AFF Sentinel Vol.5#13

Let's consider why governments need our help in understanding economics.

First, there's the grandstanding Congressional committee calling Big Oil companies on the carpet, castigating them for bad results (high gasoline prices) that are significantly attributable to actions - or lack thereof -- by Congress. Call it, "Economic Ignorance on Parade." Congress plays totally ignorant that the big U.S. oil companies don't even own most of the world's crude supply. Then they pretend that prohibiting most or all drilling off our West Coast, East Coast, much of the Gulf Coast and in Alaska has nothing to do with the supply - or price - of oil. Then they ignore the impact of the environmental juggernaut unleashed on America - the EPA - to guarantee that no new refineries would be built in this country.

To add insult to injury, when it costs hundreds of millions to build a single oil platform, the Wall Street Journal pointed out that the effective tax rate for the oil companies ranges from 40 - 45 percent ("Oil Refinements," 4/02/08).

"Over the past five years, Exxon Mobil's total U.S. tax bill exceeded its U.S. revenues by some $19 billion," the Journal noted. Beef industry companies are used to tax bills exceeding profits ...but revenues? Holy cow!
How does all this help consumer/taxpayers? Nada. To really assist them, the federal government is paying subsidies (tax money) to make sure ethanol costs every fuel user more.

Then there are foreign governments. Argentina's citizens are suffering through empty grocery shelves. Farmers are blocking roads and refusing to deliver food and demonstrators are protesting food shortages and treatment of farmers. The issue: Argentina's government has further increased the export taxes levied on agricultural products. They don't call them export taxes - the euphemism is "retention rates" - but the effect is to drastically curtail agricultural exports. For example, the new export tax on soybeans will be 44 percent, up from 35 percent, according to Mary Anastasia O'Grady in the Wall Street Journal, ("Tax Rebellion in Argentina," 03/31/08). Additionally, the farmers have to pay a 35 percent income tax on profits.

"The farmer ends up paying essentially a 63 percent tax on gross income," Pablo Guidotti said. He is dean of the school of government at Argentina's DiTella University. He adds that the "retention rate" increases as the price of beans goes up, until the government's total take reaches 95 percent.

At least Argentina's President Cristina Fernandez Kirchner calls the retention rate what it is - a "redistribution mechanism" - something the big government, liberal folks in Washington D.C. rarely admit.

Our Congress has not instituted a "retention rate," but they have their own tactics. One tactic is to refuse to vote on free trade deals that have already been negotiated, so that American businessmen, farmers and ranchers can't sell products at all (100 percent retention) or at lower tariff rates. That way American consumers are cheated out of the full array of products the world has to offer and the cheaper prices global competition provides. Trade treaties with multiple countries have languished for months in this Congress while Senate leadership ignores them.

Another tactic: the President's Trade Promotion Authority - the power to negotiate international trade deals that the Senate supposedly votes on - expired last June, with no sorrow from Congress. Does the harm done to consumer/taxpayers and American businessmen and workers and cattlemen bother Congress? Puullllleeeeease!

Far from worrying about increasing free trade, revenue and jobs, the Democratic presidential candidates are fighting over who could potentially do the most damage to trade relations. They have attacked NAFTA relentlessly (which has resulted in over $700 billion in new trade ... and counting).

Let's see now, what countries are signatories of NAFTA: Canada, Mexico and the U.S. Next question: which countries are some of the biggest suppliers of oil to the U.S.? Well, Canada is #1 and Mexico is #3. That certainly explains why a Democratic President would hope to anger them, maybe start trade wars. Next question: What countries buy the most beef from the U.S.? Well, Mexico is #1 (#2 in pork) and Canada is #2 (#3 in pork). Again, easy to see why we'd want to anger them.
So our leaders try to learn from the best logic and economic examples the world offers.