Windfall Profits

There is no greater indication of a widespread ignorance, if not sheer loathing, of economics is the concept of a "Windfall Profit Tax." Generally levied on oil companies as a way to take anger out on someone, these taxes are perhaps the most irrational taxation of all. 'Windfall Profits' happen when one of two things happen: the supply of a good shoots down, driving prices up and rewarding those with inventory, or the demand shoots up with an inelastic supply curve, meaning price rises inordinantly.

To bring the price of a commodity back down to the market rate, the industry so affected must invest in new forms of production. To do this, the companies will invest in capital and labor, increasing their supply. They use their 'Windfall Profits' to return the good back to its equilibrium price.

Of course, if the government slaps a 'Windfall Profits Tax' on the industry, less of this investment will happen, so the government keeps the price artificially high for a longer period of time. This is what the government wants to do to the oil industry; though to be fair, they receive subsidies from the government, so they kind of asked for it.

One of the industries that is experiencing the most 'Windfall Profit' right now is the farming industry. The government, instead of slapping a tax on them, is rewarding them with the biggest subsidy of all time (I think). Now that's just stupid.