Yes, but what does Obama himself believe? “I think oil companies are amoral. They want to make as much money as they can for their shareholders, which is what corporations do,” he says. “The difference is the nature of the kind of outsized profits they make that may have no relationship to their investments or their production. ( What does he think ROI Means?) The fact, for example, the shortage of refinery capacity could actually increase their profits so the less they invest the more they make indicates that you are

This is a stupid argument. At least McCain does not pretend to understand the ecomey.

You know better than to use a cheap rhetorical device like that. Those who disagree with you could easily say your position misinformed or that of a liar. Facts and logic are needed.

Environmental regulations cost money and those costs make a difference to the profitability of a refinery so they have to have an effect. That effect is enough to make it too risky to build new refineries. Those regulations also cost time and time is money. The delays caused by environmental lawsuits along with the chance of being denied permits is enough to stop refiners from even attempting to build new facilities.

For the record I am informed and usually not a liar.

I don't mean to be snarky, but so what? The bottom line (right) is that they have high profits. That they have low margins is beside the point, I would think, given the lack of any real competing product.

If a bunch of little companies all eked out very small returns on sales, and if they were only decent investments under very favorable economic conditions, you wouldn't think to inflict a punitive "windfall profits" tax to them. The same thing is happening here, except it's one big company getting mediocre returns on its sales.

So what this really amounts to is a tax on large corporation size, not on exorbitant profits. It's hard to see why this is a good idea, and it's certainly not how it's being sold to us.

Barack Obama signals that he may not know that much about economics

Is there some subject he does know a lot about

Oil is special mostly because of it's inelastic demand curve. Jumps in price of 50% yielded reductions in demand of less than 5%. There aren't many products that can do that.

Oil is also special because of the geopolitical power attached to it. Most of the worlds oil is government controlled and those governments know what power it holds. The incentives to manipulate the market for political goals are there and we have seen oil used as a political tool already.

From drilling to burning in engine cylinders oil and it's refined products are subject to environmental regulation. These are constantly changing and the penalties for even small violations are steep. When it comes to investing in refineries the investors must not only estimate return on investment but also what other risks they may incur from regulators and potential lawsuits. This is a real externality with real effects on the standard economic models.

So the oil market is different but I suspect Obama sees only the differences that fit his particular politics, anti-business and pro-government regulation.

Why in the world do we need new refineries?

Refining is already one of the least profitable industries in the US and you want to build more.

Don't you know that poor profits is the markets way of telling us we do not need more refineries.

Why do all the conservatives think they know more about the refining industry than the market?

If you only look at the total dollar value, then sure, Exxon makes huge profits. But if you look at the percentage return on sales, Exxon and all oil companies do pretty poorly.

The only reason for the very large-sounding numbers is that the sales volume is so high. But the margins are very low.

I don't mean to be snarky, but so what? The bottom line (right) is that they have high profits. That they have low margins is beside the point, I would think, given the lack of any real competing product.

The only reason for the very large-sounding numbers is that the sales volume is so high. But the margins are very low.

More if you're interested. (No, not blog-whoring.)

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Unfortunately for Senator Obama it is true for any industry that when there is reduced investment in capacity prices go up as do profits. The idea that the oil market is somehow special is a specious argument.

Obama isn't arguing that the principle is unique to oil. He's arguing that the conditions exist with oil to create the situation (extremely so), where they don't in most other markets. Whether that's sufficient reason to support his tax policy is open to debate, but the observation seems accurate to me.

Standard operating procedure for Monopolies.

And lets be clear one reason we aren’t seeing new refineries being built is, at least in part, due to government regulations.

This is specious as well since there is no "ban" on expanding capacity, only more environmental oversight. Which, if you've ever been near refineries, is no small matter. If the oil companies wanted to, i.e. had an incentive, they would build new refineries within the new regulations. However, because they make more profit from NOT building more capacity, they are perfectly happy to not do so.

Also, your comparison to agriculture is a comparison with a subsidized industry AND this particular subsidy had other benefits like restoring land productivity and reducing erosion, both outcomes that improve returns in the long run.

Any other examples of industries who make more money by not investing their profits?