‘Windfall’ oil taxes are really just a lot of wind – Twin Cities
Should we be glad that our president is decisive and wants to punish war profiteering and price gouging? He would start with oil companies that raised gasoline prices to unprecedented levels. We can only hope that he will move on to farmers who are getting $14.61 per bushel of soybeans and $6.88 for a bushel of corn. No wonder we are paying so much for food.
Once these bloodsuckers in food and energy are taken care of, it is time for housing gougers to get what they deserve. Oldsters in my neighborhood who just screwed a young couple out of $510,000 for a house that sold for $80,000 in 1987 should never live high on ill-gotten gains. That the Federal Reserve increased the money supply by 34% from March 2020 to January 2022, making mortgage money plentiful, is no excuse.
Yet, with shame, I must admit my own taking advantage of someone in a bind. Some 20 years ago when approached by a large insurance company about being a “consulting expert” for defending them when sued by a major corporation, I yielded to the sin of greed. The most I had ever gotten for consulting was the $368 daily maximum per day that the U.S. Agency for International Development paid. But when asked my hourly rate by the insurers, I said $200, which they paid. So I am as bad about honoring a “just price” as any other bloodsucker.
Yes, this is all sarcasm. All this tut-tutting about “profiteering” and “gouging” is as self-harming economic nonsense as releasing 100 million barrels of oil from the Strategic Petroleum Reserve when exports from our country are as free as imports and any effect on price gets dissipated to the world as a whole.
The core issue, however, is a knotty one. I am a Christian. Economic justice, not only in dealings between individuals but for societies as a whole, is an important theme in the Bible. Read the Minor Prophets such as Hosea for examples. Christianity is not alone in this. Economic justice is important in Judaism, Islam, Buddhism and other major religions.
That it is a moral imperative, as well as an economic one, is important.
The question of what constitutes a “just price” goes far back in theology. Thomas Aquinas, the 13th-century Dominican theologian, examined it in great detail. Aquinas would stand foursquare with fellow Catholic Joe Biden on oil companies, which do have market power. What he would say about farm semi-trucks with $14,000 worth of beans rolling across Minnesota elevator scales is an open question. The differences between similar situations he examined, never fully resolved, dealt with uneven power between two parties to a deal and with degree of necessity.
Punishing those benefiting from high prices brings problems. One is that perverse incentives are created. If you punish those who charge unjustly high prices, do you reduce motivation to take actions that benefit society over the long run?
John Calvin, the 16th century French-born theologian who helped govern Geneva, Switzerland, was a Reformation leader who agreed with Aquinas. When there was a short crop and food prices rose, Calvin condemned grain dealers who had stocks, but demanded the same higher prices. That was seen as justice. But if you don’t benefit those who invest in building warehouses, who tie up their money in inventory, and who take the risk of loss by spoilage, to charge more when physical supplies are short, then private individuals will not store food against periods of famine.
If everyone cries “gouging” and ”hoarding” whenever prices rise as physical availability shrinks, then less food will be stored and more people will die of hunger in the long run. That was true in Reformation Geneva 500 years ago and in Peru when I worked there in the 1980s.
When monthly inflation in Brazil reached 70 percent in early 1990, merchants who repriced black beans or soaped scouring pads risked being dragged out into the street and beaten by angry consumers. If one had gotten a shipment of canned tuna on Feb. 28 and priced and put the cans on shelves, and then put new, higher price tags on the same cans 10 days later, they were gouging, a sin and eventually a crime. But if the merchant had to pay for his next shipment at prices 50% higher than he had just gotten for the last 10 cases sold, he would be able to restock less each time and would be bankrupt soon.
Ditto for the profiteers who, when there is a major hurricane or tornado, rent a truck, fill it with chainsaws, bottled water and toilet paper and drive through the night to devastated areas. If they sell to frantic customers at prices twice as high as they themselves paid, they will be called gougers. But if there is not money to be made, fewer saws and toilet paper will be available to those needing it.
When a gas station in a devastated area raises prices after the storm blows out, owners will be condemned for taking advantage of helpless victims. But owners may not be able to get their tanks refilled for a week, while having to pay all their usual costs anyway. And what is the “just” way of allocating their inventory? Ten gallons per car? Sell only to known customers? Let widows and orphans come to the front of the line?
The second problem is an asymmetry in punishing unjustly high prices while completely ignoring the ripple effects of unjustly low ones.
Soybeans are high now, but just this time in 2018 they were 45% lower. Farm implement dealers went months between sales of a tractor or combine. Making farm mortgage payments was a struggle.
Prices to U.S. producers of crude oil are high, but well below 2013 levels. And the 60% drop in crude prices from 2013 into 2015 devastated drilling companies and put tens of thousands of oil workers out of their jobs. At $87 a barrel, crude currently is a third lower than in the summer of 2008.
Were those low farm and energy prices “just?” Did consumers collectively have producers over a barrel? Was it a sin to buy eggs for $1.40 a dozen two years after the avian flu epidemic ravaged flocks in 2015? Should government have forced purchases at higher prices?
A lesson from all this? Questions of economic justice are real. The problem of monopoly power is pressing, although more severe in health care administration and new information technology than in petroleum. But opportunistic populism such as threats against war profiteering are a counterproductive waste of time.
St. Paul economist and writer Edward Lotterman can be reached at [email protected].