Democrats and Republicans Going After Oil Companies

I really feel like writing another op-ed.

House Republicans, worried about political fallout from the high-profit figures that oil companies are expected to release later this week, will demand that companies pour those profits into refining more oil for the U.S. market in order to lower prices.
At a press conference today, Republicans led by House Speaker J. Dennis Hastert will tell the companies to explain why they are making so much money and what they will do to bring down the cost of gasoline. . . .
Democrats already have gone further than Republicans. Sen. Byron L. Dorgan, North Dakota Democrat, has introduced a windfall profits tax that would take 50 percent of profits from every barrel of oil sold for more than $40.

A useful comparison is an op-ed in today's LA Times by a good friend of mine, Ben Zycher, who explains how the government's desire to squeeze out profits from drug companies when a problem arises eliminates their incentive to solve those potential problems in advance.

. . . . Consider the recent White House meeting among President Bush, top administration officials and the major vaccine producers. The purpose was to speed preparations for a possible — but unlikely — flu pandemic caused by a potential breakout of avian flu among human populations.

A similar 1918 outbreak killed 30 million to 50 million people worldwide. So why are those greedy pharmaceutical producers not moving mountains in anticipation of this huge potential need, with all of the dollars that would follow?

Well, let us begin with the saga of Cipro, an antibiotic effective against airborne anthrax. When the potential terrorist use of anthrax became a serious concern in 2001, the Centers for Disease Control and Prevention asked Bayer Pharmaceutical (the producer of Cipro) to obtain Food and Drug Administration approval to label the drug for treatment of anthrax. Bayer did so at its expense, and then donated 4 million doses to the federal government.

The feds then demanded another 1 million doses at a discounted price. When Bayer balked, the government threatened to suspend the patent on Cipro and thus forced Bayer to sell the additional doses at one-quarter of the market price. Other major purchasers of Cipro then demanded that same price. Moreover, Bayer enjoyed no liability protection against potential lawsuits stemming from any side effects of Cipro. Inside the Beltway, it is no mere cliché that no good deed goes unpunished.

This government theft, by the way, was orchestrated by those pro-business, pro-free enterprise, pro-capitalism Republicans.

The federal government also purchases almost two-thirds of the childhood vaccines used in the U.S., at a mandated discount of 50%. The National Academy of Sciences has concluded, not surprisingly, that the result is "declining financial incentives to develop and produce vaccines." Combined with the liability problem, the effect has been a fall in the number of vaccine producers from 25 in the mid-1970s to five today.

Vaccine producers must attract capital from investors far more interested in doing well than doing good, but interest-group politics has created a game of "heads I win, tails you lose." If they make the enormous investments needed to develop, produce and stockpile the requisite vaccines and no major outbreak occurs, they will be stuck with the costs. Fair enough: That's life under capitalism. But if the outbreak does occur, the short-term incentives of bureaucrats and politicians to reduce budget costs and to transfer wealth to their constituents, combined with inevitable accusations of profiteering, will prevent the producers from earning high returns on these risky investments. . . . .