4.During the energy crisis of the 1970s, and again in the last 5 years, Congress bemoaned the “price gouging” and “windfall” profits of the major oil companies. In the 1970s Congress imposed an “excess profits tax” on these companies. It did not do so this time? What does this change show about how our understanding of the way the price system works to allocate resources has evolved? If “excess profits” are taxed away, where will oil companies get the money to fund new exploration and development of oil properties? Does it matter if these price increases are demand or supply induced?

The change in the response of Congress during the energy crisis of the 1970s compared to the recent years reflects an evolution in our understanding of how the price system works to allocate resources. In the 1970s, Congress imposed an "excess profits tax" on major oil companies, which was a way to address the perceived price gouging and windfall profits. However, in recent years, they did not impose such a tax.

This change in approach suggests that our understanding of the role of prices in resource allocation has evolved. In the 1970s, there may have been a belief that excessive profits should be taken away through taxation as a way to ensure fairness and prevent price manipulation. However, in recent years, there seems to be a recognition that high profits can incentivize the oil companies to invest in exploration and development of new oil properties.

If excess profits are taxed away, it becomes a challenge for oil companies to fund new exploration and development projects. These activities require a significant amount of capital, and if profits are taxed heavily, it could limit their ability to undertake such endeavors. This can have adverse effects on the long-term supply of oil and the overall energy market.

Whether price increases are demand or supply-induced does matter. If the price increase is due to a surge in demand, it indicates that consumers are willing to pay higher prices for oil, which can serve as an incentive for oil companies to invest in new projects and increase supply. On the other hand, if the price increase is a result of supply disruptions or decreased production, it may indicate the need for investments in exploration and development to boost supply. In both cases, allowing oil companies to retain their profits can provide them with the necessary funds for these endeavors.