Those who cannot learn from history

What the heck is this guy smoking? Is he so wrapped up in his own wonderfulness that he can't see what this will do?

Sen. Barack Obama (D-Ill.) on Friday announced an “Emergency Economic Plan” that would give families a stimulus check of $1,000 each, funded in part by what his presidential campaign calls “windfall profits from Big Oil.”

Adding tax to a product makes the price of that product increase. This is Economics 101, Mr. Wonderfulness. Penalizing "Big Oil" with an added tax burden will force them to raise the price of their product. This increase in price will be seen at the pump, and felt by everyone. To reduce their new tax burden, Big Oil will have to reduce the quantity of product they put on the market. This, in turn, will reduce the supply of said product on the market even more. And we all know what happens when there isn't enough supply to meet demand. Prices rise even more, and we become even more dependent on foreign-sourced oil.

Brilliant idea, bonehead. At a time when supply cannot keep up with demand, let's reduce the supply.

Don't think this will happen? Guess again. The last time "Big Oil" was penalized with a windfall profit tax, it was 1980, and Jimmy Carter was in office. What were the results? According to Nick Shultz from American Enterprise Institute:

The U.S. tried such a non-emergency tax in the 1980s, after a similar period of energy price spikes. Indeed, then president Jimmy Carter faced his own personal political crisis as he was responding to concerns about gas shortages and gas lines at filling stations. The results of that tax were not pretty.

The non-partisan and highly respected Congressional Research Service studied its effects. For starters, the levy did not raise the money its supporters believed it would. Initial projections had the tax bringing in a quarter of a trillion dollars. In reality, it brought in $40 billion. The researchers also found that the tax slashed domestic oil production by as much as 6% and increased oil imports by as much as 15%.

The actual tax that was generated was only 16% of what they had expected, while production fell by at least 6% and imports increased by 15%. Why did this happen?

Energy exploration, development, refining and distribution is a risky and capital-intensive industry. If the institutional framework of doing business, including the tax structure, changes significantly, firms will change their behavior as well. The response of energy firms to the 1980s tax in the U.S. was sensible. They cut back.

So, faced with the added tax burden, oil and energy companies cut back production. They did it in the early 80's when their tax structure changed. What makes Mr. Wonderfulness so sure they wouldn't do it again?

Those who cannot learn from history are doomed to repeat it.