Wednesday, August 6, 2008

Windfall Profits -- Demagoguery or Worse?

The Wall Street Journal in an August 4 article entitled What is a 'Windfall' Profit? exposes the economic lunacy of imposing a windfall profits tax on oil companies. Although it had huge revenues in 2007, Exxon's profit margin in 2007 was only 10% -- less than the average margins in the chemicals, computers, electronics, and pharmaceuticals industries.

The Journal implies that Senator Obama's proposal for such a tax is demagoguery rather than rank economic ignorance. Although the proposal is clearly politically motivated and economically counterproductive, there is a deeper, darker problem with it: It is founded on the unspoken premises that Exxon's investors are not entitled, exclusively, to whatever profits the company's efforts produce and that society has a claim on the fruits of their labor and capital.

These politicians have no understanding of why the Soviet Union failed and why the United States by following the same philosophy risks going down the same path to oblivion. If they adopt "to each according to his need," they will have to identify where the "from each" will be expropriated. If the ideals of freedom, including the right to property, that formed the original uniqueness of the United States are dismissed as obsolete, the productive people will find another home. The loss of Budweiser is just one example.

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