Drilling

Part 2 - Electricity

Part 3 - Global Warming

——————————

Price Relief

Obama

• Wants to provide a $500 tax credit for individuals and $1000 to married couples filing jointly to help the rising cost of gasoline, heating oil, natural gas, etc.
• The tax credit would be paid for by a “windfall profits tax” on oil companies.
• Advocates the removal of 70 million barrels of oil out of our strategic oil reserve to help reduce the price of gasoline.
• Opposes the temporary repeal of the federal gasoline tax.

McCain

• Advocated for the temporary repeal of the federal gasoline tax this summer, but that proposal has been tabled by the campaign.
• Opposes the windfall profits tax on the grounds that it would “discourage investment”.

Conclusion:  I literally rolled my eyes when I read the heading of this section in the paper:  Price Relief.  The price system in a free market system is a truly remarkable thing to behold.  It manages to balance consumers needs and wants with the exact amount of supply needed to fulfill the demand.  If the price is too low, then suppliers ease back production (since they are not making as much money as they want) while consumers queue in line to grab the hot commodity before its gone (creating a shortage).  The price creeps upward until demand matches supply.  If the price is too high, suppliers overproduce the product (trying to reap all the profit contained in that high price) while consumers turn up their noses at the high price (creating a surplus).  The price creeps downward until demand matches supply. (I won’t even go into the remarkable beauty and mystery of the signaling function of prices.  I get choked up just thinking about it.)

McCain gets the Miss Congeniality prize in the ugly economics pageant.  Obama is exactly right about a tax gas holiday.  It’s a stupid idea.  Assuming that you want to tax gasoline (and there are good economic reasons for wanting to), then the effect of a tax gas holiday would be, very little consumer relief, no government revenue and more profit to the oil companies.  The reasons are counterintuitive but true:  price is relatively unaffected by the cost of its inputs.  The day after the holiday took effect, the price would be about at the same level it was the day before.

But if McCain was Miss Congeniality, then Barack Obama is the grand prize winner in the ugly economics pageant with his rendition of All Mixed Up.  As I said in a previous post:

I was operating under the assumption, until recently, that Obama was pretty smart and understood how the world works.  Naysaying a gas tax holiday.  You Go O!  Then in a populist proposal of astonishing stupidity, O goes off the rails.  “Gas prices are up.  People are hurting.  Tax the windfall profits of the oil companies (and what exactly is a windfall profit) and rebate $1000 to those hurting Americans.”  Just ignore the fact that even O can’t change the laws of mathematics and his math just don’t work.  What is the effect of decreasing the supply of oil (taxing oil profits) and increasing its demand (rebating money to Americans)?  Anyone?  Anyone?

(PSST: the answer is “It will make the price of gasoline go up”.)

The idea behind a windfall profits tax is incredibly dumb.  What is a windfall profit?  Economists can’t figure out a way to define it.  Is it profit margin in excess of X amount?  Why is it X and not Y?  If it is X, are you going to tax all industries with a profit margin of X or higher?  That means you are going to tax the banking industries (until recently) and the pharmaceutical industries too both of which boast higher profit margins and higher return on revenue.

Coincidentally, McCain is exactly right that a windfall profits tax would “discourage investment”.  And this discouragement is another factor that would lead to higher prices at the pump.  In the oil and refining industries, investment means looking for new sources of oil.  Oil discovery is an extraordinarily risk business.  It’s also high reward.  If profits are taxed, investors will turn toward other industries with more promising potential returns.  Supply is dampened and prices rise.

Point:  McCain

Steve

PS I am neutral on the use of the oil from the strategic petroleum reserve.  It is impossible to predict its affect on the price.

The lead article in the September 10th Money Section of USA Today was a brief synopsis of the candidates policy positions on energy related issues entitled: To win the presidential race, it takes energy: What the candidates think about the top 6 energy issues. I am going to assume that the paper has its data correct and provide a scorecard for both candidates on the issues.  Only one candidate can win each section, although notable policies of either candidate will be mentioned in the conclusions.

Part 1-Drilling

Part 2 - Electricity

——————————————

Global Warming

Note:  Both candidates favor a cap and trade system that allows polluting industries to pollute up to a total “cap” amount set by the government and that could be lowered over time.  The industries that just pollute a little (under a predefined limit) could sell their permits to those industries that pollute a lot.  Many people believe that a cap and trade system is more efficient than command and control regulatory policies.

Obama

• Wants a cap and trade system limiting the amount of carbon dioxide to 80% below 1990’s levels by 2050.
• Obama would require polluters to pay for their permits by auctioning them off to industry.

McCain

• Wants a cap and trade system limiting the amount of carbon dioxide to 66% below 1990’s levels by 2050.
• Would give away their permits to industry to reduce the cost to consumers.

Conclusion:  This issue, as it pertains to the candidates positions presents a dilemma for me.  On the one hand, I believe that pollution does impose a cost on the public that is not borne by those involved in the private transactions that lead to the pollution.  Government can play a role in privatizing those costs.  Assuming that this is one of the key objectives of both candidates policies, then Obama’s auctioning of tradable permits makes sense.  His policies will, in fact, cost consumers more and this is appropriate if the goal is to encourage behaviors that will reduce green house emissions.

However, three things counter the economic sense of Obama’s policy positions 1) I care deeply about economic growth, 2) a huge amount of the rhetoric, and even science, surrounding global warming is so overblown and hyberbolic that we can’t possibly get at the truth which leads me nicely to my last point, 3) global warming activists claim to know the future and expect us all to agree with their assessment of the future and what needs to be done.

For example, this quote from the article:

“We need to get to at least an 80% reduction if you’re serious about avoiding the worst impacts of climate change,” says David Friedman of the Union of Concerned Scientists.

Really?  Are you sure about that?  Maybe it’s 79% or 81%? or 70% or 90%.   No, Mr. Friedman is sure it’s at least 80%.  As I have made clear in previous posts, I am a global warming skeptic.  I am not skeptical that it is happening.  I am skeptical that its cause is anthropogenic.  And I am deeply skeptical that dramatic policies and re-direction of resources will make a difference.  We are just as likely to get it right as get it wrong.  So if we are going to spend billions of dollars helping the world, then we should provide supplements of Vitamins A and Zinc to the worlds poor children.  McCain has economic growth on his radar.  The article states:

“It has to be a policy that can get through the Senate” without dampening economic growth, McCain senior adviser Douglas Holtz-Eakin says.

So if we are going to do anything, the policies should be moderate and the goals should be modest and achievable without sacrificing growth too much.  (I may elaborate on this in a later post). I think that both candidates are wrong on this one.  But the fact that McCain seems to have economic growth on his radar alone leads me to score this one in favor of McCain.

Point:  McCain

The lead article in the September 10th Money Section of USA Today was a brief synopsis of the candidates policy positions on energy related issues entitled: To win the presidential race, it takes energy: What the candidates think about the top 6 energy issues. I am going to assume that the paper has its data correct and provide a scorecard for both candidates on the issues.  Only one candidate can win each section, although notable policies of either candidate will be mentioned in the conclusions.  First issue:

Oil Drilling

1. Obama

a. “…says oil companies need to focus in areas already leased to the oil and gas companies…where oil exploration and production is already permitted”.

b. Says he is “open to a bi-partisan proposal in the senate that would lift the moratorium on drilling in a small portion of the 1.76 billion-acre Outer Continental Shelf” as long as certain conditions are met.

c. He believes that drilling will not reduce prices in the short term and nor promote long-term energy independence.

d. Is opposed to drilling at ANWR.

2. McCain

a. Favors unconditionally lifting the ban on drilling off the Outer Continental Shelf.

b. Is opposed to drilling at ANWR

Conclusion: McCain is the winner. Apparently, for Obama, more drilling means allowing companies to drill where they are already allowed to drill. That’s like someone looking at my driver’s license, giving it back to me and noting that I can drive now… and wanting credit for allowing me to drive. As the article states, no honest person would claim to be able to know whether drilling will drive down the price of oil. If lots of oil is found that is easy to get at, then it almost certainly would. And as I have argued with my brother in the past, it could affect the price long before this oil hits the market. Obama’s claim that it wouldn’t affect the price in the short term is incorrect. As you can imagine, I don’t buy into claims that drilling presents grave environmental risks, especially if permits are issued in such a way that the full cost of a major environmental accident are borne by private enterprise. Both candidates are wrong about ANWR .

Point: McCain