Big Oil’s “excessive profits”
are good for us
There is something breathtakingly audacious about politicians taking oil
companies to task for “excessive
profits” and considering a special “excess profits” tax. In other words, telling companies like Exxon Mobil that they
have been taking more of our money
than they should. This is especially droll coming from politicians who — always
and incessantly — do precisely that with taxes.
Besides that, 35 percent of Exxon’s profits already go in
So, if the profits are excessive, so are the taxes on those profits, but we do
not hear of any politicians calling for
a “windfall taxes” rebate to us motorists.
“Excessive” gasoline prices stem from two factors. First, Big Oil should charge whatever the market
will bear — no more, no less.
If they charge more,
then consumers will buy their competitors’
gasoline. If they charge less, then they encourage consumers to buy more gasoline than they would if the price were
higher; the net result of which would be shortages.
In addition, if consumers do not like $3 a gallon gas, just
imagine how they would howl if gasoline was only $2 a gallon — but there wasn’t
That’s lesson #1: The high pump prices were good for us.
Now for the
“excessive profits”: Taking cyclical boom-and-bust businesses like oil
companies to task for having high
profits over the short term is
ridiculous. It is like taking gift shop operators
to task for making “excessive
profits” in December when they have been breaking even for
the rest of the year.
Over the years, Exxon Mobil’s profits have been about 5.5
of total revenues — about the U.S. industry average — and they have plowed back
all of the last ten years profits into the business to ensure oil supplies for their long-term profitability. We consumers need
them to do that. If we impose an “excess profits” tax, it would cut into
precisely what we need if we value the long-term viability of energy supplies.
The problem is that consumers do not properly understand the
role of markets since our schools teach them little or
nothing about the subject.[iii]
And, so business profits become “excessive” — no matter what they are — whereas
union workers, such as Honolulu’s container crane
operators out for a boost in their
$200,000 annual compensation, are just “working
families” seeking what is “fair.”[iv]
Instead of business (Big Oil especially) taking the hard
route of educating consumers to understand how and why markets function to the
nation’s benefit, they pander to consumers’ outrage with “corporate
responsibility” guff while unsuccessfully trying to justify their “excessive
profits” as “fair” and “reasonable.”
This plays right into the hands of politicians who will, at
the first chance, begin pontificating about profits being “unconscionably
excessive” and so on. It is not the function of businesses to be reasonable; it
is their job to do what the market disciplines them to do.
We must remember that caricature capitalists — cigar smoking
and overweight — do not own Exxon. Its owners are largely mutual funds, such as
the Vanguard Group. If you have ownership in a pension plan (government or private) or
a 401(k) plan, then you are likely an Exxon shareholder.
However, if you still believe that Exxon is excessively
profitable, then go buy some shares. A caveat though: In March of this year, when
oil was $40 a barrel and before any
hurricanes, you could have bought Exxon Mobil shares for
$62. Today, with oil up to $55 a barrel, hurricanes galore,
and sky-high gas prices, you can buy Exxon shares for
$55 — a 10 percent decline.[v]
You might want to figure that one out.
So, if you want to fault Exxon Mobil, it should be for inept public relations.
Cliff Slater is a
regular columnist whose footnoted columns are at www.lava.net/cslater
[iii] (What do