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November 10, 2005

Windfall taxes discourage surplus capacity

Oil prices are high today because oil consumers have ratchet up their consumption faster than oil producers have brought new capacity on line. A little under half of global production is under government control. As such, most oil production is driven by the profit motive. They look at the expected price of oil over the life of a project, and if they see if they can can make a profit, they do it. Oil production cannot be increased on short notice unless someone pays to have idle oil producing wells and equipment. The only way that is is profitable is if they can bring that production on line when prices are very high. Times like today.

Our leaders are concerned about the high price of oil because Americans are concerned about the high price of oil. They should be leading, educating us on what we can do to lower our bills and setting good policies to encourage more production. Unfortunately, they'd rather follow the electorate, pandering with protectionist theatrics by dragging the CEO's of the oil companies before them to abuse them. Hopefully they won't be so dumb as to actually act on that rhetoric.

Reason has a funny send up of these shenanigans and explains that the big American oil companies aren't more profitable enterprise than the average large American.

Posted by OneEyedMan at November 10, 2005 10:29 AM


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