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Price Gouging and Windfall Profits in Oil Companies

During the energy crisis of the 1970s, and again in the last 5 years, Congress bemoaned the "price gouging" and "windfall" profits of the major oil companies. In the 1970s Congress imposed an "excess profits tax" on these companies. It did not do so this time? What does this change show about how our understanding of the way the price system works to allocate resources has evolved? If "excess profits" are taxed away, where will oil companies get the money to fund new exploration and development of oil properties? Does it matter if these price increases are demand or supply induced?

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The main reason there has not been any excess profits tax recently is for political reasons, not for economic ones. Between the 1970's and now, the US political landscape has verged towards the Republican understanding of doing business. After the Reagan and Bush years, corporations went from the defensive (1970's) to the offensive (2000's) regarding their political interactions. So, this does not have anything to do with our ...

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The expert examines price gouging and windfall profits in oil companies.

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