This from Mike Davis:
Cries of price gouging in for the oil industry from Democrats such as Chuck Schumer are nothing new. Now it seems that Republicans are jumping on the band wagon. Last week, after Exxon Mobil (XOM) published record quarterly profits of $9.9 billion, Senate Majority Leader Bill Frist called for hearings to see whether a windfall profits tax should be imposed. Checking the SEC 10-Q filing reveals the following:
Now, since the CEO and CFO signed these documents and that under Sarbannes-Oxley they are subject to severe criminal and civil penalties if these figures are in any way false, I assume that they are substantially correct. They reinforce the research that contends that oil companies make 10 cents per gallon on gasoline while Federal, State and Local Government make a combined total of 45 cents.
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Liberal media are quick to point out that Exxon’s quarterly profits were a record for any corporation. I wonder whether Exxon’s $26 billion taxes were also a record?
I suspect that few understand what Exxon does with most of its profits year after year: reinvest them into the business of making gasoline and other fuels available when the consumer needs it. IMO, big oil has done a poor job of educating the public. If they get hit with windfall rofits tax again, I think they should blame the American Petroleum Institute.
Great Post
I find myself explaining this all the time to my Demublican friends. Government could slash gas prices by ~45c just by cutting out all those gas specific taxes. At least Exxon provides a product we agreed to pay for. I wonder how much government adds by indirect taxes and environmental regulation.
Alan Reynolds have a great column on the issue of “greedy oil companies”. Here he points out that oil prices are driven by supply and demand, not by oil executives and points out what would happen if oil companies responded to the populist calls of Bill O’ Reilly and others:
“Exxon-Mobil’s recent profit margin was up to nearly 9 percent of sales. Suppose they tried to cut that to a nickel out of every dollar by offering to sell crude oil for $3 a barrel less than the going price on the Chicago mercantile exchange. Refiners around the world would instantly commit to buying every drop. By the next day, the world price of crude would be same as before.
Suppose the Big Five oil companies got together and agreed to cut retail gasoline prices at their company-owned stations by 20 cents a gallon. Motorists would soon drain those stations dry, leaving the much larger number of independent gas stations in a position to charge even more. Meanwhile, independent station owners would file a complaint with the antitrust division of the Department of Justice accusing the majors of collusive predatory pricing to drive them out of business.”
To Whom It May Concern:
Suppose for arguments sake that tomorrow morning every human being on the planet woke up and realized a few previously unpopular facts:
A. Leadership originates in that mirror as these imaginary wise individuals watch their own image brush their collective teeth and not in some centrally controlled quasi responsible entity.
B. Dependency upon a depleting supply of energy is a no win situation fraught with horrible unintended consequences for everyone sooner or later no matter how well connected the particular reflective individual may or may not delude themselves into believing.
C. The Sun’s energy can be tapped to produce energy at a rate exceeding the energy required to produce it.
D. Energy used to produce energy from the sun increases total available energy at an exponential rate ultimately reducing the costs of producing energy and in turn reducing the costs of everything produced with energy.
E. Any individual can manipulate the available resources now and get in on this rapidly accelerating self-sufficient renewable energy market and begin to reap the rewards of increased supplies of energy and subsequent lower costs of everything realized through an ever lowering cost of energy due to the ever increasing supply of energy.
F. Their children could be handed a future that is bright rather than dim if only the person staring back in the mirror grew up and faced the facts.
“The Sun’s energy can be tapped to produce energy at a rate exceeding the energy required to produce it.”
I am not an engineer or physicist so I do not have a reasonable opinion as to whether this statement is technologically correct.
What I am confident of is that obtaining energy from the sun using current technology is in most cases far more expensive than obtaining energy from more traditional sources. Along these lines, we can also use stainless steel in place of regular steel and not have to worry about rust, but again, cost considerations prevent this option from being used in most instances.
The production of any good or service involves not only technical, but also economic, considerations.
In regards to the original posting, any comment regarding the level of profits that does not also include note of the level of investment, in this case it appears common equity would be the appropriate measure, is nonsense. However, given the recent levels of oil and gasoline prices, I suspect return on equity results are quite high.
Dennis,
“I am not an engineer or physicist so I do not have a reasonable opinion as to whether this statement is technologically correct.”
I am also not an engineer or physicist. I do have an interest in what kind of world my children will inherit so my reasonable opinion is technologically correct because I took the time to figure it out.
You seem to miss the point, ignore it, or perhaps a significant discovery continues to escape you. I see it.
X amount of energy has already been expended to produce one Solar Panel or one wind generator. Those electric energy generators have prices reflecting their costs. Even if those prices are priced far under cost the fact remains that the devices exist and can generate electricity. So long as the sun shines and so long as the wind blows and so long as neither device breaks and so long as those devices keep generating electricity and so long as people need electricity and so long as people purchase that electricity, then, the following is true in time.
C. The Sun’s energy can be tapped to produce energy at a rate exceeding the energy required to produce it.
If the interested reflective individual understands the above (well documented fact) then that person could move on to what appears to be a significant discovery.
D. Energy used to produce energy from the sun increases total available energy at an exponential rate ultimately reducing the costs of producing energy and in turn reducing the costs of everything produced with energy.
In other words since C is demonstrably true, then, the power generated by C can be invested back into making another C. Now total power has increased by C times 2.
If all the power generated by C times 2 were invested back into making four more units then total power increases by C times 2 times 2.
The effects of oversupplies of cheeseburgers is waste while the effects of an oversupply of sun energy is only waste if people no longer need energy.
Perhaps you are confused by time or perhaps your interests are invested elsewhere.
I can plant a wind turbine on a piece of land now hook it up to the grid or to my neighbor’s house and begin getting checks in the mail so long as that turbine spins.
If everyone does the same tomorrow, then, my oversupply contention proves itself. It won’t prove out true tomorrow and probably not next week. A particularly popular falsehood hampers the sun energy market.
Dennis:
The purpose of my post was to show the hypocrisy and demagoguery of Democrats and Republicans alike in Washington.
To address your point, according to the 10-Q, XOM’s cost of revenue was about $85 billion, to generate a $9.9 billion profit – hardly a spectacular rate of return. My own opinion is the idea of a “fair and resonable prices or return” is buncombe and totally at odds with Austrian Economics (or any other market based economics).
Mike,
Sorry if my response appeared as negatively directed towards your posting. The purpose of your post, “to show the hypocrisy and demagoguery of Democrats and Republicans alike in Washington” was excellent, and I am in full agreement with that point and your posting. My posting was directed towards politicians and other commentators who criticize the magnitude of profits without any consideration for the level of investment associated with that level of profit. And I fuly agree with your comment regarding “fair and resonable prices or return”. In my opinion, any price that is the result of voluntary exchange in a free market framework is a “fair” price.
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