“Profits are never obscene. Losses, on the other hand, can be obscene – disastrous, damaging, deadly to employees, stockholders and, ultimately, the public.
Auto companies have suffered major losses — obscene losses, if you will – so does that make them more virtuous than oil companies?
Profit isn’t a shameful accident for corporations — it’s their very reason for being. Big profits help them do more of what they did to make the profit in the first place. In the case of oil companies, that means more exploration, development, drilling, pumping, refining, transporting and marketing of the oil that fuels every aspect of our economy. Their profitability indicates that they’ve done an excellent job of doing what the public needs and wants, just as the losses by American auto makers suggest that they’ve done a terrible job at giving the public cars we want to buy.”
From Michael Medved.
Related quote: “The worst crime against working people is a company which fails to operate at a profit.” Samuel Gompers
“Of course, it’s frustrating to pay more at the pump, but oil profits aren’t the culprit, nor would punishment of the energy companies help to bring down the cost of fuel. When businesses pay a heavier burden in taxes, it doesn’t make prices go down; it generally forces prices to go up, whenever companies can pass on the cost to the consumer (see chart above).
The idea that “windfall profit taxes” would cause oil companies to charge less flies against every rule of economic reality. If you add to the cost of production with new levels of governmental taxation or regulation it means that either prices go up or else profits go down – meaning less incentive for production, less production and, inevitably, higher prices (see chart above).”
“Speaker Pelosi is “particularly concerned” that the highest price of gasoline recently was in her San Francisco district — $3.49. So she endorses HR 1252 to protect consumers from “price gouging,” defined, not altogether helpfully, by a blizzard of adjectives and adverbs.
Gouging occurs when gasoline prices are “unconscionably” excessive, or sellers raise prices “unreasonably” by taking “unfair” advantage of “unusual” market conditions, or when the price charged represents a “gross” disparity from the price of crude oil, or when the amount charged “grossly” exceeds the price at which gasoline is obtainable in the same area.
The bill does not explain how a gouger can gouge when his product is obtainable more cheaply nearby. Actually, Pelosi’s constituents are being gouged by people like Pelosi — by government. While oil companies make about 13 cents on a gallon of gasoline, the federal government makes 18.4 cents (the federal tax) and California’s various governments make 40.2 cents (the nation’s third-highest gasoline tax). Pelosi’s San Francisco collects a local sales tax of 8.5 percent — higher than the state’s average for local sales taxes.
Pelosi and others just know, evidently intuitively, what the “fair” price of gasoline is.”
From today’s column by George Will.
“On an ordinary day in New York City, Eleanor goes to her favorite specialty store to pick up a jar of pickled herring. She fully expects the herring to be there. Indeed, New Yorkers of all kinds consume vast stocks of foods of all kinds, with hardly a worry about continued supply…. What enables cities to retain their coherence despite continual disruptions and a lack of central planning?
From the point of view of physics, it is a miracle that 8 million New Yorkers are fed each day without any control mechanism other than sheer capitalism.”
~John H. Holland of the University of Michigan’s Center for the Study of Complex Systems, and Professor of Psychology, and Profesosr of Electrical Engineering and Computer Science, from his book “Hidden Order: How Adaptation Builds Complexity”
This relates to my posting below about complexity, central planning, and the fatal conceit.
In general, I think people in the general population systematically:
a) Underestimate the complexity of a market economy,
b) Underestimate and underapreciate the ability of a market economy to evolve and “self-organize” according to “spontaneous order” (they don’t see the “hidden order”), and
c) Therefore overestimate the ability of central planners, politicians, zoning boards and bureaucrats to organize, plan and regulate the economy with a “top down” approach.
Result: We end up with more government regulation and legislation than is optimal for an infinitely complex, evolving, ever-changing economic system that has an amazing ability to “self-correct” and “self-adjust.”
My experience has been that the one group outside of the economics profession that appreciates the market economy are computer scientists, like Professor Holland, a pioneer in complex systems and the recipient of the first computer science Ph.D. from the University of Michigan.
From The Economist: The Greeks puffed away more than any other nation, smoking over 3,000 cigarettes per head of population in 2006, according to ERC, a market-research group. It compares annual consumption in 120 countries, which together account for over 95% of global consumption. Spain, another Mediterranean country, also smokes heavily, but it is the traditionally poorer eastern European countries that dominate the top 15. Rich Japan is the lone non-European nation.
Although the U.S. is not listed in the graph above, according to this report per capita cigarette consumption in the U.S. was 61.1 packs in 2006, or 1,222 cigarettes per person. In that case, the U.S. would be way below the lowest ranked country above (Poland).
Q: If you shuffle a deck of 52 cards, what do you think the chances are that the resulting arrangement of cards has happened sometime before in history?
A: As hard as it seems to imagine, the answer is almost zero.
If you thoroughly shuffle a deck of 52 cards, chances are practically 100% that the resulting arrangement of cards has never before existed at any time in history!
Mathematically, the number of different ways to arrange any 52 items is 8.07 X 1067, which is a number so enormous (8 with 67 zeros after it) that no human can comprehend it.
By way of comparison, the number of ways to arrange a mere 20 items is 2,432,902,008,176,640,000 (2.43 x 1018)– a number larger than the number of seconds that elapse in the course of 10 billion years. And this number for 20 items is microscopic compared to 8.07 X 1067 (for 52 items).
The information above is from George Mason economist Don Boudreaux’s most recent column, who uses the math facts above to argue that “central planning won’t ever work, because no human mind, or group of minds, (no matter how intelligent) can even list — much less rank — the gigantagazillion different possible arrangements of resources.”
Like Sowell points out below, there are thousands of pieces of information about tastes, preferences, production, prices, costs, resources, inputs, etc. dispersed throughout the economy, and there an infinitely large number of combinations and arrangements possible to organize production to satisfy the ever-changing demands of consumers. Central planning can never work effectively because the central planners are powerless and helpless – they will never have access to enough information to organize a complex economic system efficiently.
Hayek called this the “fatal conceit” – the disastrous, often fatal consequences that result from conceited central planners’ attempts to organize an economy that cannot be controlled from the top down.
If you start from a belief that the most knowledgeable person on earth does not have even 1% of the total knowledge on earth, that shoots down social engineering, economic central planning, and judicial activism.
If no one has even 1% of the knowledge currently available, not counting the vast amounts of knowledge yet to be discovered, the imposition from the top of the notions favored by elites convinced of their own superior knowledge and virtue is a formula for disaster.
Central planning, judicial activism, and the nanny state all presume vastly more knowledge than any elite have ever possessed.
From a Wired Magazine article in 2005:
Rising oil prices are more than just an irritant or even an ominous nick out of the GDP. For anyone with a fresh idea, expensive oil is as good as a subsidy – with no political strings attached. Indeed, every extra penny you pay at the pump is an incentive for some aspiring energy mogul to find another fuel.
For the better part of a century, cheap oil has fatally undercut all comers, not to mention smothered high-minded campaigns for conservation, increased efficiency, and energy independence. But growing demand is outrunning the oil industry’s carefully computed supply curves, bidding up long-term expectations for the price of energy. The long term may not mean a lot when you’re standing at the pump, but the oil industry lives in a world where big projects take a decade to build and the checks that pay for them have eight or nine zeroes.
The changing outlook opens horizons – for conventional drilling, sure, but also for alternatives. Some new technologies merely produce more crude. But others tap energy supplies that have nothing to do with black pools under the Middle East.
What to do? Keep driving. In fact, drive more. The longer gas stays expensive, the higher the chance we’ll see alternatives. Put that pedal to the metal. And smile when you see a big black $3 or $4 out in front at the gas pump. Those innovators need all the encouragement they can get. Shale oil, uranium, sunlight – there’s enough energy out there for a dozen planets. Where we’ll all park is another matter.
Time to develop a new drug: 10-15 years
Average Cost to develop a new drug: $931 million
Total R&D spending on drugs in 2006: $55 billion
Generic drug market share: 58%
Percent of marketed drugs that cover R&D costs: Only 30%
Source: Pharmaceutical Industry Profile 2007
From the front page of today’s Washington Post, an article that illustrates the “tryanny of the political status quo” and the First Law of Legislative Thermodynamics: “Creating a government program is much, much easier than killing one.”
A Depression-era program to bring electricity to rural areas is using taxpayer money to provide billions of dollars in low-interest loans to build coal plants even as Congress seeks ways to limit greenhouse gas emissions.
The beneficiaries of the government’s largesse — the nation’s rural electric cooperatives — plan to spend $35 billion to build conventional coal plants over the next 10 years, enough to offset all state and federal efforts to reduce U.S. greenhouse gas emissions over that time.
The money comes from the Agriculture Department’s Rural Utilities Service, an outgrowth of the Rural Electrification Administration created in 1935 by President Franklin D. Roosevelt to bring electricity to farms. More than 70 years later, the goal of providing electricity to rural areas has long been accomplished, but the federal government is still making the subsidized loans. But rather than declare the mission accomplished and disband the expensive subsidy program, Congress continued it and allowed it to become even more generous.
Although presidents over the years have tried to curtail the rural-electricity lending program, it has survived, proving one of the basic laws of legislative thermodynamics: Creating a government program is easier than killing one.
One possible solution: All government programs like this one should have “sunset” clauses that end the program automatically after a fixed period of time.