S-S-Something from the Comments: Occupy the 1%

This morning, I got a well-written comment from "Jackylhunter" on my recent post, "Dear, Occupy Wall Street. You are the "1%" too.". I didn't go into a ton of detail on that post, since it was really just highlighting a great info-graphic on Americans' comparative wealth versus the rest of the world. I didn't do much in the way of explaining the points I made in addition to that.

So... I left myself open to some obvious points, and commenter Jacky took the time to question a few things that are worth responding to directly. I'll just go through bit by bit here. First:

"You may want to check your definition of socialist state, or at least define what type of socialist model you are referring. Versus a totalitarian state. Which I feel is your real grievance."

The real grievance isn't at all exclusively about totalitarian socialism, but in fact, socialism as an idea - as a concept.

If this were actually true, it would just be one
more reason to ignore Jesus.

As I hope most people who know me understand, I try my best not to deal in strawmen or make bad-faith arguments, and after a decade or so of interacting directly with self-described socialists, debating, I feel confident that I do have a very firm grasp on their best arguments in favor of the system and their best definitions. According to socialists, the easiest definition of the term is that socialism is a system in which the "means of production" are collectively managed and operated, and resources are shared "equally".

There are innumerable reasons why this is a concept that is doomed to - and has a historical track record of - failure. The biggest, and most crucial, among them being that it is impossible for any individual or even any group to know what they need to know to effectively manage resources and allocate them to their most highly valued use.

You need prices generated by free people trading with each other to do that, because knowledge in society is dispersed, and value is subjective and based on every individual's wants, needs and constantly-evolving preferences... These are two important things that Marx & Engels, not to mention their hordes of modern-day disciples fail to understand.

Socialism is an intellectually bankrupt concept... a bad theory... and practically, much worse in reality. I don't just mean the handful of totalitarian socialist states that exist either, I mean all of it - including the infusion of faulty socialist assumptions into "mixed economies" as well.

It's not something to be "balanced" with capitalism, it's a drain on humanity that is propped up in each case by the productivity generated in more free market elements in those societies. Sweden - for instance - for all it's hype as a socialist country has largely free trade with all of its neighboring countries, and a robust, entrepreneurial private economy which is taxed heavily to support the welfare state. It's always the "capitalist" part of the economy dragging the socialist part along for the ride, not the other way around.

"BUT that doesn't mean that the minority within the first world should actively be allowed to continue to increase wealth at the detriment to the majority. It is ok to be rich and recognise [sic] this."

It's definitely ok to be rich by world standards and point out the inequalities that exist in your own country and others.

Except here's the thing... What Jackylhunter said simply isn't how economies work.

Economies aren't zero-sum. At least, not without government forcibly redistributing wealth that already exists to politically favored groups... which of course, the OWS crowd is largely calling to increase (to the extent that any of them are actively "calling" for anything specific).

On a basic level, if economies were actually zero-sum as your statement assumes (people get rich "at the detriment" of others), then we wouldn't have progressed beyond prehistoric standards of living.

50 years ago, Hong Kong was as poor as any place on the
planet. Today, they are among the richest with no
natural resources to speak of: Free markets win.

Wealth is created (not merely distributed) by utilizing resources that are less valued, and converting them into products & services that are more highly valued - through production. This takes thought, ingenuity, creativity, hard work and responsiveness to economic signals provided through trade. It's not magic. It's a repeatable, predictable process that relies on the dispersed knowledge and economic interaction of people who are free to pursue their own individual goals using their own unique skills & knowledge - and who have well-defined and respected property rights.

As nations get more economically free, they get more prosperous - not less, as would happen if in fact economies didn't grow.

As we've seen an increase in markets and freedom of ordinary people to trade with each other in places like China, India, Southeast Asia, Central America and even parts of Africa over the last several decades, poverty rates worldwide have dropped dramatically... to the point where they've almost been cut in half in the last 30 years. For that you can thank an INCREASE in free markets and capitalism.

Which brings me to my final major point... Jacky said:

"The occupy wall street protesters are raising an inherent problem with society, with capitalism."

They may believe that that's what they're doing, but they've missed the mark by a mile.

Capitalism is not the system that is being (or should be) rebuked by the current financial crisis. Socialism, and more specifically its cousin - Italian-style corporate "fascism" is.

Talk to any capitalist, free market economist, and they'd have told you - as I did (repeatedly) on this very blog - that the right thing to do over the years was not to guarantee loans, and bail out banks, but to let companies that took on inappropriate risks and over-leveraged themselves to take their losses and either go bankrupt of *CHANGE* the way they did business.

That's not what happened, however. What happened instead was that we had a Federal Reserve pumping the economy chock full of new money while politicians were constantly guaranteeing our giant corporations and financial firms against any risk.

In a capitalist economy - or rather in a free market - greed is counterbalanced by fear of loss. But that only works when you allow the firms to fail. As even George Stiglitz said recently, the banks were able to "socialize" their losses (never mind the fact that for all his outrage, he is on record supporting the bailouts, claiming we could pass it and then "change it later"... cause that always works, right?) and points out now that this isn't capitalism.

This guy...

That's not a feature of a capitalist economy, it's not a feature of free markets. It's a feature of exactly the opposite - state control over the economy, and collectivizing risk.

Every free market economist I know personally, or have ever talked to (and I work with dozens on a daily basis) predicted all of the consequences of the bailouts - most of the good ones pegged the housing bubble long before anyone else to boot. I'd put their record against the records of socialists & Keynesians any day of the week.

We - if I can now include myself among the ranks of "free marketers" - all understand that big corporations don't like competition or eating their duly-earned losses... and we all understand that  the more power the state has to manipulate the economy - the easier (not harder!) it is for those big companies to avoid responsibility for their actions. One of my favorite quotes of all time comes from that infamous economist Milton Friedman, who the left routinely accuses of being a corporate shill, but who - in 1978 - said:

Milton Friedman: "Business corporations in general are not defenders of free enterprise. On the contrary, they are one of the chief sources of danger....Every businessman is in favor of freedom for everybody else, but when it comes to himself that's a different question. We have to have that tariff to protect us against competition from abroad. We have to have that special provision in the tax code. We have to have that subsidy."

I've referenced this quote numerous times on this blog and elsewhere.

We see it all over the world. There's even an entire school of economics (Public Choice) devoted to better understanding how the process works, and it's a school of thought dominated by largely free-market economists... Not because they don't understand that corporations and government have a symbiotic relationship but because they do understand it extremely well. And more importantly, unlike supporters of more powerful government, Public Choice economists accurately understand the cause of corporatism/"crony capitalism".

The Occupy Wall Street guys don't. So for the most part, they seem to be advocating policy changes or agitating for ideas that will do exactly the opposite of what they claim they want.

Thus... When Jacky challenges me as such...

"But do you care enough to Occupy Wall Street, and try instigate change peacefully?"

...I have no choice but to challenge the premise!

I definitely "care enough" to try to instigate change peacefully. That's why for the past several years I've completely refocused my career towards advocating for individual liberty and free markets. I won't be Occupying Wall Street (or DC, or anywhere else) because I don't believe that that movement itself is instigating change at all.

Wall Street sought bailouts to absolve themselves from their financial mistakes. They were only able to accomplish this through a friendly and powerful state. Many of the "Occupiers" I've spoken with and read about believe that - somehow, with absolutely no evidence to speak of - if only we establish an even more powerful government with more control over the economy, a less friendly environment to big corporations will spontaneously appear... At no time anywhere in history can I think of an example of a situation where substantially increasing the importance & incentive to take one action (i.e. manipulating the government) has caused less of that action to take place.

I'm not a fan of wishful thinking, so in spite of my long-standing outrage at bailouts, and corporatism... I will not be joining Occupy Wall Street at this point in time.

* * * * *

Addendum: I omitted a chunk of Jacky's comment, because the response to it wouldn't really be as directly related to OWS. It related to starving children in the third world and about America's health care system. On poverty world-wide, I think the above post should make it clear what I believe should be done about that. On the American health care system, the insinuation of Jacky's comment was that America has a "free market system" and that it is "a joke". But... Unfortunately, America has no free market in health care at all. Not even a tiny bit. Government controls everything from pricing and availability to the number of doctors allowed to practice and hospitals that are built.

Dear, Occupy Wall Street. You are the "1%" too.

As many of you know... My greatest annoyance - by far - with the Occupy Wall Street is the privileged "white whine" on display across the country. A facebook friend tagged me in the following image. Have a look, please:

I didn't make this, but I love it.

So much of these protests are - and should be - ridiculously insulting to the literally billions of people around the world who must worry about where their next meal is coming from, and if working a 20 hour day is even going to be enough to provide for themselves and their families.

These problems aren't the failings of capitalism. Quite the opposite.

Real poverty seen around the world is virtually without exception caused by societies that fail to respect private property in any way, shape or form; societies in which the state controls the majority of the economy directly and indirectly; societies in which redistribution of wealth is common place; societies in which trade is reviled and prohibited... In short, in socialist societies.

When you must go through your politically motivated masters to get permission to start a business, or to simply trade with your neighbor... When you risk the products of your labor being stolen without recourse by the state or its operatives... When you are in constant fear of physical violence as so much of the world is... Your opportunities are vanishingly small.

When you live in a country like the United States - for all its major and minor failings, and in spite of the self-evident fact that it's guiding principles are being eroded into that of a third-world kleptocracy - you still have opportunities of all kinds. Some people have so many opportunities that instead of even attempting to work, they can hang out all day and whine about how college costs a lot and someone else should have to pay for it.

Like this girl:



I did make this. And yes, that's a real girl at a real protest I really talked to.

Yes, college is expensive. Yes, so is top of the line health care (mediocre, average health care isn't that costly though and most prevention is pretty cheap). Yes, Wall Street sucks... Though they suck for taking handouts from a government that shouldn't have power to give them out - and in other news, I have yet to meet an "Occupyer" who isn't seeking some kind of hand out for him/herself from the state as well. Of course, they are not greedy. Right?

I'll even add that it also sucks that you have to be extremely productive and add a huge amount of value in America - way more than most places around the world - to even warrant getting paid at a rate that most people consider "good" or "livable". So... Yes, when you're young, you're probably gonna need a roommate. Or two (I have two). It also sucks that between the Fed inflating the shit out of our currency, and the government adding cost after cost to people's living expenses in regulatory compliance and taxation, the bar for what is "livable" keeps shooting up and it often compels some employers to find alternatives to high-cost American labor - be that robots and other capital machinery or a part of the let's generously say 6.5 billion people around the world who are poorer than the poorest American and seeking work.

Just maybe the truly priceless young woman above could simply lower her expectations of what life owes her just a tiny bit and stop spending so damn much, and she'd be fine. Pretty sure she didn't need to go to Harvard. I know she didn't need to wear $198 Ralph Lauren boots, after all. Privileged girls being oblivious to their privilege is funny... But not that funny.

So, to wrap this up... Occupy kids (I will happily stop calling them kids when they start behaving like adults)... Stop acting like you are the new "Arab Spring". You're not.

American women are in no danger of getting whipped for wearing make-up or painting their fingernails, small children are in no danger of being mutilated or having their limbs chopped off with machetes, and families are in no danger of disappearing in the middle of the night because someone mouthed off about the government on the internet. Real people, all over this planet, have real problems. The overwhelming majority of nouveau, not-remotely-radical, pro-establishment, pro-"the man" hippies I've encountered at these events just... Don't. At all.

As far as I can tell, they are mostly college educated, middle class kids who spent between $20,000 and $200,000 on degrees in philosophy or English, that have mysteriously turned out to have not prepared them to be valued by employers in the US or anywhere else during the rough economic times we're experiencing. 

So... Occupy Wall Street trustafarians: Pleeeeease just shut up about how awful your lives are before I am forced to call the waaaaambulance.

Bob Murphy on Subjective Value

Robert P. Murphy is easily one of my top favorite currently working economists. He's witty, wry, and on a personal note, every time I've talked to him he's been unfailingly helpful and is in my experience a really top-notch kind of a guy.

He's also brilliant at distilling economic concepts and explaining them simply, clearly, and with a bit of humor.

His most recent article at Mises Daily is on the theory of Subjective Value and is quite simply superb. He covers a lot of ground, but I'd like to excerpt a few of my favorite points and keep them here for posterity's sake. I would encourage you to read the full article no matter what.

First, Dr. Murphy notes that when people use the word "value", we use it in two different ways. In one sense, value means the subjective ranking we place on goods & services (and even ideas), and in another, we're using the word to refer to prices and more-or-less "objective" standards defined by the market.

So, speaking on subjective value rankings, Murphy writes:

"If we are referring to subjective value, then there is no "unit" of measurement at all. Suppose we take an old photograph of Jill's grandmother, and ask Jill, "Do you value this object?" Jill might say, "Yes, very much so." Then we hold up her calculator, and ask if Jill values it as well. Jill might say, "Yes, but not as much."

Finally, we ask Jill, "By what percentage does your valuation of the photograph exceed your valuation of the calculator?" Jill would be unable to answer such a nonsensical question. She can rank the two objects according to her subjective tastes; she can report that she values the photograph more than the calculator. But this doesn't imply that there are cardinal units of psychic satisfaction, with the photograph bestowing more units than the calculator."

Unfortunately, far too many economists and a ton of civilians don't actually understand the implications of this point. But contrast it with the alternative usage:

"On the other hand, suppose Jill is really strapped for cash, and so she is auctioning off her possessions on eBay. We might ask, "What do you think the photograph and calculator are worth? What's their value?" Jill might answer, "Well, the photograph comes from the Great Depression, so some history buff might give me $15 for it. And this HP scientific calculator sells new for $50, so I'm hoping I can get $30 for it used." If we then asked, "How much more valuable is the calculator than the photograph?" Jill could answer, "Well I'm just guessing, but probably about twice as much."

And then... The money quote is here:

With subjective preferences, there is no "measurement" going on. Modern economics can explain consumer behavior without assuming any underlying units of "utility." We only need to assume that people know how to rank units of goods in order from most to least preferred."

This is the jumping off point we should all start with in terms of making assumptions about human behavior within the economy.

Different values are awesome.

You should take a second here and note that this kind of renders much of "Behavioral Economics" a little useless to some degree, and it also dispells the notion of "Homo economicus", which is the idea that humans are all perfect "rational" economic calculators.

One of the principle flaws of the Chicago School monetarists, Keynesians, and especially the various schools of Behavioral Economics is that they all assume that there is an objectified standard of value that is consistent for every person. The Chicago School guys tend to ignore deviations from this standard, and work in hypothetical models off of the "Homo economicus" idea instead, as do Keynesians. Obviously, we know this isn't true and as Bob Murphy's points have shown above, it's not even possible to define what consists of "perfect" economic decision making.

But the Behavioral Economists, on the other hand, devote a significant amount of time trying to explain via sociological experiments why people are not only not perfectly rational calculators, but are in fact, "irrational".

As tempting as it is to see people as "irrational" in the realm of economic decision making, especially when you see someone blowing his money on lottery tickets, this is just as false a conclusion as the idea that people are perfect calculators. Thus, most of those experiments are ridiculous, purely because they rely on the value assumptions of the author of the experiment to determine which are rational choices and which aren't.

A lot of individualized, often extremely personal, information goes into people's choices - so much so that it's incredibly rare that we even fully understand why we're doing the things we're doing or why we like the things we like.

But that doesn't make our choices wrong.

Behavioral Economists (and sociologists/psychologists of all stripes, by the way) frequently want to ascribe their own values to their subjects, and this is a giant mistake. It may seem irrational to me for someone to buy a lottery ticket, because I know that the odds against winning are so great as to be virtually impossible, and thus it will - for most people - simply be a waste of money. However, if we're only talking about "money" then we've forgotten dozens of other contributing factors into people's economic choices.

In the case of lottery tickets; there are the issues of hope (false or otherwise), routine & ritual, personal amusement, and even social interaction (many offices, for instance, have a lottery pool which can be a fun way to enhance morale). For all of these reasons, and hundreds more (perhaps playing lotto reminds you of your mother or father, or your grandmother... perhaps it's the only time each week you get to talk to the cute convenience store clerk you have a crush on... etc.), it may seem irrational to the casual observer to engage in such an activity, but in reality it really isn't. Just because the values in play are unknown to the researcher doesn't mean that they don't exist.

Unfortunately, Behavioral Economists tend to assume that there's one measurable standard by which we can assess value, and like good utilitarians, they try to apply that standard to everyone's behavior. But value is subjective. And of course, since these economists start with a bad premise, they come to bad conclusions.

These bad conclusions also lead many mediocre economists to believe that a large amount of trades people engage in are irrationally bad deals for one party to the benefit of another - and of course, this usually means "there oughta be a law!"

But returning to Robert Murphy's points, the truth is - because value is subjective, it means that when the vast majority of trades happen, both parties benefit:

"When two people engage in a voluntary trade, they both benefit. In other words, they both walk away with the "more valuable" object. As Updegrove realizes, this would be impossible with an objective property, such as weight; it's impossible for both parties to walk away from a trade with the heavier object.

But once we realize that value is in the eye of the beholder, then we can understand that people value objects differently and hence can each swap a less-preferred item for a more-preferred one.

What's really interesting is that this holds not only in barter — where Johnny trades his bologna sandwich for Sally's peanut-butter sandwich, and both kids think they got the better end of the bargain — but also in monetary exchanges.

For example, if I give a butcher $30 for a ham, it is because I value the ham more than the $30 in cash that I hand over. But, on his end, the butcher values my $30 more than that particular ham.

In this trade, it's not the case that I thought, "This ham is worth $30." No, I thought the ham was worth more than $30, if "worth" refers to the subjective value I place on it. If I thought the ham were worth $30, then why would I bother swapping my $30 for it."

The beauty of all of this is that within each transaction, the wealth - by which I mean, goods valued by the individual - of each party has increased. In his example, Bob's wealth increased by 1 ham, and the butcher's wealth increased by $30.

Both walk away happy, and this gives rise to my absolute favorite thing about free people trading in the market: The double thank you.

Because both parties benefit from trade (or else, why would they do it?), both legitimately got more from the outcome - in their own judgment - than they gave up. So both people thank each other for it - and they usually mean it. Naturally people can make mistakes, and they can be tricked (for example, by fraudulent claims about the deal they are making), but in the overwhelming majority, people get what they want.

It works best, of course, when it's a direct trade, but it's the same regardless if I'm trading with my neighbor or with the owner of a national chain of grocery stores. I hand over my money and the clerk thanks me in part because its their job, but ultimately because my money will eventually contribute to her salary. And as my groceries are bagged and ready to go out to the car, I thank the clerk - because without her, and more importantly without the store and all of its distributors, I wouldn't be able to eat.

Buyer says thank you, seller says thank you... and the pie has grown a little bit.

Contrast that with non-market transactions. Take paying taxes, for instance. Does anyone with half a brain thank the government for demanding that they give up a portion of their income at every turn in life? Did I thank the government for adding around $2,000 to the price of my car at the point of purchase? No... Of course not.

And why not? Because the transaction is involuntary, and I do not believe that I've walked away with more from the exchange than I have given up.

If I don't pay taxes consistently, the government will find me. They will send men with guns to my house, they will put chains on me, and they will toss me in jail (or shoot me if I try to escape). It will not matter to them that I do not wish to fund endless wars - in Iraq & Afghanistan, on terrorism worldwide, on drugs, on poverty, or on any other idea. It will not matter to them that I do not wish to contribute to unsustainable, and counter-productive social programs. It will not matter to them that I believe the purview of government should be a fraction of what it is today. It won't even matter to them that I feel like I'm getting ripped off when I give up (as I did in Los Angeles) over $200 each year to the state only to get two little stickers and a piece of paper confirming that the state acknowledges that I own and will be driving my car.

There is no double thank you necessary for that.

Now... Dr. Murphy's ultimate discussion is about the Gold Standard and currency valuation in response to another writer who is confused by it. For me, that's the least interesting part of the essay... So instead, let's just skip to the end. Murphy concludes:

"The actual process through which subjective valuations lead to objective market prices is complicated. The average person doesn't need to understand it. However, everyone should be aware of the basic principles of modern value theory, as sketched in this article. Precisely because value is subjective, voluntary trades are win-win situations. At the same time, market prices are objective measures of wealth, and they allow firms to calculate whether they are using resources efficiently or not."

Prices and value are related, but not identical - in the same way that money and wealth are related, but not identical.

Value is subjective, and varies wildly from person to person. This is why aggregating economic statistics, and using them to create mathematical models of the economy, is usually a path doomed to fail. This is also why talking about economic behavior as "rational" or "irrational" is usually pretty silly.

People act in economics because they are self-interested and they want to exchange their present conditions with some more preferable condition through trade. It's really that simple.

People do it from an early age, too... Naturally everyone swapped peanut butter sandwiches for turkey & cheese, or for a rice crispie bar or cookies when they were little, and kids trade toys & baseball cards just the same. As you get older, the rules don't really change. If you have something I want then I can make you an offer for it. If you think my offer is of higher value than what you stand to lose, then you'll take it.

Simple stuff. Powerful implications about the world we live in.

Think about it.

"Windfall" Profits Taxes and why Barbara Boxer is an Idiot

Quite often, political emails are sent about the offices at Stiletto Entertainment. These emails are usually nothing more than preaching to the proverbial choir. Here in the entertainment industry in Los Angeles, it really doesn't surprise me that I get 3-5 emails a day preaching some quasi-socialist, "liberal" democratic position on one issue or another. It's usually equal parts blather and anti-Republican vitriol... Typically, it's just not worth caring much about.

Besides which, being a nut-job libertarian in the midst of such overwhelming group-think doesn't really make me want to pick a fight.

But yesterday... I got an email that contained a letter Senator Barbara Boxer had written as a response to one of her constituents about why she co-wrote and sponsors "The Consumer-First Energy Act of 2008" - S.3044.

This bill is a "Windfall Profits" tax that she'd like to impose on oil companies like Exxon Mobile (who posted a one quarter profit of $10 Billion recently)... Of course, the email that was sent to me was from a Stiletto employee who, true to form, decried the evil Republican minority shooting it down. The following was my response (slightly updated):

***

You know... I don't usually involve myself in the political emails bandied about by people in this office, but this one is a bit of a pet peeve of mine and probably deserves a response... The following is an excerpt from an article by Shikha Dalmia from Nov. 9th, 2005 in Reason Magazine called “Inherit the Windfall” – this is how she sets it up:

“When surging oil profits prompted both conservative and liberal members of Congress to summon oil company executives to Capitol Hill for a hearing earlier today, a public relations rookie crafted the statement below for the oil chiefs to deliver to their interrogators. Cooler heads prevailed, however, and the statement was discarded in a gilded trash bin. An underpaid Reason intern moonlighting as a janitor salvaged it for publication. Here it is:”

…I’m skipping over part of it to get to the relevant quote here, but what you really need to understand is that she's writing in satirical prose to illustrate the absurdity of Barbara Boxer's (and others') position:

“Our aggregate profits are so large because we have huge sales. But our profit margins—the more relevant measure—are below the overall Standards and Poor industry average. Exxon Mobil, the most profitable company among us, posted $100 billion in sales last quarter —the first American company to hit that mark ever. But its profits were $10 billion—hardly a margin that suggests the "price gouging" that some of you have accused us of.

In fact, the oil industry's margins are well below those of Gannett, the largest newspaper corporation—and no doubt far, far below those of Fox News, whose pandering populist anchor, Bill O'Reilly, maximizes his company's profits by questioning our right to maximize ours. If you really want a reliable revenue stream, why not tax windbags instead of windfalls?”

My own note: This article is from 2005, yes - but the public opinion, popularity and ability of oil companies to produce more has only decreased in the past 3 years… it's really easy to blame oil companies for high-prices, but perhaps you should be looking at Barbara Boxer (and her colleagues) and the policies of the US Government over the past 30 years to obtain a more comprehensive understanding of why prices are high. The rest of this fictitious letter is a litany of policy blunders – many, if not most of which, were not sponsored by Republicans and with the exception of only a few, nearly all were “bi-partisan”.

Profits have almost nothing to do with the current prices… Bottom line, it's a terrible fallacy to think that you can look at a company's profits in terms of just the numerical value and make some kind of assessment of what that means - YES, $10,000,000,000 seems like a ridiculously large number, but for the size of industry?? It’s really not that much… in fact, if you take that $10 Billion in profits divided by JUST the current population of the US (Google’s estimate for July is 301,139,947 – then every citizen in the US has only contributed a mere $33.21 all quarter to the profits of Exxon Mobil! How much money have you actually spent on Gasoline in the last 3 months? I've spent several hundred and I'm not even home half the time... (And of course, since it’s not just people in the US who buy oil, the actual contribution to the Exxon’s profits from your wallet is more like $20 a year - add $20 per dependent)

Furthermore, if you don't understand that even a large number like $10B has to be taken as a percentage in context of their operating costs… in this case Dalmia's point is that 90% of all revenue went into doing nothing but paying for operating costs throughout the whole industry… then you're not really understanding anything at all.

The Washington Post recently presented an article actually that pointed out that Exxon Mobil ranked 127th in 2004 in terms of profit margin throughout Fortune 500 companies… Yet they are No. 1 in aggregate profits. So if they deserve to be kicked around for “gouging”, why not all the other companies above it doing proportionally better?

The software industry typically has a profit margin of around 90% for example... Is it a surprise to anyone with that kind of a ratio how Bill Gates can become the richest man in the world within the span of 10-15 years?? Software has minimal overhead (i.e. basically just employee salaries and some offices) so the net gains are huge... which is great! - Because that frees up a ton of capital for further research and development.

Oil companies don't have as high a percentage to work with, but fortunately, when your profit is still $9-10 Billion, there's some money to work with after paying dividends to your investors... but the point is, it's scaling up or down and in either case you can't ignore that the costs for energy research are incredibly high compared to other fields... But that's exactly what supporters of tripe like S.3044 are doing...

But... continuing on with the article:

“Besides, we already tried windfall profit taxes—along with leisure suits and polyester ties—with disastrous results.
During the period between 1980 and 1987, the last time when such a tax was in effect, 1.6 billion fewer barrels of oil were produced—because such taxes diminish the incentive to produce oil.

Furthermore, if we are prohibited from recovering our exceedingly high storage costs, we will be less inclined to maintain large oil inventories that help tide the country over during production disruptions caused by calamities such as Hurricane Katrina. Please note that even though oil prices went up during the hurricane, no one outside the disaster area had to go without oil. Surely that is preferable to acute shortages and long waiting lines at the gas pump, which cause American workers to lose wages and the American economy to lose productivity.”

Basically – the prices right now have a lot more to do with long-term policy decisions than any sort of “price gouging”… unfortunately, politicians like Ms. Boxer have a VERY easy time just pointing to a big number and scaring the crap out of people – then applying malicious intent to a large group of individuals that the popular narrative already says are “evil” anyway. Weak.

On top of all that… Apparently Democrats (and Republicans) don’t seem to understand that any tax you impose on a business comes out in the price it charges for its services. So one of two things happens: Scenario A – Gas costs more for everyone to make up for the new tax, or Scenario B – Several oil companies go out of business, resulting in lower production (read: less supply, same level of demand = higher prices). Another great little article on this topic going a little deeper into the economics of this is here:

http://www.reason.com/blog/printer/126976.html (AND - it’s from just a couple days ago.)

Sorry, like I said, I normally just stay out of these emails – but this one just needs some better information… and I’m apparently feeling rather pedantic today. Anyway… I’m going to go ahead and disagree with Senator Boxer on just about everything she wrote – and be thankful an asinine bill like S.3044 isn’t yet law of the land…

Cheers everyone!

Sean W. Malone
Music Manager

...blah blah blah


***


Again... it's REALLY easy to point to a large, scary number and make people think that it's just "another case of corporate greed" and that they're being robbed. But as easy as it is, it's just about as fictitious and definitely as stupid.

Unfortunately - all that is right in line with the narrative we've been fed for a hundred years, so no one questions the premises...

It's getting to a point for me, that I'm so embarrassed by our politicians' collective lack of even basic economic knowledge... I'm a musician for pete's sake - I shouldn't be the one explaining this stuff to people! Least of all a US Senator... But apparently even a perfunctory knowledge escapes these people at every turn.

The Robin Hood story is a great tale, not because he "robbed from the rich to give to the poor" which is just unearned, bullshit collectivist wealth-redistribution (see: communist) but because he fought off thieves. The "rich" weren't bad because they turned a profit - but because they used their power as government officials (the SHERIFF of Knottingham) to take from those who'd earned their living. Somehow, socialists in this country (and others) turned that story into the opposite - persecuting successful entrepreneurs and glorifying government theft.

It's past time we all started asking the real questions of people like Sen. Boxer and quit buying into our politician's anti-intellectual bullshit... We don't even need to dig very far to find the fallacies in bills like S.3044.


PS. My "solution" is: Get government out of the way... Oil companies like BP and Shell are our best bet for a clean energy future... they already know energy (production and distribution!) and they've got the capital to do the research... they also have the market incentives to do it (and have been doing the work for years now). Don't "help" by subsidizing them, let them succeed or fail on their own merits - on their own ability to provide us (consumers) with what we need and want. That's it. Freedom... I know I'm a broken record on that issue... but it's pretty simple.