Cliff: Windfall:
THE issue on this, IMO, is what is the best way to make sure that oil companies reinvest this money in exploration. There is a real good argument that says they have ZERO incentive to reinvest in exploration because not only is the return less and less for dollar spent, but if they don't do it, oil prices go up and up and up. So, by doing nothing, they make more and more and more on their product. That is unacceptable.
Therefore, the ONLY issue is what is the most likely incentive to make sure they reinvest (whether or not it is as great of return as they may have had when oil just flowed out).
One of the Senators made the argument (earlier this morning) which I had never heard before today, but thought it was a pretty logical point. He said that the "SINGLE BEST WAY TO MAKE SURE OIL COMPANIES WILL REINVEST IN EXPLORATION IS IF THEY KNOW THAT 50% OF THEIR WINDFALL PROFITS ARE GOING TO BE TAKEN FROM THEM IF THEY DON'T."
This is just not like any other situation. You can't just put the free market blinders on regarding this. It isn't a free market! Not only is this a commodity that is essential to our economy in every conceivable way - our lifeblood, but the companies that provide it have very little incentive to do that which a truly free market would cause to happen.
If this were widgets and the prices were going through the roof, more companies would produce widgets and the price would come down. But, if you are the only company (or one of a few) that are making widgets and you know that if you don't produce more, the price will rocket and your margins will rocket, why should you make more - especially if the cost to produce each one was more than the one before?
I'm not saying the oil companies are conspiring to bleed the consumer. What I'm saying is that, like with any business, they need the proper incentives to make sure that they drill, drill, drill. If the incentives don't mandate it, then we're all screwed.
Len
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