Monday, May 01, 2006

Oil Profits

According to Energy Secretary Samuel Bodman, oil and gas prices have increased because supply has been unable to keep up with demand. He also said that it might take a couple of years before they can close the gap. He has sighted increased worldwide demand, Middle East instability, and environmental compliance as chief reasons for the shortfall.

Ultimately these firms need to invest in increasing their capacity. The high costs of environmental compliance have reduced profitability and have acted as barriers to entry, resulting in decreased supply, competition and higher prices.

Now both republicans and democrats have entertained the idea of ‘recapturing’ big profits by windfall profit taxes or repealing tax credits for ‘big oil.’ Part of their rationale is that oil companies have done nothing to ‘earn’ these profits and therefore do not ‘deserve’ them.

They forget the role of profits is not only to reward those producers who do the best job filling our most urgent needs, but they also have an essential role in directing resources to where they are in need most. And to relieve the oil markets we need those profits to encourage investment, competition, and ultimately increased supply of oil and gas. Recently Shell has proposed plans to build the biggest refinery in the US.

The idea that oil companies have done nothing to ‘earn’ high profits is farce. It is fuel that makes it possible to get our food safely to the table, provide medical care, deliver goods and services, and exercise our greatest freedom to come and go as we please. By definition profits represent the net contribution a firm makes to society. When it comes to energy, oil companies have a lot to contribute.

Smoking Ban - Cat’s Paw (University of Kentucky)

If individuals do not want to be exposed to cigarette smoke, then they have the choice not to patronize places that allow smoking. This is no different than avoiding hard rock concerts if you don't want to expose yourself to the potential threat of wild fans, possible fights, bottle throwing etc.

If workers don't want to be exposed to cigarette smoke, then they can choose other work. This is no different than avoiding other hazardous jobs in agriculture, mining, or high rise construction.

If consumers and workers are willing to bear these costs at first and if the choices of FREE individuals (the market) dictate then smoke free facilities will arise to meet their needs. We have already seen this with restaurants like McDonalds and many other family restaurants.

With each choice there is a cost that must be borne by the consumer or worker. They may have to choose a different restaurant or job. . The effort to ban smoking is a pusillanimous attempt by such interested parties to force others to bear these costs, and to get quick results overnight. Also if you assume that the air in the restaurant that you own is part of the bundle of property rights associated with owning the establishment, then such a ban on smoking should be considered a "taking" of this property. The owners of these establishments should be compensated for the loss of property rights and financial damages that result.

If our own well being and safety in such small matters are reason enough for such an intrusion on our liberty, then such government policies will not stop with cigarettes. They are only the most obvious starting place. Fast foods, buffets, baking goods, and genetically modified foods could be next.

As Thomas Jefferson said long ago: “The issue today is the same as it has been throughout all history, whether man shall be allowed to govern himself or be ruled by a small elite.”