Economic Surrender: An American Windfall Tax on Oil Profits Would be a Splendid Way to Make China the Lone Economic Superpower

The economic effects of a “windfall tax” on U.S. oil companies that would limit the profits of an oil company to an arbitrary maximum could have potentially crippling effects on the American economy. The extreme disincentives a windfall tax would place on innovation among American oil producers and the radiating effects of stagnating oil companies on the rest of the economy would lay out the path for America to surrender its superpower title to join the socialist third world.

Satisfying the world’s demand for oil, the most basic energy staple in contemporary civilized society, is a venture for which businesses assume tremendous risks with the potential to take a tremendous reward for succeeding. As demand for oil continues to increase, oil producers must spend ever increasing amounts on exploration and on research and development to create innovative new techniques for both exploration and production in order to operate with the utmost efficiency. Increasing oil production means finding new sources of oil and creating new ways to extract the oil. Not all efforts at exploration and invention can be successful, and it is the natural burden of the oil producers to shoulder the expense of these failed efforts. The ability of oil companies to generate large profits is an indicator that shows that they are working in a productive manner.

A “windfall tax” on profits of American oil companies would at a minimum serve the purpose of curtailing American oil companies from assuming the risks necessary to increase production. As oil reserves are consumed, new reserves must constantly be discovered and tapped. Interruptions of this process would only serve to greatly increase the price of the oil currently on the market which would likely make oil companies hit their profit ceilings while stunting their ability to expand production to a degree that could possibly keep the market price of oil from climbing to heights that would make current records seem modest by comparison.

The greatest domestic consequence outside of the realm of the extremely speculative would be the failure of American oil companies to continue pursuing ways to extract the extensive potential reserves of oil contained in shale. Estimates place the amount of potential shale oil in the western United States that could be extracted to be greater than all known traditionally harvested oil reserves. As unexplored conventional deposits of oil become increasingly scarce, an efficient way to harness the large amounts of oil locked in shale stone remains the most promising way for oil companies to be able to continue to quench the world’s thirst for oil. The proposition of harvesting shale oil is one which will require significant investment from oil companies, a risk they would have to undertake that justifies the right for oil companies to continue to make substantial profits at the present.

This would prevent the supply of oil from keeping up with the exponentially growing demand, and as oil is an energy staple for which there is no readily available substitute good prices for all energy related goods could experience tremendous increases. There is a strong potential for prices of goods that consume oil to increase in the long term as demand for more efficient products consuming oil, such as automobiles, stimulates manufacturers to increase their research and development spending in order to meet demand for more efficient products or products that consume alternative fuels. This is an invitation for rampant inflation, stagnation, or some combination of the two. The artificial strain that the necessary restructuring of the American economy to adapt during the waning of the oil supply’s ability to meet demand would affect all sectors of the United States economy. Oil is an important staple as a source of energy, and is depended upon in the production of other kinds of energy, such as in the generation of electricity and the extraction and transport of coal.

Internationally there would be an incentive for oil companies to avoid markets in the United States and focus on other markets. The juggernaut that is Chinese industry would be placed at an even greater advantage than they are now, and this may provide the stimulus that the Russian economy needs to grow into a healthy market economy. These developments, which are purely speculative, could push us in the direction of joining the stagnating western European nations as just another former economic superpower. The grave threat that may be presented to the current dominance of the United States Federal Reserve in leading global monetary policy for the benefit of the American deficit economy exposing our greatest competitive weaknesses should foreign holders of United States Treasury debt stop renewing their T-bills.

Though the last prediction of the United States complete economic failure to compete on a global scale is speculative, there would be tremendous far reaching economic consequences of a “windfall tax” targeting American oil companies. Short and long term consequences are assured, though they may be somewhat uncertain they will be negative. The only winner in this debacle would be America’s enemies.

Politics | United States

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