Letters

October 26, 2005

An Open Letter to America's Elected Officials:

We, the undersigned economists,^* write to strongly advise you against attempting to regulate the energy market through either government price controls or a so-called "windfall profits tax." Because of the recent increase in gasoline prices, some have proposed these measures. Either would be a mistake.

When the oil shocks of the 1970s hit, Milton Friedman and many other economists warned of the dangers of petroleum price controls and excessive energy taxes, which were then being advocated by some. Unfortunately, this wise counsel was not taken.

President Nixon's price controls were a debacle. This is true for the controls in general and those on the price of oil. Herbert Stein – head of the Nixon Administration's Council of Economic Advisers and an opponent of the price controls – observed later that the Nixon price controls on domestic oil had the effect of "encouraging oil imports, increasing our dependence and making it easier for OPEC to charge us a high price." We agree with President Nixon's belated admission about his price controls policy: "I believe that it was wrong. The piper must always be paid, and there was an unquestionably high price for tampering with the orthodox economic mechanisms."

The windfall profits tax was first enacted in 1980 as a "temporary" excise tax, which proponents said was designed to ensure that oil companies did not benefit from unanticipated windfalls caused by fluctuating crude oil prices. According to analysis by the Congressional Research Service, the windfall profits tax reduced domestic oil production in an estimated range of between 3 percent and 6 percent annually. It increased annual oil imports from between 8 percent and 16 percent. The tax, which created large compliance costs, but by 1987 and 1988 yielded almost no government revenue, was finally repealed by Congress in 1988 – a goal that had been sought by President Reagan since the 1980 Presidential campaign.

If it is again enacted, a windfall profits tax can be predicted to result in a diminution of domestic energy production, an increase in American dependence on foreign oil, and a reduction in the overall supplies available to consumers.

Sadly, the recent clamoring by some for price controls or for new energy taxes indicates that the lessons of the 1970s were not learned. We urge you to reject these measures and instead adopt policies that will allow our economy to grow and will not curtail domestic energy production and investment.

^* Institutions are listed for informational purposes only.

Sincerely,

Burton A. Abrams University of Delaware	William R. Allen University of California - Los Angeles
Ryan C. Amacher University of Texas - Arlington	Geoffrey T. Andron Austin Community College
Howard Baetjer Towson University	Dean V. Baim Pepperdine University
Ray Ball University of Chicago	A. Paul Ballantyne University of Colorado - Colorado Springs
King Banaian St. Cloud State University	Doug Bandow Cato Institute
Stacie Beck University of Delaware	John H. Beck Gonzaga University
James Beckwith North Carolina Central University	Bruce Bender University of Wisconsin - Milwaukee
James T. Bennett George Mason University	M. Douglas Berg Sam Houston State University
John E. Berthoud George Washington University	John J. Bethune Barton College
Michael K. Block University of Arizona	Elizabeth C. Bogan Princeton University
Cecil E. Bohanon Ball State University	G. Geoffrey Booth Michigan State University
Donald Booth Chapman University	Samuel Bostaph University of Dallas
Scott Bradford Brigham Young University	Michael W. Brandl University of Texas - Austin
Wayne T. Brough FreedomWorks	L. Jackson Brown American Dental Association
John B. Bryant Rice University	Phillip J. Bryson Brigham Young University
M. Northrup Buechner St. John's University	Mary Bumgarner Kennesaw State University
James L. Butkiewicz University of Delaware	Henry N. Butler Chapman University
Stuart M. Butler Heritage Foundation	Bruce Caldwell University of North Carolina - Greensboro
Noel D. Campbell North Georgia College & State University	William J. Carney Emory University
Kenneth W. Chilton Lindenwood University	John Chipman University of Minnesota
Lawrence R. Cima John Carroll University	J.R. Clark University of Tennessee - Chattanooga
Kenneth W. Clarkson University of Miami	Douglas Coate Rutgers University
R. Morris Coats Nicholls State University	Joe Cobb Dana Point, California
John P. Cochran Metropolitan State College of Denver	Lloyd R. Cohen George Mason University
Robert Collinge University of Texas - San Antonio	John L. Conant Indiana State University
William B. Conerly Conerly Consulting, LLC	Lee Coppock University of Virginia
Roy E. Cordato John Locke Foundation	David B. Cox University of Denver
Eleanor D. Craig University of Delaware	Robert W. Crandall Brookings Institution
Tom D. Crocker University of Wyoming	Susan Dadres Southern Methodist University
Robert M. Dammon Carnegie Mellon University	Jerry W. Dauterive Loyola University - New Orleans
A. Edward Day University of Central Florida (retired)	Arthur De Vany University of California - Irvine
Clarence R. Deitsch Ball State University	Gregory J. Delemeester Marietta College
Arthur M. Diamond, Jr. University of Nebraska - Omaha	Thomas J. DiLorenzo Loyola College - Maryland
Jeffrey H. Dorfman University of Georgia	J.A. Dorn Cato Institute
Dennis F. Ellis University of Michigan - Flint	Bert Ely Ely & Company, Inc.
Kenneth Elzinga University of Virginia	Stephen J. Entin Institute for Research on the Economics of Taxation
Richard E. Ericson East Carolina University	Paul Evans Ohio State University
Frank Falero California State University - Bakersfield	John A. Flanders Central Methodist University
Arthur A. Fleisher III Metropolitan State College of Denver	Harold Flint Montclair State University
Micah Frankel California State University - Hayward	Douglas C. Fretchling George Washington University
Milton Friedman Nobel Laureate in Economics Hoover Institution	Gary Galles Pepperdine University
David Garthoff University of Akron	Gabriel Gasave San Jose State University
James F. Gatti University of Vermont	Rick Geddes Cornell University
Robert J. Genetski ClassicalPrinciples.com	Paul Gessing National Taxpayers Union
Joseph A. Giacalone St. John's University	Otis W. Gilley Louisiana Tech University
David Gitlitz Trend Macrolytics, LLC	Stephan F. Gohmann University of Louisville
Rodolfo A. Gonzalez San Jose State University	Peter Gordon University of Southern California
Richard L. Gordon Pennsylvania State University	Jim Granato University of Texas - Austin
Scott F. Grannis Western Asset Management	Philip E. Graves University of Colorado
William B. Green Sam Houston State University	Kenneth V. Greene Binghamton University
John G. Greenhut Arizona State University	James Gwartney Florida State University
Dennis Halcoussis California State University - Northridge	David L. Hammes University of Hawaii - Hilo
Stephen Happel Arizona State University	James E. Hartley Mount Holyoke College
Cary Heath University of Louisiana - Lafayette	Frank Hefner College of Charleston
Robert Heidt Indiana University - Bloomington	Dale Heien University of California - Davis
Robert B. Helms American Enterprise Institute	David R. Henderson Hoover Institution
James Henderson Baylor University	Robert S. Herren North Dakota State University
Peter J. Hill Wheaton College	Bradley K. Hobbs Florida Gulf Coast University
Randall G. Holcombe Florida State University	Charles L. Hooper Hoover Institution
George Horwich Purdue University	Guido Hülsmann Ludwig von Mises Institute
Jeffrey Rogers Hummel San Jose State University	Owen Irvine Michigan State University
Alexei Izyumov University of Louisville	Joseph M. Jadlow Oklahoma State University
Marianne M. Jennings Arizona State University	Michael C. Jensen Harvard Business School
Garrett Jones Southern Illinois University - Edwardsville	Clifton T. Jones Stephen F. Austin State University
Nyle B. Kardatzke Sycamore School	Lawrence Kenny University of Florida
Peter M. Kerr Southeast Missouri State University	Robin Klay Hope College
Daniel Klein George Mason University	Audrey D. Kline University of Louisville
Les Koska University of Michigan - Dearborn	Peter E. Kretzmer Bank of America Corporation
Robert Krol California State University - Northridge	Michael M. Kurth McNeese State University
William E. Laird Florida State University	Richard N. Langlois University of Connecticut
Nicholas A. Lash Loyola University Chicago	Robert A. Lawson Capital University
Dwight R. Lee University of Georgia	Peter Lewin University of Texas - Dallas
Stan Liebowitz University of Texas - Dallas	Tony Lima California State University - East Bay
Cotton M. Lindsay Clemson University	Allan E. Lines Ohio State University
Jody W. Lipford Presbyterian College	Luis Locay University of Miami
Donald L. Luskin Trend Macrolytics, LLC	R. Ashley Lyman University of Idaho
Paul H. Malatesta University of Washington Business School	Yuri N. Maltsev Carthage College
Deryl W. Martin Tennessee Technological University	John Matsusaka University of Southern California
John McClaughry Ethan Allen Institute	James E. McClure Ball State University
Lawrence J. McQuillan Pacific Research Institute	Tom Means San Jose State University
Stephen T. Mennemeyer University of Alabama - Birmingham	John Merrifield University of Texas - San Antonio
Harry Messenheimer Rio Grande Foundation	Norbert Michel Nicholls State University
Tracy C. Miller Grove City College	Jeffrey Milyo University of Missouri
James Mintert Kansas State University	Carlisle Moody College of William & Mary
John C. Moorhouse Wake Forest University	Paul L. Morgan Westmont College
Michael A. Morrisey University of Alabama - Birmingham	Andrew P. Morriss Case Western Reserve University
Michael C. Munger Duke University	Dennis D. Muraoka California State University - Channel Islands
Thomas J. Nechyba Duke University	Jon P. Nelson Pennsylvania State University
George R. Neumann University of Iowa	Lydia Ortega San Jose State University
William Orzechowski Orzechowski & Walker	Allen M. Parkman University of New Mexico
E.C. Pasour, Jr. North Carolina State University	Judd W. Patton Bellevue University
William S. Peirce Case Western Reserve University	Timothy Perri Appalachian State University
Mark J. Perry University of Michigan - Flint	Penn R. Pfiffner Construction Economics, LLC
Ben Pierce Central Missouri State University	Michael K. Pippenger University of Alaska
Charles I. Plosser University of Rochester	Charles R. Plott California Institute of Technology
Mattias Polborn University of Illinois - Urbana-Champaign	Joseph S. Pomykala Towson University
Jeffrey Pontiff Boston College	Robert W. Poole, Jr. Reason Foundation
Barry W. Poulson Americans for Prosperity	Edward C. Prescott Nobel Laureate in Economics Arizona State University
Richard W. Rahn Center for Global Economic Growth	John Rapp University of Dayton
Lawrence W. Reed Mackinac Center for Public Policy	Christine P. Ries Georgia Institute of Technology
Jay R. Ritter University of Florida	Mario J. Rizzo New York University
Nancy H. Roberts Arizona State University	James Roumasset University of Hawaii
Paul H. Rubin Emory University	Mark Rush University of Florida
Michael K. Salemi University of North Carolina - Chapel Hill	Gary J. Santoni Ball State University
Raymond D. Sauer Clemson University	D. Eric Schansberg Indiana University - New Albany
Richard Schmalensee Massachusetts Institute of Technology	Michael A. Schuyler Institute for Research on the Economics of Taxation
Carlos Seiglie Rutgers University	John Semmens Laissez Faire Institute
Alan C. Shapiro University of Southern California	Stephen Shmanske California State University - East Bay
Mark H. Showalter Brigham Young University	William F. Shughart II University of Mississippi
Tyler Shumway University of Michigan	Jerome Siebert International Food and Agribusiness Management Association
Neil T. Skaggs Illinois State University	W. Gene Smiley Marquette University
James F. Smith University of North Carolina - Chapel Hill	W. James Smith University of Colorado - Denver
Russell S. Sobel West Virginia University	Douglas Southgate Ohio State University
Stan R. Spurlock Mississippi State University	Mark Steckbeck Hillsdale College
Courtenay C. Stone Ball State University	Edward Stringham San Jose State University
John A. Tatom Indiana State University	Rebecca A. Thacker Ohio University
Clifford F. Thies Shenandoah University	Henry Thompson Auburn University
Jerry G. Thursby Emory University	Edward Tower Duke University
George H. Troughton California State University - Chico	Leo Troy Rutgers University - Newark
Charlotte Twight Boise State University	T. Norman Van Cott Ball State University
Richard K. Vedder Ohio University	Randal Verbrugge Bureau of Labor Statistics
John Volpe Trinity College	John T. Warner Clemson University
Andrew Weinbach Armstrong Atlantic State University	John T. Wenders University of Idaho
Robert Whaples Wake Forest University	John H. Wicks University of Montana
Peter Williams University of North Alabama	Douglas Wills University of Washington - Tacoma
Wayne Winegarden Marymount University	Michael Wohlgenant North Carolina State University
Gary Wolfram Hillsdale College	Thomas Wyrick Missouri State University
Paul J. Zak Claremont Graduate University	Mokhlis Y. Zaki Northern Michigan University
Benjamin Zycher Pacific Research Institute for Public Policy

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