Thursday, 22 May 2008
Lunsford Fails Economics 101
« Painting Kentucky Racists | Main | Oil Bubble Will Burst »Let's say you are the owner of a company that makes widgets. You have determined that people are willing to pay $10 for each of these widgets. After materials, labor, marketing, transportation, and other costs of doing business you are able to make $1 in profit off each widget. Now let's say you are able to sell 1 million of these widgets in a year. That means you made 1 million dollars in profit from all of your hard work.
The government looks at your business and says your price is ridiculously high and your profits are "obscene". They decide to soak you for gouging people. They are going to tax you 50 cents on each dollar of profit. I don't know about you, but I would be pissed off that the government is penalizing me for making money off of my hard work. Instead of taking the financial hit you decided to build the cost of taxation into the costs. So now you sell the widgets for $10.50. The following year you are able to sell another million widgets. Who are the winners and losers in this transaction? The clear winner is government. They make $500,000. You come out even. Your customers who end up paying the extra 50 cents and are now $500,000 in the whole.
The moral of the story is that whenever you hear government wants to soak any company for obscene profits what they are really saying is they want to soak the consumer. Which is exactly what will happen if government goes after big oil. The losers will be the consumers of oil. That would be all of us.
Now let's say the government is going to give your customers a rebate of 40 cents for each widget they buy. Wow how magnanimous the government is! Or are they? In this new scenario. Consumers save 40 cents on each widget they buy but the cost has increased to $10.50 when it was previously $10.00. So your customer is still paying 10 cents more for each widget and the government is profiting off the transaction. Of course this is the same argument that Hillary Clinton is making when she claims she wants a gas holiday and wants to pay for it by taxing "Big Oil's obscene profits". What she really wants is to soak the taxpayers while pretending to help ease their pain. It is a complete shell game.
Guess who else is on board with this stupidity? If you said Bruce Lunsford then you guessed right. Yesterday in attacking McConnel he said he favored placing a wind-fall profits tax on oil companies and approving a federal gas tax holiday to pay for it. It always amazes me that Democrats like Lunsford can't understand simple economic principles. No wonder Lunsford's company went bankrupt.
