Creative Destruction

February 2, 2007

Hillary Calls for Confiscating Energy Company Profits

Filed under: Economics,Election 2008 — Robert @ 7:46 pm

Hillary Clinton, speaking at the DNC’s winter event, calls for confiscating the recent profits of Exxon and…buying Priuses, I guess. “The Democrats know what needs to be done, again, we’re working to try to push this agenda forward. The other day the oil companies reported the highest profits in the history of the world. I want to take those profits, and I want to put them into a strategic energy fund that will begin to fund alternative smart energy alternatives and technologies that will begin to actually move us toward the direction of independence.”

Senator Clinton, as far as I know, didn’t mention how she planned to replace the $433 billion in investment capital that generated those profits last year, and which will find alternative uses for itself once Senator Clinton destroys the incentives that cause those assets to be devoted to energy production. Capital, in Senator Clinton’s world, apparently falls from the sky and replenishes itself, and political actions have no repercussions beyond the stated intention of the policy.

I used to think that Hillary Clinton was smart.

14 Comments »

  1. Well, it’s not the best of plans ever hatched but…

    Personally, I find it more of a move to pull any and/or all intelligent progressives who hate the Pandagon whitewash away from John Edwards.

    If only I had more time to finish writing a post about that tonight.

    Comment by Off Colfax — February 3, 2007 @ 6:29 am | Reply

  2. Quit wasting your time on “work” and “family” and you’ll have plenty of energy and time available for blogging!

    Comment by Robert — February 3, 2007 @ 11:49 am | Reply

  3. Do you seriously think she would be able to do this, say, if she were President?

    First she’s have to get the legislation through Congress – against vociferous lobbying by Exxon. Then she’d face a challenge in the courts – against vociferous lobbying by Exxon. I wonder how many Exxon dollars got donated to the campaign funds of Senators, Representatives, and elected officers.

    Oh she’ll make a bit of noise, and they’ll do a deal, and Exxon’ll pony up a couple of $billon amid great fanfare. They’ll get it all back, though, through various government deals…

    Can you name any major corporation, anyone at all, which has ever really been hurt by this kind of State cashgrab?

    Comment by Daran — February 3, 2007 @ 8:01 pm | Reply

  4. Um, “every corporation in Russia”, circa 1917?

    I’m not particularly concerned that she’d actually do it; confiscation of profit outside the normal taxation process isn’t within the Federal power, that I know of. I’m concerned that she has the economic ignorance to think it’s something she could do without catastrophic consequences. The president’s role in managing the economy is grossly overstated by the media, but still, I want a president who has an elementary comprehension of Econ 101.

    Comment by Robert — February 3, 2007 @ 8:06 pm | Reply

  5. She is smart. She knows it’s never going to happen, so there’s no risk that she’ll be held responsible for the negative consequences. But by going on record as supporting such a measure, she’ll increase her appeal among the rubes who actually think it’s a good idea, namely most Democrats and a disturbingly large minority of Republicans.

    Or maybe I’m giving her too much credit.

    Comment by Brandon Berg — February 3, 2007 @ 8:14 pm | Reply

  6. I’ve gotta agree with Brandon. Hillary is smart enough to recognize a political opportunity to get some good press without ever really having to legislate anything. It’s a calculated ploy, the type that characterizes her particular brand of politicing, to gain some rhetorical leverage.

    And I’ve gotta agree with Robert, too, that the fundamental encroachment on private enterprise just doesn’t square with a free market system. However, there are middle positions between letting corporations do whatever and taking over a private industry, which recently happened in Venezuela. Governments recognize that some regulation and oversight, especially for industries that function as significant parts of our infrastructure, are often warranted and not necessarily anticorporatist.

    Comment by Brutus — February 3, 2007 @ 9:23 pm | Reply

  7. Governments recognize that some regulation and oversight, especially for industries that function as significant parts of our infrastructure, are often warranted and not necessarily anticorporatist.

    Oh hell, yes. Regulate the corporations and oversee to the heart’s content. Just don’t be anticapitalist. Regulations have this distressing tendency to skew into protecting existing corporations and making it hard on newcomers.

    Comment by Robert — February 3, 2007 @ 10:23 pm | Reply

  8. Robert, with all due respect, I think it’s you who needs to brush up on basic economics, and also do basic research before writing posts that aren’t just mind-bogglingly ignorant, but which actually misinform CD readers.

    1) The catastrophic effects you predict could come about if the government actually confiscated 100% of the profits of large oil companies. However, what’s actually proposed is a good deal more modest than that. In a (simplified) nutshell, what’s proposed is a tax on 50% of profits in excess of previous years’ profits (after a 10% inflation allowance), among oil companies with annual revenues of over $100 million dollars. The tax ceases to exist after two years.

    In other words, your argument has failed to consider that the effects might be marginal rather than catastrophic.

    2) To believe that Hilary’s legislation would “destroy” (rather than marginally decrease) the incentive for capital to invest in oil companies, you must believe that 10% over pre-2006 profit levels, plus 50% of whatever profit is in excess of 10% over pre-2006 profit levels, followed by a near-certain jump in after-tax profits after two years, is not attractive enough to motivate investment. But if that was the case, then no one would have been willing to invest capital in oil companies pre-2006.

    3) If anyone wants to have a discussion of Clinton’s proposal, a good first step would be to find out what it says (it’s obvious that Robert didn’t take this step before writing his post). Here’s a much more detailed Clinton speech describing her proposal (found in under 10 seconds of googling); here’s a link to the legislation itself (found in about two minutes of searching on Thomas; if the link doesn’t persist, search for S.2993 in the 109th congress).

    Comment by Ampersand — February 4, 2007 @ 8:24 am | Reply

  9. Thanks for the links to her actual proposal; it doesn’t make me feel any better.

    The bill creates future uncertainty for investors, and sends a clear message to energy industry management that success will be punished. The whole thing makes putting money into energy investments substantially less attractive.

    Your point 2 commits the error of imputing present knowledge to past investors. “If they wouldn’t invest now, they wouldn’t have invested then” requires that the past investors knew the outcome in advance. They didn’t; they invested with the expectation of keeping whatever gains or losses they incurred. The knowledge that present investors have is “half your marginal return is guaranteed to be taken away, if your company starts to do better than it has”. That’s a big, chill, cold disincentive, not a marginal little whatever.

    It’s possible (I don’t have the hours to dig into the guts of the law) that this could also create a ratchet situation, where a couple of bad years in a row for a company will set a low baseline profit level that can never again be exceeded without hitting the prohibitive 50% take on profit.

    It’s also very likely that this law would have the effect of reducing investment in green energy technologies. It’s the big companies that make the big investments in this kind of R&D, and this proposal will definitely have the effect of shifting investment capital from big companies to small ones to avoid the prospect of losing any windfall gains.

    If you want to make the disincentive effect plain, answer me this: why not expand this to every company, and to every person, in the economy? After all, if it’s bad for Exxon to make a windfall profit one year, then it’s bad for Sears, bad for Larry’s Grocery, bad for Robert, bad for Ampersand. We could create all kinds of special funds; profit confiscation from artists could pay for remedial drawing classes for Apartment 3-Gs inkers. Would YOU work more or less, if it was understood that half of any increase would be taken away from you each year? I certainly know what I would do.

    I felt better when I thought this was just a rhetorical ploy to get love from Exxon bashers. Now that I see it’s an active piece of legislation, I begin to feel a faint stirring of the Clinton hate again. This woman is completely alienated from how business people think. (I suppose she “can’t be concerned with the profit motives of every undercapitalized business in America.”)

    Comment by Robert — February 4, 2007 @ 1:32 pm | Reply

  10. Your point 2 commits the error of imputing present knowledge to past investors. “If they wouldn’t invest now, they wouldn’t have invested then” requires that the past investors knew the outcome in advance. They didn’t; they invested with the expectation of keeping whatever gains or losses they incurred. The knowledge that present investors have is “half your marginal return is guaranteed to be taken away, if your company starts to do better than it has”. That’s a big, chill, cold disincentive, not a marginal little whatever.

    Ya know, this would be a much better argument if you included a link to past posts vociferously objecting to the Bush Administration’s energy industry tax incentives. “Oh no, people invested in Exxon without prior knowledge of such tax incentives; post hoc changing of the rules would distort the capital markets…!”

    Admittedly, I’m not fond of using the tax code as a vehicle for most social policy. But it’s pretty late in the day to raise that objection now. People who invest in Exxon know that they will sometimes suffer increased taxes and sometimes benefit from government handouts. Deal with it; they do.

    If you want to make the disincentive effect plain, answer me this: why not expand this to every company, and to every person, in the economy?

    We have. It’s called the deficit. The Bush Administration has no regard for matching government spending with revenues. At some level every company and person in the economy knows that the bill is coming. But we are all prone to avert our eyes and hope that the bill will be passed to someone else, and Republicans are only too willing to exploit this foible for political advantage.

    In short, Clinton makes some modest effort to say where she will get the money to pay for government. Republicans make no such effort. Is Clinton’s plan the optimal form of public finance? Perhaps not. But as compared with a “Don’t Worry, Be Happy” spending plan, it’s a model of responsibility. And if there’s one thing that offends Republicans more than taxes, it’s responsibility. No wonder Bob is so upset.

    Comment by nobody.really — February 6, 2007 @ 1:35 pm | Reply

  11. Don’t like government “distorting” Exxon’s profits? Fine. Let’s adopt a policy that removes the distortions on both the up AND the down side. Cuz I suspect Exxon owes its huge earnings very much to government policies.

    I am prepared to offer Exxon immunity from a Hillary tax – provided that Exxon return to government all the benefits it has received as a result of Bush polices. This includes, without limitation, the Bush tax cuts, the Enron-friendly Cheney energy policies and incentives, and the never-ending Iraq war that has driven up the price of oil and natural gas. Fair enough?

    Comment by nobody.really — February 6, 2007 @ 2:05 pm | Reply

  12. Hey, if you wanna go back to libertarian free-enterprise pure capitalism, I’m all for it.

    Your points about prospective uncertainty are valid. Your point that Clinton is making an effort to “get the money to pay for government” and tying it to deficit reduction is silly. She wants to create a new program with this, not pay for existing things.

    Comment by Robert — February 6, 2007 @ 3:59 pm | Reply

  13. As much as I’d like to see a woman president, I don’t trust Hillary as far as I can throw her.

    Comment by retro — November 20, 2007 @ 10:36 am | Reply

  14. my problem with senator clinton is that she is too good of a politician. i’m not saying that only men should be good politicians, but this is one area where it is not necessary for a woman to be one as well.

    Comment by greywhitie — November 20, 2007 @ 1:02 pm | Reply


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