Another wonderful article by Jonathan
Smartmoney.com
A Mean Left Hook
By Jonathan Hoenig Published: October 31, 2005
IT HAS BEEN A tough month for the White House, with a botched Supreme Court nomination and a staff indictment among the black marks pushing the president's approval rating to an all-time low.
The Bush administration's follies have helped to animate the efforts of political rivals. Consider the misguided and un-American legislation proposed in recent weeks by Senator Chuck Schumer (D., N.Y.).
Schumer has called for a 50% tax on the profits of oil companies, the money being used to help pay for Hurricane Katrina relief as part of a proposal he has dubbed the REPAIR Act, or Recapture Excess Profits and Invest in Relief. According to Schumer, the largest oil conglomerates might reap $80 billion in windfall profits. "If we took half of that, $40 billion, that could go to Katrina relief, and that would be money taxpayers wouldn't have to pay," he said at a recent press conference.
This is socialism. In Schumer's world, profits earned by law-abiding companies are his to confiscate and dole out as he sees fit. Schumer believes it is his right to rob those who've earned a living and redistribute the proceeds to those who have not. "Oil companies who are making excessive profits because of Katrina, and perhaps Rita, should, at the very least, shoulder a share of the burden with taxpayers," he said.
Why? The oil companies didn't cause the hurricanes, nor did they dissuade people from insuring their homes. The oil companies didn't force Americans to buy SUVs that get eight miles to the gallon. All Big Oil has done is provide a safe, reliable commodity to millions of Americans, most of whom, unlike Sen. Schumer, understand that prices shouldn't be set by Congress, but rather by supply and demand.
Economically speaking, it's obvious why Schumer's extortion attempt should be laughed out of Congress. There is no such thing as "excess profit." Oil doesn't appear magically out of the ground. Major investment and expenditure are required to extract crude oil, turn it into gasoline and deliver it to your local service station. Big Oil makes money, yes, which is reinvested in its business, developing new technologies, improving infrastructure and paying dividends to shareholders.
The moral case for supporting Big Oil is even more compelling. Oil companies are not owned by the federal government. They are owned by their shareholders and run by managers who have the full right to act in its best interest — not in the interest of a publicity-seeking senator.
In a free market, a company has the right to offer goods or services at whatever price it chooses. Consumers can accept or refuse the price. The fact is, oil companies have earned their profits by providing a useful product that many Americans are happily willing to buy, even at $3 a gallon. By way of comparison, a gallon of White Out would cost you about $254.17.
"Katrina has hurt everybody. There's only one small group that has benefited — the oil companies," said Schumer, politicking in front of a gas station. "Why shouldn't they take some of that benefit and return it?" Well, Senator, because they've earned it. Did Schumer offer tax breaks in the mid-1990s, when sub-$20-a-barrel crude prompted Big Oil to undergo major retrenchment and belt tightening? Of course not. That sort of thing doesn't play well in Poughkeepsie.
If he actually wanted to bring down gas prices, perhaps Schumer should take a look at the taxes paid at the pump. According to the American Petroleum Institute, Schumer's home state of New York boasts the highest gasoline taxes of any state in the union, with 62.9 cents of tax levied on every gallon.
Schumer has decided that not only is a company's profit subject to confiscation, but so is the private intellectual property that it has spent hundreds of millions of dollars to create. Earlier this month, Schumer called for the temporary suspension of the patent owned by Swiss pharmaceutical company Roche Holdings covering Tamiflu, which fights the avian flu. Roche's patent on the drug expires in 2016, but by suspending it, Schumer would allow generic drug manufactures to produce the drug, supposedly adding to supply.
Schumer scolded Roche for "putting profits ahead of world safety." But while Schumer was busy putting out press releases, it was Roche (or Gilead Sciences (GILD) which in 1996 granted Roche the exclusive rights to manufacture and distribute the drug) that made the effort to produce Tamiflu in the first place.
The government's job is to protect private property — not to confiscate it for the benefit of the so-called public good. Those who take the time and put forth the effort to create life-saving drugs should be free to profit from them. To suspend Roche's patent simply because it isn't providing the drug in a manner that suits Schumer is akin to breaking into the company's bank account and stealing millions. It's thievery.
This type of maneuver is old hat for the senator. Four years ago, Schumer pulled a similar stunt with Bayer (BAY), which held the patent on the Anthrax-fighting antibiotic Cipro. In the midst of a national paranoia over Anthrax-tainted mail, Schumer tried to suspend Bayer's patent on the drug, arguing that "one company should not be able to stand in the way of the health needs of a nation."
The economic rationale against Schumer's actions are obvious. Why should investors or drug companies spend billions to develop breakthrough treatments if politicians can effectively steal their secrets just as the value begins to rise? Such a policy discourages development, innovation and research. You'll note the senator hasn't been in the private sector since 1974. Perhaps he has forgotten that the profit motive doesn't work without the profit.
More important is his philosophy. Schumer's proposals run directly counter to the basic capitalist principles on which this country was founded. The Declaration of Independence presents our rights to life, liberty and the pursuit of happiness as unalienable. They can't be revoked, suspended or struck down by the majority mob.
Yet that's exactly what Sen. Schumer seems willing to do. Free trade, for him, exists up to the moment he gets antsy for a photo-op. In an effort to bolster his own public image, Schumer targets large corporations who've done nothing more than legally provide goods and services to the free market. He does it all with a smile on his face, claiming to serve the "public good."
His party and constituents should be ashamed.
Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC
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