Here’s the latest gem from Obama: a second mega-billion economic stimulus, financed by punitive taxes. The “emergency measure” would send individuals and families $500 and $1000, respectively. This is the epitome of political pandering, but is cheered on by the clueless media and Obama’s mindless myrmidons.

The Keynesian logic behind these rebates is that returning tax dollars to taxpayers will briefly jolt aggregate demand, temporarily sustaining output. Depending on consumers’ “marginal propensity to consume” (i.e. what percentage of every dollar they spend), the billions of dollars will multiply throughout the economy.

However, a small cash infusion is futile during commodity inflation, an anemic financial sector, escalating unemployment, a burst housing bubble, and flagging consumer confidence. Like the last stimulus, it will only provide a few months of relief, delaying the inevitable downturn of the business cycle. In fact, the demonstrated ‘marginal propensity to consume’ of the last stimulus round was beneath 20%. This means that consumers spent about 20% of their tax rebate, and used the remainder to pay down debt or simply save.

Sadly, the value of $500 and $1000 diminishes daily. The Federal Reserve’s expansionary monetary policy has ruined the dollar and driven investors to commodities. At the same time, the dollar’s depreciation makes imports – such as oil – more expensive. The subsequent inflation in the price of commodities saps the purchasing power of these checks.

But wait, there’s more! Obama has promised that this largess won’t worsen the Federal deficit. He’ll feed the 5,000 through a special “windfall profits” tax on oil companies, Washington’s demon du jour.

Obama and his ilk portray oil companies as cackling, mustache-twiddling villains, spending nights greedily counting the obscene profits they’ve hoarded in their mansions. Instead, oil companies use their profits to maintain and improve their capital stock, or distribute it among shareholders as dividends. The former increases productivity, which would drive down oil prices; the latter is a crucial part of many retirees’ pensions or other long-term investments.

The key to dismantling the liberal lie of “outrageous” profits in Big Oil is the insight of a simple profit margin. A profit margin measures how much money a firm keeps from every dollar of sales. It is obtained through a simple formula – net income divided by gross revenues. So if James Inc. has a total revenue of $100, and a net income of $20, its profit margin is 20%, meaning it keeps 20 cents of every dollar it makes.

American oil companies have some of the lowest profit margins in the country – approximately 10%, or 10 cents per dollar. Incidentally, the Federal government currently collects double this figure –20 cents per dollar – in oil taxes. However, the masses require a scapegoat, and the subtle importance of a profit margin is lost amid the political grandstanding.

Below is a list of other profit margins- taken from the Wall Street Journal – from other businesses. Following Obama’s logic, additional taxes should be heaped on these capitalist vampires.

Outrageous Profit Chart
Chemicals: 12.7%
Computers: 13.7%
Electronics & appliances: 14.5%
Pharmaceuticals: 18.4%
Beverages & tobacco: 19.1%
(I wonder what kind of margins civil trial lawyers report?)

The same WSJ editorial defined a “windfall profit” as “nothing more than a profit earned by a business that some politician dislikes.” Obviously.

President Carter implemented a Big Oil “windfall profits” tax once. Like most of Carter’s policies, the tax was disastrous. The results crippled the American oil industry, compelling many businesses to move overseas or simply shut down. Besides ruining the livelihoods of many American employers and employees, Carter’s taxes did nothing to improve prices, and deepened our dependence on foreign oil.

There are countless statistics and factoids that expose the sheer idiocy of a “windfall profits” tax. What’s important to remember is that such a tax is sharply contradictory with the basic precepts of a free, capitalist society, where a profit rewards the successful application of land, labor, capital and entrepreneurial ability. The anointed philosopher king rejects this time-honored truth, instead proclaiming that, “The oil companies need to know that there is a limit on how much profit they can take in this economy.” Statements like this are the harbingers of totalitarianism.

Also, the United States already has the second-highest corporate tax rates in the world, which repels foreign investment and drives American businesses overseas. The last thing our economy needs factored into its tax system is the perverted notion of a “windfall” profit.

In short, Obama’s “stimulus” is to electrocute the economy with short-term tax rebates and hinder oil companies’ ability to improve their business or distribute profits. This will only temporarily stave off a recession, while doing nothing to deflate gas prices. By keeping the U.S. economy from the trough of the business cycle, the Washington political class prolongs the misery (imagined or otherwise) of Americans. And since short-term energy demand is mostly inelastic (meaning consumers respond slowly to price increases) oil companies will simply boost prices to make up the difference, betting on a future appreciation of the dollar, or a healthy revision of Congress’ jumbled energy policy.

If you’re sure you won’t vote for such an imbecile, you’re sadly mistaken. Here’s what Obama prophesied about this fateful November: “A light will shine down from somewhere. It will light upon you. You will experience an epiphany and say to yourself, ‘I have to vote for Barack.’” Sounds like a fine introduction to Jesse Jackson’s suggested addition to the Biblical canon – the biography of Barack Obama.

Obama/Calvin 2008 – Preordained for your gain!

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