Victory at Crappomattox and Bullsh*t Run

A wedge issue that many had predicted would happen has really started to split open in the Republican ranks.

First off, note the right way to approach the issue. The Dems, as always, handle the situation effectively. Witness that Ed Schultz had both sides of the ethanol debate on his radio show recently [MP3].

Bruce Dale of Michigan State University squares off on ethanol with David Pimentel of Cornell University. Dale claims ethanol yields more energy than it takes to make it. "The debate over how much energy it takes to make ethanol has obscured its main benefit," says Dale. Pimentel says even with more efficient production techniques, ethanol is still an energy loser.

On the other hand, Schultz-sound-alike Rush Limbaugh has probably never talked about a potential energy shortage, yet there he goes yapping about T. Boone Pickens' prediction of peak and the need to drain the Arctic National Wildlife Refuge and go nuclear. Really, I should care less what Limbaugh says (as he has Jim-Jones-brainwashed his audience for the last 15+ years and they won't recover from their cult-driven trance, ever), but Schultz has pushed the ethanol/biodiesel thing really big the past year, and so to bring Pimental on makes a lot of progressive sense. Consider also that Schultz's home-base on the Red River in NoDak means that he can make a whole crop of sugar beet farmers more than a bit upset.

And we find fundie 'minionist and former presidential candidate Gary Bauer once saying this in a debate:

Resources are there to be used

But now he changes his tune a bit.

The Republican Party is obviously worried about a backlash at the polls in November, and today President Bush took action in a number of areas that may help stabilize prices and, perhaps, relieve some of the pressure. Unfortunately, there is no "quick fix" or easy solution to America's energy needs. But, instead of buying into socialist rhetoric, the administration and conservative members of Congress would be better off explaining the role failed liberal policies have played in higher gas prices.

But this day will go down in blogosphere history as the lawyers at Powerlyin'blog finally posted something on our energy predicament. They clearly have never wanted to mention it in the couple of years I have followed their antics, preferring instead to talk about inconsequential drama such as Saddam Hussein's "Oil for Food" deal or only indirectly via knee-jerk Arctic National Wildlife Reserve drilling Republican talking points. But now read what the head lawyer Hindrocket has to say as his head furiously spins off his body in trying to counter rabble-rousing Michal Kinsley's editorial calling for a kind of windfall profits tax on domestic oil:

And, critically, note that it doesn't matter WHO owns the resource -- if Chuck Schumer or the U.S. government itself owned ALL the oil they would still face the necessity of recovering the same "user cost" as ExxonMobil or a rancher with 10 stripper wells!! Indeed, when the government leases oil rights, royalty schemes are devised precisely so an estimate of the "user cost" can be recovered and the resource extracted so as to optimize society's wealth.

What happens if you tax away as "excess profits" the resource owner's user cost? Kinsley claims there would be "no effect on the incentive to extract more oil" and so presumably social wealth is not diminished. But is this true? And is it the entire story?

It might be true for already discovered resources; theoretically, the resource owner might be as well off producing as not, since under Kinsley's scheme he does receive "fair" profits plus direct costs. But there is also the possibility that if the new tax regime were thought not to be permanent...and is it realistic that such a draconian scheme would be?...capital could "go on strike," as it were, and owners could simply leave the oil in the ground and refuse to produce...and the large integrated companies, especially, could simply buy their crude -- for cash at the full global market price -- from foreign producers!

On the other hand, if the tax regime WERE thought to be permanent, the incentive of resource owners would be to "drain America first" by pumping out as much as possible as fast as possible, since they themselves would not be able to recover the opportunity cost of the oil's value in the future. This is clearly suboptimal, and, indeed, unsustainable -- because it would in essence be acting as though today's consumption would NOT induce increased future scarcity; in other words, that the "user cost" is zero.

Either way the incentives to resource owners of such an "excess profits" tax regime are perverse. The justification of this "excess profits" scheme, in addition to getting wrong a fundamental feature of non-renewable resources, is insidious as well. It amounts to de facto expropriation: since the oil companies have already "sunk" the discovery costs and found the oil, and the value can be taxed away with impunity, the resource owners are placed in the same position as if they had not owned the resource in the first place.

Moreover, it would essentially be inviting the oil companies to exit the business of exploration and development of NEW oil resources anywhere the U.S. government could tax them. An "excess profits" tax implicitly assumes that we have already found all the oil in the U.S. that we will ever either need or can find --- somewhat of a self-fulfilling prophecy since the incentive for exploration and discovery, if not production from existing resources, would certainly be substantially diminished.

An "excess profits" tax regime as advocated by Kinsley is an assault on the very concept of private property in natural resources, would entail massive government control of this sector of the economy, and would not be without damaging consequences. But here's the question I have: I wonder if Kinsley wants to apply the logic of neo-George-ism to any real estate he may own....after all, what did he do to earn any capital gains in the land values? Any run-up in the value of his property is "excess," isn't it?

I posted lots of the text because you can see that the powerlier knows a bit more about oil than he has forthrightly admitted to in the past (note the critical mention of extremely low productivity stripper wells).

Today marks the day that we have won a battle. Discussion of oil depletion has entered the ranks of the right-wing blogosphere feverswamps. The AssMissile will lose the debate, because it turns into a zero-sum game. His legal team of asshats has never wanted to admit "the end of oil" to their audience, but as you see, he still went ahead and did it. They basically let the genie out of the bottle, and Powerline readers will either wedge out or veg out, depending on their indoctrination level. One thing that their readership will never accomplish: to try to turn Hindrocket's rant into talking points that they can regurgitate with the ease of a corporate lawyer.

As of right now, it doesn't matter if the pro-tax or anti-tax sentiments gain more traction. The fact that this gets discussed at all generates just one victory. (Todd won the other one)
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