I'm Thinking of a Commodity That Starts With 4...

Can you guess what it is?

Okay, as of this post, it's back above $50 again, but it did dip a toe in the 40s a couple hours ago.

"There's no doubt that this is significant," said Phil Flynn of Alaron Trading Corp. "If you're a bull, the only thing you can hold your hat on is they didn't close below $50."

If that happens, Flynn said the next important psychological barrier could be $45 per-barrel oil prices.

Let's mark this milestone by taking a minute to ponder energy policy.

Congress finds itself a-twitter in full pander mode, this time (as ever) to the blindly anti-business crowd with H.R. 6, legislation that aims to single out oil companies among all other manufacturers to pay higher taxes, just because they happen to be evil and because their officers and directors happen to have cold, withered hearts as black as coal.

Ways and Means Committee Ranking Member Jim McCrery summed up the unvarnished idiocy of H.R. 6:

There are two tax provisions in the legislation. The first would increase the amortization period from five years to seven years for recovery costs associated with efforts to find new domestic oil and gas resources.  The second provision would exclude the oil and gas industry from the manufacturer's tax cut (Section 199) contained in the Jobs Bill we passed in 2004.  This provision would not be repealing a "special tax break" for big oil.  It would single out oil and gas businesses for higher taxes than all other manufacturing businesses in the United States, and would not place any additional costs on foreign producers of oil and gas.

Make no mistake - this selective, punitive taxation is not due to Big Oil being "too profitable", as we've seen that oil company profitability is, by almost any measure, lower than many other sectors that get a much better rap.  And it's certainly not an honest attempt to address our big energy problems, namely 1) that energy costs are expensive, 2) our reliance on it handcuffs us to foreign sources, and 3) there are as yet no ready replacements for oil as broad-based energy sources.

It's not a good enough justification that the bill will in turn extend tax breaks to development of alternative energy sources.  In fact, it's a remarkably terrible justification.  First, it presumes that the government knows better how to allocate private capital being invested in the energy sector.  Inescapably, that's false.  Second, if it makes sense to bring alternatives research into parity with manufacturers by lowering their taxes (i.e. if the playing field is currently tilted against them), go for it.  Good legislation.  Better yet, eliminate all the loopholes and exemptions and just lower the rates.  Then the market can truly behave rationally, rewarding the most promising technologies, unfettered by the distortions of an agenda-driven tax policy.

As for whether to increase taxes on the oil companies, *sigh*, it starts to feel silly, repeating a glaringly evident causality over and over, but if so many learned lawmakers would have us believe they truly can't grasp it, I suppose the following bears repeating.

Taxing the mechanism by which oil is discovered, extracted, and made usable (i.e. big, profitable oil companies) only makes that mechanism less efficient, less profitable.  That lowers the incentive to engage in that activity, limiting new exploration, extraction, refinement, and even research into alternative energy sources.  Simultaneously, it increases the cost of production, leading to higher consumer prices, not only of oil-based products themselves, but of any consumer category whose price is affected by oil (which is to say: all).

Secondarily, of course, this stunts economic growth, which will tend to cost jobs, constrain real wage growth, and yadda yadda yadda.

Even ignoring secondary effects, the unarguable primary effects of this legislation run directly counter to every concern that lends the legislation its populist appeal.  Both the theoretical and demonstrable empirical evidence can lead an honest person with basic reasoning skills only to the conclusion that H.R. 6 will be significantly damaging.  It's a situation in which reasonable people cannot disagree.

I'm somewhat on the fence as to whether its Congressional proponents lack basic reasoning skills or lack honesty.  Some probably fall into each camp.  For the most part, H.R. 6 pushers are likely not completely devoid of reasoning skills, nor completely dishonest, but rather racked by a hunger to associate with popular (if senseless) legislation, sufficient to outweigh their respective mix of honesty and reason.

The continued slide in oil prices is something for consumers to cheer about.  Congress meddling with the market for sake of landing a high-profile blow against evil corporations at everyone's considerable expense is assuredly not.

Previously:
The Daily "Oil Lower Than" Post: $53 [Update: $52]
All's Well When Oil Swells; Now Below $54
Oil Below $55
Oil Below $57 [Update: Below $56]
Oil Below $58