It pains me to see highly educated economists shilling for industry when they know better. Case in point: Dr. William F. Shughart II, who holds the F.A.P. Barnard Distinguished Professor chair of Economics at the University of Mississippi, wrote a guest editorial in the October 1, 2007 Clarion- Ledger entitled "New taxes would cut oil production, harm small stockholders," wherein he wrote the following propositions:

1. Imposing additional taxes on the U.S. oil and gas industry undermines the goal of providing stable and cost-effective supplies of energy for consumers and discourages the enormous capital investments needed to meet the nation's growing energy demands. The House energy bill would reduce incentives to develop domestic energy resources and would discourage investment in new refinery capacity–thereby increasing our dependence on foreign suppliers.

2. We haven't built a new refinery since 1976, in part because of "not-in-my-backyard" attitudes and costly environmental regulations. As a result, U.S. oil refining capacity is nearly 4 million barrels a day below current consumer demand, a shortfall that must be met by importing petroleum products.

3. The absurd windfall profits tax on oil companies imposed during the Carter administration reduced U.S. oil production, cost thousands of jobs and let to an increase in imports.

The very heart of the argument for Capitalism is that the system rewards those who create wealth, as opposed to systems that merely siphon off wealth from the many for the benefit of the few. There is no other moral argument that justifies the enormous concentration of wealth and power that characterizes the modern capitalistic system.

The record profits reaped by Exxon, BP and the other major oil producers, however, have not come about through their own efforts (other than perhaps backing George W. Bush and his Iraq invasion), but through the increase in the price of oil. Speculative profits amount to a transfer of wealth from someone—in this case, the purchaser of petroleum products—to the speculator, who has created no wealth in return. Translated into simple terms, we pay more at the pump and Exxon makes higher profits without lifting a corporate finger. No capital investments are necessary, no sacrifice required. Just rake in the dough and contribute to friendly politicians who will let you keep that dough.

Keeping this in mind, we first examine points 1 and 3. I happened to work for a small independent oil company during the time that the windfall profits tax was in effect. The tax was an effort to recoup some of the windfall profits of oil producers when OPEC raised the price of oil in the late 1970s. The statute made a distinction between existing production (old oil) and production from newly-drilled wells (new oil). Only the old oil was subject to the windfall profits tax.

The result was an explosion of oil exploration in the U.S.A. During the early '80s the most valuable piece of property you could possibly own was an oil rig, because the demand for oil rigs was astronomical. The oil companies were spending money like drunken sailors and the wealth seemed inexhaustible.

Then it all went away.

Shughart indirectly blames the WFT for the collapse of the domestic oil industry in the early '80s, but that signal honor must go to Ronald Reagan, who cut a deal with the Saudis to increase production and lower the price of oil close to $10/bbl. All the independent oil producers went out of business in short order, including the company I worked for. It was good for the economy overall, but it made domestic exploration unprofitable. Thousands of producing wells were plugged and abandoned in the '80s. Oil at $10/bbl rendered the WFT irrelevant and inoperative. It expired by its own terms shortly thereafter. It had no effect whatever on exploration.

With respect to point 2, the investment argument, stark reality refutes Dr. Schughart. If it had been profitable to construct refineries, then the major oil companies would have been building them all along. They have never lacked the resources to do whatever they needed in that respect. The fact that they have not been building, are not now building, nor are they planning to build new refineries any time soon is a dramatic demonstration that they are satisfied with their capacity as it now stands. The environmental regulations that prevent them from operating unsafe and unhealthy workplaces and poisoning the groundwater and air are neither onerous nor unreasonable. In planning and operating new refineries they would merely have to pay costs that were formerly paid by their employes, their neighbors and the environment.

Most likely, the petroleum industry has not constructed new refineries because world oil production has either peaked or will soon peak, and thus additional refining capacity will never be needed. Considering the 5-10 years it takes to bring a refinery on-line from the planning stage, it would be insane to begin the process now, no matter how much money is available to invest.

Dr. Shugart's curriculum vitae reveals that he is an apologist for powerful corporations, with ties to the right-wing Heartland Institute, George Mason University, and a number of other pro-corporate organizations. The ideological threads that run through all these institutions are the sanctity of private property, corporate profits and the highly-managed and controlled industrial/financial system whose plutocratic nature is concealed by the term "market economy."

Always beware of economists that seek to justify the powerful acquiring more power and the wealthy acquiring more wealth.