Thursday, January 6, 2011

Socialism by Other Means

Chris Dodd

Barney Frank

As I pondered the direction our Government had taken over the previous year, I looked at the definition of socialism by typing "define: socialism" into Google.  The first definition presented was from Princeton's wordnet and read as follows; "a political theory advocating state ownership of industry."  The definition feels woefully lacking. 

Ownership denotes control, and the state is certainly getting into the business of controlling industry. Over the last year our government has exerted more control over enterprise via legislative fiat than at any other time since FDR's power grab during the Great Depression. From the thousands of pages of ObamaCare, to the thousands of pages of the Dodd-Frank "financial reform" bill, government power is firmly entrenched in business and expanding. The more regulations the state adds the more control it exerts.

Can a business be considered a free enterprise when there are thousands of pages of rules that dictate its every move, from how much it can pay employees, to how much profit it can make? Is a business free when the rule of law is not honored, and the state can summarily declare that some contracts are valid and will be honored while others are not?  Can stockholders or owners say that they run a company when the state makes such important decisions and keeps most of the profits? 

Since the Gulf oil spill was voted the top story of 2010, let's take a look at the petroleum industry.  Several left wing pundits opined that it was a lack of regulation that caused the disaster.  That seems odd considering the amount of government red tape involved in the process of getting oil out of the ground and to market.

Gulf Oil Spill

Big oil has long the favorite whipping boy of grandstanding, self-righteous politicians. The petroleum industry can't drill, refine, or sell without the government deeply involved in every aspect of the business. A petroleum company's pain begins with the search and acquisition of raw crude oil. If a company wants to drill, it has to get permits from the government. This has become a painful process. After the recent gulf oil spill, it has become longer and even more arduous. The Gulf of Mexico, one of the few places left to drill legally, has been essentially made off limits via the permitting process. Where to drill isn't dictated by science, economics, or even common sense. Drilling in the United States is dictated by the state.

If a company is lucky enough to get the oil out of the ground, it then runs into the next problem, refining.  Thanks to lawsuits and over regulation, the last new refinery built in the United States was built in Garyville, Louisiana, when Carter was President.  At that time the United States used 6,978,000 barrels of gasoline per day and by 2007 the US was consuming 9,286,000 barrels of gasoline per dayIn that same period of time gasoline has gone from a fairly standardized product used in all states to a very complex product that requires very precise reformulations to meet the ever expanding set of government rules.  This patchwork of state and federal regulation is so varied that some call the process of creating gasoline "creating boutique fuels."

So while demand for refining capacity has continuously increased, our production capacity has barely been able to grow enough to meet demand.  Most refineries are running at nearly 100 percent capacity around the clock.  This is why small disruptions cause massive price swings.

Leftists continue to make spurious claims that neither regulation nor lawsuits have prevented the building of a single refinery.  Such groups like to point to the Arizona Clean Fuels refinery that the EPA permitted in 2004 after years of work.  Ironically no shovel has moved a single piece of earth in the building of the refinery which was supposed to be online in 2010.  The legal and regulatory battle has brought us more than 6 years into the future without any danger of a new refinery being built.

Once a company has cleared all of the hurdles of getting the oil out of the ground and turning it into a product for market, the tax man comes. For every gallon of gasoline the government collects between 30 to 50 cents in taxes (18 to the feds, and on average 22 to the states and quite often 2-5 cents to a local municipality). In 2007 Exxon made $40 billion dollars in profit, but it paid $100 billion in taxes and royalties. In other words government made 2.5 times more from Exxon's oil production than Exxon and its shareholders did.

Who needs state ownership when the government can make 2.5 times more profit from an enterprise than the enterprise makes itself?  Since the company is allowed to make a profit, it doesn't fit the strict definition of socialism.  Instead we have a system of overregulation that gives a large amount of control over and profit from a business to the state, while allowing the company to keep some share of profit for itself.  I call this system regulationism. People that believe in over regulation and state control of businesses are regulationists. 

Regulationism often brings  disastrous results.  In some cases monopolies were granted by the state, in others competitors weren't allowed to compete.  The cost of air travel and phone service was astronomical.  Thankfully the Reagan revolution helped tear down the regulationism that was in place.  If the regulations from the 70s were still in place we wouldn't have cheap air travel, ubiquitous cell phones, or a host of other advances that a competitive market place offers. 

The goals of regulationism and socialism are the same, control over a company or business.  The end result of regulationism and socialism is also the same, a lifeless economy filled with uncompetitive businesses.  November's election wasn't just a rejection of a political party, or a fight over personal taxes; it was also the rejection of regulationism. 

In the next election President Obama should have 2 labels to avoid, socialist and regulationist.  Being in either camp is equally poisonous in American politics.

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