Oil Industry Profits

After a recent blog entry about the ways rising oil prices can affect our pocketbooks and ways that those prices will hopefully get us to (finally!) conserve, I received a rather virulent response from one individual. This commenter did not address the primary point of my blog entry, but rather took issue with my characterization of the oil industry as “raking in the money on the backs of the families who are struggling to make ends meet…” He used unsubstantiated figures to suggest that the oil industry’s profits were minimal in the price of oil. I challenged his figures with counter evidence, substantiating my evidence by citing my source. The commenter refused to address my evidence, instead choosing to resort to ad hominem attacks.

I would like to further address the issue. It is well reported that the oil industry has reported record profits over the past year (see also here, and here.). That is not record gross income, but record profit.

You can make a case, if you would like, that maximizing profits at any given opportunity is a just and acceptable way to operate in our economic system. That is an entirely different argument. But to try to claim that the industry is not “raking in money,” or that it is not at the expense of consumers, is simply disingenuous.

It is interesting to note that the oil industry has long been the recipient in generous federal subsidies. The current administration seems to have exacerbated the trend with the energy policy drafted in secret by a committee headed by Vice-President Cheney (a man with long standing ties to the oil industry), on which energy industry leaders appear to have been widely consulted, but from which conservation and environmental advocates were excluded. This policy and the legislation based upon it provides billions in federal subsidies to an oil industry already obviously awash in money.

Why does a highly profitable industry need government subsidies? How is this consistent with the purportedly small government, market advocating conservative philosophy? Is it moral to deride “handouts” to the poor, but justify billions of dollars in subsidies to the wealthy and profitable? For those whose politics are informed by their religious beliefs, is that what the scriptures counsel us?

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5 Responses to “Oil Industry Profits”

  1. Gerry Says:

    A slightly opposing viewpoint… and I apologize in advance for how little I know.

    I agree: No private business should ever get one red cent of taxpayer dollars in any form of subsidy. Not the oil companies, not Joe’s Restauraunt, not anyone…

    But is it true, do you think, that the left would tend toward complaining about government subsidies to so-called “Republican” interests, and only when there’s a Republican administration dealing with it? What about subsidies to NPR and PBS? What about the countless subsidies to other small businesses? I never hear them complain about that. But rather that it’s NECESSARY to federally subsidise those businesses, because they are LIBERAL institutions or vote-buying grants. And I never heard about these people complaining about those subsidies when the democrats ran the government. It’s all OK then.

    I don’t think any business should get any taxpayer funding at any time ever. Let them survive or die in the free market. Shouldn’t everyone live by that?

    I don’t see consistency here.This all reeks of politics and ideology. I just inherently oppose blog sites that trample our president. It weakens us as a nation under God. Just keep it real. I think we should support (to some degree) the decisions made from the White House, no matter whos administration. We don’t know everything going on in there. Hell, the guy’s not evil and he’s not a warmonger, for God’s sake. You know this. Promoting conspiracy and evil-doing isn’t Christian either (not that you’re doing it). The left and the right both probably want the same outcome in the universe.

    Bush blunders a lot but I think he’s God-fearing, Clinton’s an adulterer and a purgerer (and that’s not the priviledge of the executive office), Quail’s an idiot and Gore is too. Kerry’s wherever he needs to be and everything but a patriot. Boring personal agendas and useless pulpit-time. Now give me FDR, and even Reagan. There was some dignity there… Yak Yak Yak. I’m tired of all of it. My head hurts. Over and out.

  2. EjIMBo Says:

    I wish I’d written this, but here you go:

    Oh, and BTW Gerry, above? Thanks for using slightly re-edited portions (most of it word-for-word) of the context of my letter in the first half of your response above, which I wrote to Pat (personally) without giving me credit. It’s always appreciated.

    ————————————–

    April 30, 2006
    Government Remains Biggest Oil Profiteer
    By Thomas Bray

    Republicans from George Bush on down caved last week to the latest round of hysteria by agreeing, among other ideas, to yet another investigation of gasoline prices. Never mind that every time the matter has been reviewed, the verdict has been the same: market forces account for virtually all of the supposed “gouging.”

    Not that one need have warm fuzzy feelings towards the oil companies and their extremely well paid executives. As the founder of economics, Adam Smith, observed in 1776, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public.”

    But Smith went on to point out that the best antidote to such tendencies is competition, not regulation – which, he noted, usually winds up making government part of the conspiracy. And in any case evidence is strong that competition is not lacking, at least in that part of the oil business that hasn’t been nationalized by foreign governments.

    “From 1986 to 2003, using 2004 dollars, the real national annual average price for gasoline, including taxes, generally has been below $2 per gallon,” noted the Federal Trade Commission in a 2005 report absolving the industry of collusion. “By contrast, between 1919 and 1985, real national annual average retail gasoline prices were above $2 per gallon more often than not.”

    In other words, gasoline prices were lower than at any time since 1919 for much of recent history. Some conspiracy! Maybe somebody should have been investigating consumers for “gouging” the oil companies.

    And just who is the profiteer here? While the average profit on the sale of a gallon of gasoline is nine cents, the average state and federal tax on that same gallon of gasoline is about 45 cents (and 52 cents in Michigan). And if we must have an investigation, how about investigating the extent to which government regulations drive up prices and block new production?

    As usual, Washington politicians are eager to ride the latest “oil crisis” to fame and glory, proposing all sorts of inane ideas to deal with it. At the core of most of them is the populist notion that profit is a four-letter word – and never mind that the profits of many other industries, including banking and food and beverages, are far heftier than in the oil industry.

    I once heard management guru Peter Drucker remark, with his usual drollery, that profit is “whatever government lets a company keep.” But most folks have a vastly inflated view of corporate profits. One regular survey of Americans found that the majority believes that the average corporate profit is between 30 percent and 40 percent of sales, while the real figure is closer to four percent.

    Washington should cool its carburetors. The pursuit of profit is one of the main engines of Western progress and prosperity. And as people in my neck of the woods are fast learning, it is only out of profit that we can afford to pay for a comfortable retirement. As profits in the steel, airline and auto industries erode or even vanish, so do pensions and health care benefits, not to mention jobs.

    If oil really is running out – of which there is little sign, since world reserves keep increasing — profit provides the surest possible motive for finding or inventing new sources of energy.

    Thomas Bray is a Detroit News columnist. Email: tbray@detnews.com
    Page Printed from: http://www.realclearpolitics.com/articles/2006/04/oil_how_about_investigating_th.html at May 01, 2006 – 02:37:04 PM CDT

  3. EjIMBo Says:

    Oh, and here’s another one for you.

    I give credit to the following as written by Neal Boortz. He’s a libertarian so I don’t usually agree with him on social issues, but he’s bang on with this one.

    I’d write you stuff like this myself but I don’t have time to waste with a liberal who refuses to acknowledge fact and common sense regardless of the proof that’s put in front of their noses. So, when I find something I agree with, I’ll just post it here and let the original authors speak for themselves.

    I’d just post the exact link, but sometimes links go out of date, so I’ll just post the article here instead.

    Note that I am giving appropriate credit to the original author.

    With the nationwide average price of a gallon of gasoline inching its way toward $3 a gallon, we’ve had an endless parade of politicians and other demagogues slithering out from under their rocks to announce investigations. The rallying cry of these ignoramuses is that the oil companies are engaging in the practice known as price gouging.

    What is the definition of price gouging? Let’s hit the online dictionary: “pricing above the market when no alternative retailer is available.” Well, by that definition, there is no gasoline price gouging taking place. In nearly every city and town in this country, there are always alternative retailers. But wait! They’re colluding….they’re cutting backroom deals…the oil companies are propping up the price together! Well, that’s doubtful. An increasing number of grocery stores sell gasoline. Are all of these stores colluding with big oil to keep the price up? The government owned oil companies like Citgo .. they’re colluding also? What possible business reason would they have to do so? None. Zip. Zero. Fughettaboutit.

    Energy Secretary Samuel Bodman said on ‘Meet The Press’ yesterday that he sees no evidence of price gouging. Columnist Thomas Bray brought up a good point about the supposed gouging of consumers. The average profit on a single gallon of gas is 9 cents. What is the average government take on a single gallon of gas? 45 cents…or 5 times the oil company profit.

    Now who’s gouging whom? Better look to Washington D.C. as the culprit, not big oil.

    I know .. I know. It’s the government school education at work. But … for those of you who blame “Big Oil” for the price of gasoline … listen up one more time: SUPPLY AND DEMAND! It’s an economic law. It’s been in place ever since we came out of our caves and started trading furs. Get used to it.

    ————

    Found at http://www.boortz.com.

    ————

    Now, before all this you claimed I had quoted unsubstatiated sources. in my first response to this “Liberal Moron” website blog. Fine.

    Here is the Canadian sources I quoted from. Hopefully the links will continue to work. Note that this is NOT a hardcore conservative site. They use data provided by reliable sources.

    http://www.caa.ca/mini%20sites/gasprice/pricing.html

    Look at the charts about halfway down the page. Read it and weep, knowing that I have indeed proven my point. Your point is irrelevant and the premise is wrong to begin with. Profit is not evil. It’s necessary. But I’m sure libs like you will dismiss them because i’s not what you want to hear.

    BTW, when I call you libs stupid, that’s not an “ad hominem attack”, it’s an accurate description of your condition.

    Live with it or educate yourself on the virtues of reality. It’s your choice.

  4. Pat Says:

    EjIMBo,
    I did not share your email with a soul. I demand a public apology 🙂 Perhaps there are others that feel as you do…

  5. EjIMBo Says:

    Ri-i-i-i-ight….

    Here’s the exact letter I wrote to you.

    Let’s see if it’s just a coincidence that Gerry couldn’t have seen it or copied parts verbatim…. Sorry about the ramifications that may happen as a result, but I must prove my point.

    ————–

    I will agree with this moron on ONE THING

    Why do the oil companies get governmnent subsidies?

    I agree. No private business should ever get one red cent of taxpayer dollars in any form of subsidy. Not the oil companies, not Joe’s Restauraunt, not Small Art Works.

    I’ll give him that.

    BUT….

    It’s interesting to note that libs only complain about government subsidies to so-called “republican” interests, and ONLY when there’s a Republican administration dealing with it. What about subsidies to NPR and PBS??? What about the countless subsidies to other small businesses? I never hear them complain about that. Nope, just the opposite. Instead they blow about how it’s NECESSARY to federally subsidise THOSE businesses, because… they are LIBERAL institutions or vote-buying grants. And I never heard about these people complaining about those subsidies when the democrats ran the government. It’s all OK then.

    It’s all about politics and ideology when it comes to libs. They are inconsistent.

    I am always consistent. I don’t think ANY business should get ANY taxpayer funding at ANY time EVER!!! Let them survive or die in the free market. I have to live by that, so should everyone else.

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