Big Oil

I have been sitting on thoughts stemming from Congress’ interview of the CEO’s of big oil not too long ago but I wanted to write some things. It seems timely given the PA primary today and Mr. Obama, Mr. McCain, and Mrs. Clinton’s recent remarks on the economy and their promises and platforms to give everybody a job and make life great.

The big oil company tax benefits that our politicians remind us of virtually every day are tax breaks enjoyed by corporations across the board. So when the politicians cite those tax breaks as an excuse to tell the oil companies what to do with their profits they’re laying the groundwork for a system in which politicians can dictate, to one or extent or another, how virtually all American businesses spend and invest their profits.  

Listening to these politicians, many of whom have never been responsible for delivering a profit in their entire lives, telling the oil companies what they should and should not do (translate into what they can and cannot do) with the money that they earn made me ill.  Now I blame those oil company executives too. They were submissive before that congressional inquisition. These politicians work for the stockholders and employees of these oil companies … not the other way around. A little bit of spine in some of these highly-paid executives would have been a wonderful thing to watch yesterday.  The political hacks made a big deal about the huge profits these oil companies made over the past few years. All of this posturing was a sham .. and the politicians knew it. They also knew that most of the people would watch them deliver their big oil smack down on TV wouldn’t know a profit from a profit margin if their next six-pack and their big screen TVs depended on it.

Let’s say you sell widgets. It costs you 92 cents to make a widget, and you sell the widget for a dollar. You make eight cents on the sale of that widget. Your profit is eight cents – your profit margin is 8%. Now, let’s say that your cost of business, comprised mostly of raw materials, goes up. Now it costs you $1.84 to make a widget. You respond by raising the price of your widgets by a dollar. They now cost $2.00 each. Subtract your cost of doing business ($1.84) from sales revenues for one widget ($2.00) and you have a profit of 16 cents. Wow! Your profit has doubled! But wait! What is your profit margin? How much is your company making for every widget it sells? Nothing has changed. Your profit margin is still 8%. Profits have doubled .. the profit margin has remained the same. The only reason the profits doubled is that the price of your raw materials has gone up. Has anyone looked at the price of crude oil lately?

Last year the big five oil companies made around $123 billion in profits. Pretty strong. But what was their profit margin? Around 9%. Same as the year before and the year before that. The politicians can’t pander to the dumb masses by slamming profit margins … so they play the dishonest game of slamming the gross profits, and the media lets them skate. They start talking about “windfall” profits. Tell me … how is it a windfall profit when the profit margin is remaining effectively the same?

Some politicians, of course, want to take this situation with gas prices and figure out a way to turn it into another government entitlement program. They point out that some low-income Americans pay as much as 10% of their incomes for fuel. So .. what to do? Let’s make some more suggestions as to how the oil companies should spend their profits. Two senators, Republican Olympia Snowe of Maine and Democrat Jack Reed of Rhode Island have asked the oil companies to voluntarily help low income consumers.  They want the oil companies to contribute to a fund to help “low income” consumers pay for this upcoming winter’s heating bills. Oh and to also pay for their transportation costs later this summer. The Senators complain that these big oil companies “need to share some of their profits with consumers who are in need.” Since when it is the government’s role to tell a private company that it needs to share its profits. It is not the government’s money. This money belongs to the teacher’s union retirement funds, the police and fire fighter pension plans and other organizations and individuals who have purchased stock in these companies. Every dollar these politicians wrestle away from the oil companies is money out of the pockets of the shareholders .. or money the oil companies aren’t going to invest in more energy production.

We need to take ownership of our lives and tell the government to get away from us.  They do not know what is best for us as individuals and they have proven time and again from the dawn of time to be terrible at spending and budgeting money.

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One Response to “Big Oil”

  1. Chris Stout Says:

    Really just an example of disgusting political theater. Same as the steroids-in-baseball nonsense. Look, we already have dozens of cable channels for entertainment programming. CSPAN needn’t be one of them.

    Incidentally, I’m guessing the oil execs’ submission had more to do with PR and their unwillingness to garner even more bad press than anything.

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