Cato Daily Dispatch for November 17, 2005
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'Windfall Profits': One-way Capitalism?Committee Supports Bernanke's Nomination
Limiting the PATRIOT Act's Powers
'Windfall Profits': One-way Capitalism?
"The Senate debate over tax cuts veered toward tax increases on oil-company profits Wednesday, as lawmakers sought to respond to public discontent over high gas prices," reports The Wall Street Journal. "Senate Democrats last night offered a proposed 'windfall profits' tax on oil companies, with a floor vote expected today. Earlier in the week, the Republican chairman of the Senate Finance Committee added a provision to the pending tax bill that would raise an additional $5 billion over two years from major oil companies."
In "Republicans vs. Oil," Jerry Taylor, a Cato senior fellow, writes: "Congress can no more repeal the law of supply and demand than physicists can repeal the law of gravity. If you restrict the profits you can make for something, you'll get less of that something. If you restrict prices, you'll get less conservation. High prices are unfortunate for consumers, but they accurately reflect market realities. They are already setting off a chain reaction that will lead to a collapse in time. High prices do more to encourage conservation and production than anything Congress could dream up."
Taylor co-authored a working paper with another Cato senior fellow, Peter Van Doren, called "Economic Amnesia: The Case against Oil Price Controls and Windfall Profit Taxes." Warning that denying investors profits, but allowing them to book losses, amounts to one-way capitalism, the scholars argue: "Denying the industry the opportunity to make substantial profits when supplies are tight is both unfair (unless their losses are likewise alleviated during low-price periods) and counterproductive in that it will discourage investment in the oil business."
Committee Supports Bernanke's Nomination
"The Senate Banking Committee [yesterday] approved the nomination of top White House economic adviser Ben S. Bernanke to be the next chairman of the Federal Reserve, recommending his confirmation to the full Senate," The Washington Post reports.
Alan Reynolds, an economist and Cato senior fellow, says, "Alan Greenspan is not an easy act to follow as Federal Reserve chairman. But Ben Bernanke will likely prove up to that challenge. A clear and candid communicator, Bernanke has long been an advocate of 'inflation targeting,' which implies holding the Fed responsible for keeping non-energy inflation within a reasonably narrow range. He has also done potentially useful research about the use of financial indicators to warn of impending recession -- such as when short-term interest rates rise above long-term rates, or when the spread widens between interest rates on commercial paper and Treasury bills."
In the winter edition of the Cato Journal, Bernanke writes about the role of "monetary policy in enabling economies to take maximum advantage of the increasing openness and depth of international capital markets" in the article "Monetary Policy in a World of Mobile Capital."
Limiting the PATRIOT Act's Powers
"House and Senate negotiators reached a tentative agreement yesterday on revisions to the USA PATRIOT Act that would limit some of the government's powers while requiring the Justice Department to provide a better accounting of its secret requests for information on ordinary citizens," according to The Washington Post.
"But the agreement would leave intact some of the most controversial provisions of the anti-terrorism law, such as government access to library and bookstore records in terrorism probes, and would extend only limited new rights to the targets of such searches."
Timothy Lynch, Cato's director of the project on criminal justice, says, "The newly announced 'deal' to renew the PATRIOT Act shows that Washington is trapped in a vicious cycle in which terrorist attacks are followed by measures that curtail of liberty and privacy. A quick legislative response in the aftermath of the shocking catastrophe of 9/11 was probably inevitable, but the sweeping renewal of that complicated legislative package four years later in a calmer political climate is striking evidence that legislators cannot bring themselves to resist demands for greater police powers. The deal will renew all 14 PATRIOT Act provisions that were set to expire next month. Not a single provision will expire. This is a worrisome picture because the threat posed by Islamic terrorists represents a long-term security threat to America. Should an American city experience a bus or subway bombing, there will be calls for new laws and security measures. There has already been talk of PATRIOT II legislation. If our elected representatives cannot resist such demands -- and the evidence is mounting that they cannot -- the next generation of Americans will be living in a country that has a lot less freedom and privacy than we have today."
In Chapter 19 of the Cato Handbook on Policy, Lynch states: "American institutions tend to look for 'quick-fix' solutions to problems. American policymakers must recognize, however, that the danger posed by Al Qaeda is not a short-term crisis but a long-term security dilemma for the United States. Of course, the electorate wants safety, but it wants the federal government to secure that safety by fighting the terrorists themselves, not by turning America into a surveillance state."
Greg Garner, editor, ggarner@cato.org