Prof J – you were wrong!
At least that’s what Rep. Kuchinich and several other economic
professors idiots in Congress obviously think. Mr. Kuchinich, fitfully worried about high gas prices, proposes to tax the windfall profits of oil companies. Now, I was taught, by none other than Prof J, that the response to higher prices could be addressed through increased supply. As the price of any given product rises, suppliers are incented to bring even more product to market. If the supplier is making economic profits, the chances that others will want in on the action dramatically increases. As more suppliers bring even more product to market, prices usually retreat. This can be seen in today’s natural gas market.
However, Rep. Kuchinich proposes a new economic model to solve these pesky micro economic problems. His solution – the Reasonable Profit Board. Think I’m joking? HR 3784, which was introduced this week and proudly named – The Gas Spike Act of 2012, would create this new federal Board.
This new Reasonable Profits Board (I just love how that name rolls off the lips!) would be empowered to monitor the profits of oil companies and tax their excess profits, defined as profits between 100 and 102 percent of a reasonable profit. Confusingly, Rep. Kuchinich chose not to define reasonable in the bill.
So, according to Rep. Kuchinich, the best way to lower gas prices is to increase taxes on the very suppliers that bring gas to market. His theory suggests that taxing the profits (or reducing the price suppliers receive for their products) will magically reduce gas prices?! I would argue, and I hope most folks would agree with me, that this would incent companies to bring less product to market, not more, resulting in even higher prices.
So, maybe Prof J was right all along.