Lest people think I'm a Democrat

I offer you two deals:

1. You make an investment, and if you lose more than 20%, we'll cover the difference, but you keep all the upside
2. You make an investment, and if you gain more than 20%, we'll keep the difference, but you keep all the downside

Which would you take?

What would happen if people got to take the first option? With no downside risk, they'd take on as much risk as possible to chase the upside.

What would happen if people took the second option? No one would take any chances, since there's no chance to win big.

The proposal to impose a windfall profits tax on the oil industry imposes upon that industry option #2. It's a terrible precedent to set in a capitalist economy. No enterprise, no risk, no innovation, no progress. It also naively assumes that oil companies maneuver to take advantage of oil price fluctuations. They don't.

Oil companies make money by taking a raw material (crude oil) and refining it into other products. They do not speculate in commodities markets. The volatility in the price of their raw material is a risk. They mitigate this risk by pricing their products at rates in proportion to the prevailing market price of crude. Both their costs and their revenues are now subject to the same volatility. This strategy has the consequence of, in the long run, removing the input price volatility risk from the company's financials. But in the short run, a rapid oil price decline could lead to the firm charging less for the products than the raw materials cost, while a rapid price rise would lead to the firm charging much more than the raw materials cost.

If we're gonna take away the oil companies' upside by imposing a windfall profits tax, we should also take away their downside, and cover their losses when they occur. Otherwise, let it go, and let free markets reign. Unless you'd like an unexpected serendipity tax imposed on yourself, don't do it to a company. They're not gouging, they're riding out the wave.

I still want a hybrid.