A crony-capitalism example from the Jimmy Carter days

There is a great mystery about corporations and regulations that confounds a lot of people. I’ll try to illustrate the mystery with a historical example from my youth.

In the days when Jimmy Carter was president he was bleating about the energy crisis and the skyrocketing cost of a gallon of gas. President Carter promised to punish big oil with a “windfall profits tax.” This promised tax was good politics and one could be forgiven for thinking that the people had won and “big oil” had lost on that day when he signed the tax into law. The mystery of corporate action is that the lobbyists for the largest oil companies had all spread around cash and influence to get the bill passed. Passed! What in the world? Why would they want extra costs added on to the price of their product?

But since there was no windfall-profits tax in Saudi Arabia, or other middle eastern oil producing countries, the extra costs only applied to the oil in the USA which at that time was mainly being pumped by the small independent firms. Surprise! The tax punished the smaller independents who were selling nearly 100 percent domestic oil and aided the major “big oil” firms that sold a major portion of their sales in foreign oil by giving them a huge price advantage.

The “windfall profits” tax along with price and allocation regulations of the DOE killed off the small independent oil firm and then the big oil companies were able to buy up domestic capacity at fire sale prices. If that were not enough, the next administration repealed the tax and the regulations which made the domestic oil much more valuable to the oil companies again. The big windfall of the whole drama was the takeover of the independent firm by the large firms which was made possible by the tax. This adventure in punitive taxing made tons of money for “big oil”.  This example is just another data point showing that the government’s tools of inflation, taxation, and regulation are used to transfer wealth from the people to the government and its cronies.

Any time a tremendous amount of money is at stake you can bet that there will be a lot of lobbyists clustering around DC trying to get their firms in on the graft and corruption.  There is never any deregulation, only re-regulation where the regulations that favor one group get changed to favor another group.

The devil is in the details they say; and the devil is in the regulations that the departments write after the laws are passed. To have a law favorable to your firm is very important and a lot of money is tossed around to make sure of that; but, it is also important to have a hand in writing the regulations themselves. The bigger, more favored firms have the advantage when it comes to getting special treatment from the government.

This is an example of why our system is often called “crony-capitalism”.

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