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The Greed Behind CA Prop 87  
by Gary M. Galles [author, academic] 10/26/06


The recent gasoline price spice and resulting record oil company profits generated an uncountable number of accusations of greed.  The resentment stirred up has spawned Proposition 87, backed by a multimillion dollar promotional campaign, even as gas prices fall.

Proposition 87 is being spun as a means to reduce oil consumption and stimulate the economy by creating alternative energy innovation.  However, that is what it hopes to accomplish.  Backers offer none of the necessary details to evaluate it or reasons to presume success.  But it will inefficiently transfer resources from where consumers’ choices direct to where government bureaucrats dictate, and harm rather than help the economy. 

Gary M. Galles

Mr. Galles is a professor of economics at Pepperdine University. [go to Galles index]

Beyond treating wishful thinking as reality, Proposition 87’s promotional campaign goes little beyond punishing oil companies for the high profits that “prove” their greed.  The pro-87 ballot argument’s second sentence reads: “Had enough of oil companies charging outrageous prices and making obscene profits?” The $4 billion cost it would impose on oil companies is justified as making them pay their “fair share” three times in its first 85 words, while assuring voters that there will be “NO COST TO CONSUMERS” (highly questionable, since it increases taxes on oil production).   
Californians are being told “you will benefit; they will pay (but their greed makes it OK).”  But that claim rests on an inconsistent use of “greed” that confuses the issues rather than clarifying them.

The most obvious inconsistency is that “only others are greedy.”  Proposition 87’s backers manipulate envy and resentment to ensure voters see greed only in “Big Oil,” but never in themselves,  their self-appointed advocates, or governments that profit more than producers. Higher oil company profits are denounced as greed.  However, consumers’ desire for lower gasoline prices is not, despite sharing the same essential characteristic--“more for me.”  And Prop 87 backers are not greedy, despite “close financial ties to the type of ‘green tech’ companies that could benefit,” according to the San Francisco Chronicle.

Assertions that oil companies under-invest in alternative energy are then added, allowing backers to define oil companies’ failure to finance their pet causes as greed, but not their mandate that others pay $4 billion on those causes.  Of course, where alternative energy investments are profitable, greedy oil companies would invest without massive subsidies.

Another inconsistency is alleging greed when it provides rhetorical ammunition against oil companies, but not when it would contradict different accusations they wish to make.

High gas prices are “greedy.” But what about when prices fall, as currently?  Is “Big Oil” just intermittently greedy?  Oil companies are accused of building insufficient refinery capacity.  But greedy oil companies would have built more refineries if they were certain to be highly profitable.  They have been accused of all sorts of “isms” in employment—racism, sexism, ageism, etc.--as well.  But if any group is systematically underpaid, hiring them is a massive profit opportunity the greedy would not pass up.  Besides, government profit extraction, such as Proposition 87, only reduces profit incentives to seek out productive but underpaid employees.

Oil companies are “greedy” for using their resources in pursuit of profits, rather than as Proposition 87’s backers wish.  But even if motivated by greed, profits arise only from improving others’ options, when transactions are voluntary.  In contrast, those asserting oil company greed want to coerce others for their benefit. That is greedier, and unlike market arrangements, it provides no assurance of benefit to the rest of us. 

Emerson asserted that “A foolish consistency is the hobgoblin of small minds.” But using “greed” consistently is foolish only if getting Proposition 87’s backers more of what they want is all that matters.  That is why they don’t do it.  But their inconsistency forestalls logical discussion, making efficient energy policy impossible.  And since efficient energy policy is Proposition 87’s supposed goal, if logical consistency outweighed their greed, even its backers would vote “no” in November.  CRO


copyright 2006 Gary M. Galles



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