The Federal Reserve is trying to bludgeon the inflation monster into submission by increasing unemployment. The theory is, unemployed people won’t have money to spend on things like cars, homes, and consumer goods. Lower consumer demand will lead to a slowing economy which will in turn lead to lower inflation.
People who are unemployed won’t be able to afford to heat and cool their homes, which will lead to lower demand for home heating oil, unnatural gas, propane, and electricity. Lower demand = lower prices = less inflation. Mission accomplished. Let’s adjourn for lunch at the club.
The Fed is doing a full frontal assault on those who are hurt most by inflation while letting the robber barons who rule Wall Street run wild. This is the government preferring fictitious citizens — otherwise known as corporations — over actual citizens — otherwise known as people.
The Case For An Excess Profits Tax
It should be intuitively obvious to anyone with the intelligence of a mollusk that inflation today is the result of lavish government spending designed to tame the harmful economic effects of the pandemic. All that money sloshing around was bound to spur consumer spending. Now suddenly, the Fed has decided the best way to tamp down the completely predictable effect of all that government largess is to throw a bunch of people out of work. Instead of tapping the brakes on inflation, what the Fed is doing is more like a full “anchors away” panic stop in the middle of Route 95 during rush hour.
Some people think full employment is good. It makes people feel useful if they wake up in the morning with a purpose. But Jerome Powell and his minions don’t see it that way. To them, inflation is worse than the scourge of communism and must be eradicated by any means possible. If a few individuals have to suffer, well, it is for the greater good.
Part of the problem is structural. The Fed has very few tools available to accomplish its mission. In fact, raising and lowering interest rates is about the only lever it can pull to accomplish its mission. Imagine if Congress, in its infinite wisdom, had decided to give the Fed a few more weapons in its arsenal.
Inflation & Profits
What if it could cool the rapacious nature of corporate culture by imposing excess profits taxes to address market inequities? The major oil companies have used the pretext of the war in Ukraine to make obscene profits while ordinary people are struggling to feed their families or heat their homes. Shouldn’t some of those profits be used to cushion the effect that inflation has had on ordinary people?
California Governor Gavin Newsom recently endorsed a report by Consumer Watchdog which calls for an excess profits tax on oil refiners in that state after they reported record profits. Gasoline in California currently cost about $2.50 a gallon more than in the rest of the US. Consumer Watchdog reports that the state’s five major refiners made between three and ten times more in profits per gallon off their West Coast operations from April through June than they did in the same period last year.
On September 30, Newsom called for a windfall profit tax on the state’s oil companies. “Oil companies are ripping you off,” he tweeted. “Their record profits are coming at your expense at the pump. I’m calling for a NEW windfall tax exclusively on oil companies. If they won’t lower their prices, we will do it for them. The $$ will go directly back to you.”
Oil Company Profits Are Obscene
Under the guise of adapting to the new economic realities created by the war on Ukraine, the world’s major energy companies are raking in profits seldom seen before in the industry. According to the Washington Post, “Recent second quarter earnings reports proffered eye-popping figures. BP posted second quarter profits worth $8.5 billion, its biggest windfall in 14 years.
“ExxonMobil went one further — its $17.9 billion in net income was its largest ever quarterly profit. U.S. company Chevron, London based Shell and France’s TotalEnergies also recorded blockbuster results. Put together, these five major companies made $55 billion this past quarter, as hundreds of millions of people around the world bore the brunt of surging prices at the pump.
“And it’s not just oil and gas. Coal, which climate campaigners are desperately seeking to phase out, is surging, too. Glencore, the world’s largest coal shipper, generated record profits in the first half of 2022 and plans to pay out an additional $4.5 billion in dividends and buybacks to shareholders.”
UN Secretary General António Guterres also had something to say on this topic.
The combined profits of the largest energy companies in the first quarter of this year are close to $100 billion.
This grotesque greed of the fossil fuel industry and their financiers is punishing the poorest and most vulnerable people, while destroying our only home.
— António Guterres (@antonioguterres) August 4, 2022
Several European countries and the EU either have enacted or are considering windfall profits taxes to help people who are struggling with high energy prices make it through the coming winter, according to the Tax Foundation. Those efforts have met with only modest success so far and are strongly opposed by the companies themselves, the Washington Post reports.
The price of electricity is tightly controlled by various federal and state boards and commissions, yet the cost of the fuel needed to operate thermal generating facilities to make the electricity is not. Does that make any sense? Only if you ascribe to the notion that greed is the best way to organize the economic systems society depends on. One of the principal reasons power purchase agreements for renewable energy are so popular is because they offer price stability rather than the wild gyrations that are common for fossil fuels. Excess profits taxes would also help dampen those wild swings in energy prices.
There are plenty of people who will tell you that greed is good, but is that true? Greed led the Spanish conquistadors to wipe out the native people they encountered in the New World in the name of profits. Greed was the engine that drove the age of colonialism and the constant wars that arose from one country attempting to impose its will on another.
Corporations have no purpose other than to make money. Through their lobbyists, they control most governments at the local and national level. Therefore, greed is the number one factor in all human relations. Is that really a smart way to build a just and sustainable society? Perhaps the idea that corporations should share some of their wealth with the community that sustains them is not so outrageous as it may seem at first blush.
George Carlin tried to tell us that America is an oil company with an army. We laughed at the joke, but learned nothing from it. We allow corporations to choose our elected officials and judges. Do corporations serve us or do we serve them? The answer seems clear — we are slaves to our corporate masters and quite content with that. An excess profits tax would disrupt our relationship to the those corporations. Would that be such a bad thing?
The Fed’s war on workers is thoroughly undemocratic and does not address the core issue. These unelected solons are only interested in protecting the wealthy and the corporate world, which demonstrates how far America has come from its roots.
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