Doyle on High Gas Prices

First, it was his dog and pony show of a 'hearing.'

Now this.

Wisconsin and Michigan will join together in calling for a cap on oil company profits, Gov. Jim Doyle's office said this morning.

Doyle will appear at a Brookfield gas station at 10 a.m. today to unveil details of the plan to limit how much oil companies can make. The move comes days after Exxon Mobil, the world's largest publicly-trade oil company, announced that it had earned more than $8 billion since the start of the year.

What a joke.

A windfall profits tax is counter productive. It will result in reduced domestic oil produciton and make us more dependent on foreign oil. What leads me to believe this? History.

An angry public wants quick relief from high prices" at the pump, says Business Week. That's hardly a surprise. Over the past year, the Energy Department reports, a gallon of regular gasoline has gone from $1.86 to $2.96.

But even at less than bottled water, $3 gasoline hurts consumers and the economy as a whole. The question, however, is what to do?

The worst approach is one now being considered by the Senate: slap a windfall profits tax, or WPT, on oil companies.

The United States has tried this before, between 1980 and 1987, and the results were hugely counterproductive, according to a 1990 Congressional Research Service report.

"The WPT reduced domestic oil production between 3 and 6 percent, and increased oil imports from between 8 and 16 percent," says the report. "This made the U.S. more dependent upon imported oil."

It's not hard to understand why. Energy companies are in a very risky business. They (and the investors and lenders who back them) commit hundreds of billions of dollars annually to searching for oil and gas, and to building or expanding refineries, ports and pipelines. These projects take many years to complete and the payoff down the road is highly uncertain. It's tough enough to make investment decisions in anticipation of market conditions that can change overnight, but why spend vast sums to develop energy if -- as a reward -- government hits you with a special tax?

So, with a WPT, oil companies cut back. As for the WPT's professed rationale, profits have indeed risen lately, but, according to Business Week data, second-quarter earnings of oil and natural-gas companies were 7.7 percent of sales, compared with 7.9 percent for all U.S. industries. The price of oil -- like the price of any commodity -- bounces around as a result of changes in supply and demand.

In the early 1980s, a barrel of oil was more than $80 in today's currency. By the 1990s, oil was less than one-third the current price and gasoline was just over a buck a gallon. When oil fell to $9.39 a barrel six years ago, was Sen. Byron Dorgan, D-N.D., author of the current WPT, proposing a windfall losses rebate? Nope.

And, I have another question.

What does Governor Doyle have against immigrants?

He's holding a press conference this morning to tout this joke of an initiative.

Doesn't he know he was supposed to boycott work, school and commerce today?

Man, he must hate it when his pandering schedule has conflicts.