Why Socialism Doesn't Work

"What we're saying is; there's a limit."

That's Democratic Senator Dick Durbin - and he's talking about profit.

Profit from the oil companies, specifically, but also profit from American businesses in general.

Dick believes that there's a limit to how much profit a company should make - and once they cross that line, the government should step in and redistribute it along the lines of Barack Obama's 'windfall tax' scheme.

Now, I'm as annoyed about ExxonMobile's outrageous profits as anybody. I don't understand how oil prices and petrol costs can be through the roof - yet the 'struggling' oil companies are managing to make the biggest profits in corporate history quarter after quarter.

But at the end of the day, as I wrote about here, I'm totally opposed to the idea of taxing the 'excessive' profits of ExxonMobile and redistributing it to American families.

For a start, Exxon is an American company and the benefit of making all those profits internationally is that this money comes back to help boost the American economy.

Secondly, the likes of Exxon are public companies - there isn't a big, fat cat boss-man enjoying these outrageous profits. They're redistributed already to shareholders, hedge funds and even my 401k.

Thirdly, and most importantly, the idea of taxing these 'excessive' profits violates Roland's Law of the Three Rabbits.


Roland's Law of the Three Rabbits is economics distilled down into a form simple enough for a numpkin like me to understand - and it works like this:

There are three rabbits: Max, Toto and Bozer. They live in a burrow and spend their days collecting carrots to eat.

• Max isn't too smart a rabbit, so he only manages to collect one carrot every day.
• Toto is a smart lil' bunny and manages to collect three carrots every day.
• Bozer is a mediocre rabbit and scoops up two carrots every day.

As the system works, Toto's hard work is rewarded and he gets to eat three times as many carrots as Max. But Max isn't starving.

However, Bozer gets elected chief rabbit and declares that the current system is unfair - that every rabbit is entitled to two carrots a day and Toto needs to give his third carrot to Max to even out the share and make all the rabbits equal.

Max is overjoyed about this - Toto less so.

So much 'less so,' in fact, that he starts getting up later and enjoying a more leisurely day - going out and collecting only two carrots instead of his normal three. That means, when he comes home, there's no third carrot to give to Max so he goes back to only having one, while Toto and Bozer both have two - leaving neither Max nor Toto happy. So from a system in which two rabbits were happy, Bozer introduced us to a system in which only one rabbit is.

It's all hinged on a specific fact about humanity - unless we're given motivation to go that extra mile (like eating a third carrot) the vast majority of people will only do the bare minimum to get by. Or, as the great American Thomas Jefferson more eloquently explained it:

"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not." Thomas Jefferson

This is how capitalism works - and if Barack Obama or the Democratic party started capping profits, the only thing they'd manage to do is convince companies to stop working so hard to make a profit in the first place.

Less profit means less money in the economy. That means less money coming in from taxation - which means the government needs to increase taxes to make up the shortfall. That leads to even less money in the economy...

Basically, capping profits leads to only one thing - capping productivity.

Now I can applaud all sorts of things about Barack Obama's campaign and his politics, but when it comes to stuff like 'windfall taxation' and capping corporate profits, I'm deeply skeptical. I honestly don't think the Democrats 'get it.'

In life, there are one carrot rabbits and three carrot rabbits. The only problem with redistributing carrots to less advantaged bunnies is that, at the end of the day, we'll all just wind up with less carrots going around.