August 4, 2008 Energy, Taxes, and the American Psyche

It's Monday, and at this point, since neither of the candidates have articulated a clear and concise rational as to why we should vote for them, we’ll just have to continue to critique what they manage to dish out on a day-to-day basis. Sen, Obama seems to be getting the most coverage, so that will follow suit here.

One of Sen, Obama’s latest pronouncements for solving the energy crisis is to enact a “windfall profit’ tax on the oil companies to pay for, yet again, another stimulus plan.

This of course begs the question “what’s a windfall profit?” , and that of course is where it gets interesting. The Wall Street Journal has an excellent view of this in today’s issue.

Despite Exxon Mobile’s profits hitting record highs, its tax bills are already at record highs too. Between 2003 and 2007, Exxon paid $64.7 billion in U.S. taxes, exceeding its after-tax U.S. earnings by more than $19 billion. It seems that the Government is actually getting the windfall.

If you evaluate margins as a percentage of sales, Exxon's profits don't seem so large. Exxon's profit margin stood at 10% for 2007, which is hardly out of line with the oil and gas industry average of 8.3%, or the 8.9% for U.S. manufacturing (excluding the sputtering auto makers).

If that's windfall profits, most of corporate America would qualify. Take aerospace or machinery -- both 8.2% in 2007. Chemicals had an average margin of 12.7%. Computers: 13.7%. Electronics and appliances: 14.5%. Pharmaceuticals (18.4%) and beverages and tobacco (19.1%) round out the Census Bureau's industry rankings. In a tax bill on oil earlier this summer, 51 Senators voted to impose a 25% windfall tax on a U.S.-based oil company whose profits grew by more than 10% in a single year and wasn't investing enough in "renewable" energy, and if 10% is the new standard, the tech industry is going to have to rethink its growth arc.

If Senator Obama view the oil industry’s margins as "outrageous" profits, he might also have to turn on a few liberal darlings. Oh, say, Berkshire Hathaway. Warren Buffett's outfit pulled in $11 billion last year, up 29% from 2006. Its profit margin -- if that's the relevant figure -- was 11.47%, which beats out the American oil majors, or better yet, Google, which earned a mere $4.2 billion but at a whopping 25.3% margin.

General Electric profits by investing in the alternative energy technology that Mr. Obama says Congress should subsidize even more heavily than it already does. GE's profit margin in 2007 was 10.3%, about the same as profiteering Exxon's. Private-equity shops like Khosla Ventures and Kleiner Perkins, which recently hired Al Gore, also invest in alternative energy start-ups, though they keep their margins to themselves. We can safely assume their profits are lofty, much like those of George Soros's investment funds.

The point is that what constitutes an abnormal profit is entirely arbitrary. It is in the eye of the political beholder, who is usually looking to soak some unpopular business. In other words, a windfall is nothing more than a profit earned by a business that some politician dislikes. And a tax on that profit is merely a form of politically motivated expropriation.
It's what politicians do in Venezuela, not in a free country.


Sen. Obama’s team has also clarified his “current Obamanomics position” on taxes:

39.6% on ordinary income and 28% on capital gains. Mr. Obama would thus raise the tax rate on capital gains by about three times as much as President Bush cut it, but he'd preserve at least some of the Bush reduction in the double-taxation of dividends.

However, Mr. Obama is proposing to raise the top marginal rate on wages (also interest, rent and royalties, etc.) more than 40% above the corresponding Reagan rate of 28%. Mr. Obama would thus give us the worst of both worlds: tax rates on ordinary income 40% higher than Reagan and on capital gains 40% higher than Clinton.

Raising the rate on capital gains to 28% would greatly reduce the ability of firms to minimize double taxation by returning cash to their shareholders through repurchases. As for dividends, the Obama plan would nearly double the tax to 28% from 15%.


And, still focusing on Sen. Obabma (where is Sen. McCain, and what is he thinking?), late last week he said he could perhaps support more U.S. energy exploration, so long as it was part of a larger "bipartisan" deal that presumably includes more rules for conservation, subsidies for noncarbon fuels, and other favorites of his green backers. But remember, paid for by those outrageous “Big Oil” windfall profits. Guess he must have sensed the wind shift on this issue.



The NY Times had an interview with T. Boone Pickens that was a good read despite a poor interviewer. Listening to him, it seems to me that this is how most Americans used to sound; confident, purposeful, and determined. Here’s a classic comment: “I say, you work eight hours, and you sleep eight hours — be sure they’re not the same eight hours.”

What the hell happened to our society? How did we wind up with the mealy mouthed wimps we have as politicians and business leaders? One things for certain, we have to get back our models of strong men and women if we’re to keep this experiment in democracy going. Anyway, here’s T. Boon Pickens…….enjoy: Questions for T. Boone Pickens



Following up on the theme of American society, Jonah Goldberg spotlighted a key part of America’s malaise with his piece on "The spoiled children of capitalism" . He equates the problem many of our citizens have with valuing our Capitalistic society, to parents with spoiled children. Here's an abridged version of his article......

It's an old story. Loving parents provide a generous environment for their offspring. Kids are given not only ample food, clothing and shelter, but the emotional necessities as well: encouragement, discipline, self-reliance, the ability to work with others and on their own. And yet, in due course, the kids rebel. Some even say their parents never loved them, that they were unfair, indifferent, cruel. Often, such protests are sparked by parents' refusal to be even more generous. I want a car, demands the child. Work for it, insist the parents. Why do you hate me? asks the ingrate.

Capitalism is the greatest system ever created for alleviating general human misery, and yet it breeds ingratitude.

People ask, "Why is there poverty in the world?" It's a silly question. Poverty is the default human condition. It is the factory preset of this mortal coil. As individuals and as a species, we are born naked and penniless, bereft of skills or possessions. Likewise, in his civilizational infancy man was poor, in every sense. He lived in ignorance, filth, hunger and pain, and he died very young, either by violence or disease.

The interesting question isn't "Why is there poverty?" It's "Why is there wealth?" Or: "Why is there prosperity here but not there?"

At the end of the day, the first answer is capitalism, rightly understood. That is to say: free markets, private property, the spirit of entrepreneurialism and the conviction that the fruits of your labors are your own.

Any number of countries in Africa are vastly richer in baubles and soil than Switzerland. But they are poor because they are impoverished in what they value.

In large measure our wealth isn't the product of capitalism, it is capitalism.

And yet we hate it. Leaving religion out of it, no idea has given more to humanity. The average working-class person today is richer, in real terms, than the average prince or potentate of 300 years ago. His food is better, his life longer, his health better, his menu of entertainments vastly more diverse, his toilette infinitely more civilized. And yet we constantly hear how cruel capitalism is while this collectivism or that is more loving because, unlike capitalism, collectivism is about the group, not the individual.

These complaints grow loudest at times like this: when the loom of capitalism momentarily stutters in spinning its gold. Suddenly, the people ask: What have you done for me lately? Politicians croon about how we need to give in to Causes Larger than Ourselves and peck about like hungry chickens for a New Way to replace dying capitalism.

This is the patient leaping to embrace the disease and reject the cure. Recessions are fewer and weaker thanks in part to trade, yet whenever recessions appear on the horizon, politicians dive into their protectionist bunkers. Not surprising that this week we saw the demise of the Doha round of trade negotiations, and this campaign season we've heard the thunder of anti-trade rhetoric move ever closer.

This is the irony of capitalism. It is not zero-sum, but it feels like it is. Capitalism coordinates humanity toward peaceful, productive cooperation, but it feels alienating. Collectivism does the opposite, at least when dreamed up on paper. The communes and collectives imploded in inefficiency, drowned in blood. The kibbutz lives on only as a tourist attraction, a baseball fantasy camp for nostalgic socialists. Meanwhile, billions have ridden capitalism out of poverty.
And yet the children of capitalism still whine.

Fun Stuff:


Wolfgang’s Vault is the home for the past, present and future of live music. Free live concerts.






That's it for now, but check back later.....they'll be more

Weekend Bonus

It’s been a great weekend; dinner out with friends and a play; plenty of swimming; lot's of grandkid time; a new 22” monitor, and a birthday party. It doesn’t get much better than that.

Some interesting opinions were published over the weekend.

A few folks think that the oil bubble is over and that fuel prices are going to come down. Opinions are one thing, but action is quite another…..especially when people are playing with their own money.

Oil Bubble Over, Fuel Prices Stabilizing

Contrarian investor Wilbur Ross believes the oil bubble is over — and his belief is so strong that he's just bought an $80 million share in SpiceJet, the ailing Indian airline reported to have rejected a buyout offer made by Indian business tycoon and Kingfisher Airlines chief Vijay Mallya.
The move casts a solid vote of confidence for the long-term prospects of low-cost air travel in India from an investor noted for buying assets that have hit rock bottom.
The buy also reflects Ross' belief that oil prices have hit the bubble zone and will move sharply downward within the next 12 months.
"The fundamentals don't justify an oil price over $100," Ross told the International Herald Tribune. "It is the nature of bubbles that they expand farther and last longer than anyone logically imagined, but they always reverse."
Ross's firm — which has an estimated $7.9 billion in assets under management — is looking to buy more in sectors that have been hurt by high fuel prices.
The company has already purchased stakes in European railroad freight companies and is now considering refineries, gas station chains, and perhaps even the faltering U.S airlines industry.
On the other hand, there are those that think there’s going to be more blood in the financial markets.

Investors See Merrill 10 Times More Likely to Fail

Merrill has agreed to sell $30.6 billion of its repackaged debt, known as collateralized debt obligations — generally suspect and sub prime mortgages — for 22 cents on the dollar. Private equity fund Lone Star Funds is the buyer.

It seems that Merrill (and others) are using a bit of legerdemain in writing off their sub-prime assets. The net is that they are loaning the buyer the funds to purchase the assets, and if the buyer defaults, they’ll get them back! Nice piece of fudgery..
But on the other hand, there are folks out there who see the intrinsic value in these sub-prime filled brewballs, are willing to assume some risk in getting them, and stand to make a great deal if they can be liquidated at near to their original value.

“It would be more honest for the financial firms to write down to zero the value of these assets and leave open a possible positive revaluation if they turn out being worth more than zero. They should also keep them on the balance sheet rather than pretending to "sell" them via greater debt, which only massively adds to the credit risk that these firms are taking at the time when they should be de-leveraging rather than re-leveraging further.
The investor should really put into question if this is sound financial balance sheet restructuring or another Ponzi scheme of a house of debt-upon-debt cards.
The investor should really put into question if this is sound financial balance sheet restructuring or another Ponzi scheme of a house of debt-upon-debt cards.
To me, when you sell your worthless junk and provide financing for it, this cannot be considered a "sale" but rather another accounting scam whose purpose is hiding the full extent of the losses.


Given the times.....here's our poem of the day:

"There was an old woman who lived in a shoe."
by Anonymous

There was an old woman who lived in a shoe.
She had so many children, she didn't know what to do.
She gave them some broth without any bread;
And whipped them all soundly and put them to bed.


Some thoughts by Larrey Anderson on Why the Left is Unpatriotic and Why the Right Should Say So

"In a free government the security for the civil rights must be the same as that for religious rights. It consists in the one case in the multiplicity of interests, and in the other in the multiplicity of sects. This view of the subject must particularly recommend a proper federal system to all the sincere and considerate friends of republican government.[v]

it is our job, as conservatives, to preserve this system that allows the various political factions to compete for power. I now understand that this is a two-fold burden for conservatives. First, it is our obligation, as conservatives and as the champions of individual freedom, to allow the left to pursue its utopian socialist vision. Second, it is our duty, as patriotic Americans, to stop them from achieving their goal.

The right must protect and defend our representative republic because the left will not. Conservatives are "the sincere and considerate friends of republican government." We are the patriots. It is time we started acting like it -- and saying it.


Also interesting was some discussion in the Wall Street Journal and The New York Times about the fact that people don’t tell the truth to pollsters - especially when race is involved (unbelievable!). Now they're trying to figure out how to uncover the real truth from people (good luck!).

When Voters Lie


I loved this metaphor by Helen Cadogan about the Obama – McCain ‘race-card’ issue. "Tigratude"

“McCain has no need to and will not play the race card because McCain knows what Obama does not: "a tiger does not shout its tigritude,... it acts."
Obama's Tigritude


Pulling the Trigger

Here’s something that should be on the discussion agenda for the candidates but probably won’t be. With the enactment of the 2003 prescription drug benefit, Republicans added a "trigger" that was supposed to force some future Congress to address the program's long-term insolvency. The trigger kicks in if Medicare's Trustees project, for two years in a row, that the program will draw more than 45% of its funding from general government revenue -- instead of from payroll taxes, or premiums and co-pays from beneficiaries. That has happened for the last two years, and probably will every year for the foreseeable future. And when it does, the White House is required to write up "corrective" legislation. Under special procedures, the White House proposal is guaranteed an up-or-down vote in the House, though not the Senate.

The trigger doesn't actually require any cost-saving, much less real discipline. All it does is oblige the political class to nod at Medicare's deteriorating finances. But even that minor annoyance is too much for Democrats, so the House voted 231-184 last Thursday to change the rules to avoid considering President Bush's proposal.

Democrats have tried repeatedly since 2006 to abolish the trigger because it gets in the way of their health-care agenda, even if only a little bit. Barack Obama has plans for a slow-motion roll toward "Medicare for all," the ultimate goal of Democratic health policy. The trigger reminds people of how spendthrift and taxing the budget for Medicare already is -- even when it's reserved only for seniors.

The House vote stalls action until the next Administration, when Democrats will almost certainly dump the trigger entirely.


Want to know what really goes on when you screw over wait-staff in restaurants? Maybe you really don't want to know......

Waiter Rant By The Waiter (Steve Dublanica)(Ecco, 302 pages $24.95)

Mr. Dublanica has been working for tips for the better part of a decade.
He has also spent several years venting about his job. He began an anonymous blog called Waiter Rant in 2004 recounting one man's experiences working in a "white tablecloth" New York restaurant he calls The Bistro.



If you’re a citizen of a former British Colony…..thank God and your lucky stars. You won the “Best place to be a citizen of” award.

Megan McArdles, GDP: A few pictures are worth a book , is filled with illustrative maps and graphs the depict in clear manner the clear linkage between prosperity and Britain’s colonial legacy.

“When you see the map, it becomes radically apparent just how firmly Britain was the root of the Industrial revolution. With the lone exception of Japan, the darkest places on the map are either next to Britain, or former British colonies. And aside from Saudi Arabia and Chile, all the growth seems to spread outward from those Anglosphere points of infection. Nowhere, not even Saudi Arabia, has the income density of Western Europe and North America.”

GDP again seems to spread out from the Anglosphere infection--but only where there are ports. Ten thousand years or so after the first humans built sailing ships for trade, the coast still matters immensely. In fact, there are only two prosperous landlocked countries of any size: Austria and Switzerland. And at roughly 8 million people apiece, neither of them is what you would call "large". It's telling that three out of four of Europe's landlocked countries are best known for their bank secrecy laws--an export that requires little effort to transport. The energy savings of moving goods by water is so immense that a good coastline is a really good substitute for rich neighbors--think Chile. Meanwhile, those who wonder why Africa remains mired in poverty can observe how few dark spots there are along the coasts. In part this is horrible institutions, but it's also due to the fact that Africa has very few good sites for ports--the best ones are on the north and south of the continent.

Growth is inversely correlated with wealth, but positively correlated with having rich neighbors.
It's a pity that geography is so rarely taught in schools above the third grade level--there's an enormous amount to learn about societies just from looking at maps.

American Murder Mystery

Here’s a big sensitive subject, so of course you won’t see it discussed in polite circles, or political debates. It seems that the evidence is finally in that prove if you move criminals out of poor urban areas into mid-income areas in order to improve their environment and help them improve their lives…..they destroy their new neighborhood….and now you’ve got two bad neighborhoods! Oh yeah, there’s compound growth working here too.

“Falling crime rates have been one of the great American success stories of the past 15 years. New York and Los Angeles, once the twin capitals of violent crime, have calmed down significantly, as have most other big cities. Criminologists still debate why: the crack war petered out, new policing tactics worked, the economy improved for a long spell. Whatever the alchemy, crime in New York, for instance, is now so low that local prison guards are worried about unemployment”.

“Lately, though, a new and unexpected pattern has emerged, taking criminologists by surprise. While crime rates in large cities stayed flat, homicide rates in many midsize cities (with populations of between 500,000 and 1 million) began increasing, sometimes by as much as 20percent a year. In 2006, the Police Executive Research Forum, a national police group surveying cities from coast to coast, concluded in a report called “A Gathering Storm” that this might represent “the front end … of an epidemic of violence not seen for years.” The leaders of the group, which is made up of police chiefs and sheriffs, theorized about what might be spurring the latest crime wave: the spread of gangs, the masses of offenders coming out of prison, methamphetamines. But mostly they puzzled over the bleak new landscape. According to FBI data, America’s most dangerous spots are now places where Martin Scorsese would never think of staging a shoot-out—Florence, South Carolina; Charlotte-Mecklenburg, North Carolina; Kansas City, Missouri; Reading, Pennsylvania; Orlando, Florida; Memphis, Tennessee”.

“Why is crime rising in so many American cities? The answer implicates one of the most celebrated antipoverty programs of recent decades. Section 8 housing subsidies……ruining our suburban areas. Another Liberal plan, well intentioned but subject, as always, to the law of unintended consequences”……

Now the fun stuff….


Forget the fantastic stunts and acting, the biggest excitement in this great stunt scene is the sign advertising 57 Cents a gallon gas!

Hooper - The Greatest Stuntman Alive. The final stunt scene from the 1977 movie "Hooper", starring Burt Reynolds and Jan Michael-Vincent. This movie is better than you remember it (clip includes some profanity)


If you ever imagined Michael Keaton’s Beetlejuice character as a singer, he’d probably sound like Tom Waits.

Check out Tom’s latest concert tour album…the man is unique… A Stunning Performance, Recorded At Atlanta's Fox Theater
Glitter And Doom: Tom Waits In Concert


Why does it take a Brit to show us how great ’60 Soul Music was (is)
James Hunter Delves Into '60s Soul and channel the spirit of Sam Cooke and Jackie Wilson


Jim James At The Newport Folk Festival

Dianna Krall

Happy Birthday to Jerry Garcia this weekend. Here's " Tangled Up in Blue"