Out here in the Land of the Free Lunch---I refer to California, the Golden State---the Spirit of Brezhnev breathes free. Surely you remember the great philosophic truth that the Great Leonid Ilyich bequeathed mankind for all the ages: What's Mine Is Mine and What's Yours Is Up For Grabs. (I translate loosely from historical editions of Pravda.) Well, in the wake of rising gasoline prices in california, we now hear loud calls for "windfall profit" taxes to be imposed upon oil producers and refiners.
Perhaps old age has affected my memory, but I simply do not recall arguments for windfall loss subsidies for those same producers when market conditions were weak. Moreover, to the extent that high prices for refined products stem from increases in the world market price of crude oil, refiners (as opposed to oil producers) are losers. And let us not ignore the past efforts of the very same interests now calling for such taxation at thwarting investment in new refining capacity. Moreover, the ethanol mandate---by the way, little evidence supports the notion that oxygenation with either ethanol or MTBE improves air quality---has reduced gasoline supplies because too little ethanol production capacity exists to satisfy total regulatory needs now that Congress has refused to exempt MTBE producers from lawsuits over groundwater leakage, even though those producers have little or nothing to do with leaking gasoline storage tanks.
So: Tax 'em when prices are high, let 'em lose money when prices are low. That means automatically that over time the production/refining sector cannot earn competitive returns, because upside potential is limited while downside risk is not. That Governor Arnold Schwarzenegger has signed on to this mendacity even as he sings the praises of Milton Friedman---"We must not rule out the possibility of market manipulation, price gouging or unfair business practices employed by oil companies."---is appalling.