Should Oil Executives Be Strung Up?
The oil industry is everybody's favorite whipping boy, and indeed it is tempting to criticize them for their acceptance of past government largesse. However, the lion's share of criticism of the oil companies consists not of criticism of their violations of libertarian principles but of their status as exemplars of the alleged excesses of free market capitalism. FULL ARTICLE
Comments (23)
Let's see... the oil companies look for the oil, take all the risks drilling for it; then they transport it, refine it, ensure its quality, comply with myriad regulations, deliver it, and stand for liability. They make four cents on a gallon of gas at the pump.
The governments (federal, state, local) do nothing, incur no risks, and collect forty-four cents a gallon, largely through the efforts of the gasoline dealers, who are forced to do this government work on the dealer's clock.
Tell me again: Who should be strung up?
Published: July 22, 2008 9:01 AM
Darn, after that I have nothing left to say.
Well said, Tim.
Published: July 22, 2008 9:09 AM
funny how mccain hasn't labelled fannie mae and freddie mac's contingent liabilities as "obscene". perhaps only profits attract moral judgement.
Published: July 22, 2008 9:50 AM
What’s truly obscene is the media’s dishonesty in reporting oil company profits. They always report the dollar profits instead of the percentage. Any honest person knows that you have to compare companies by the percentage profits because some companies are larger than others. But the media understand that the small percentage of profits that oil companies earn won’t make anyone angry. So they decided to be dishonest about it by telling just half the truth.
It has been a while since I checked, but Dunn & Bradstreet used to report that doctor’s clinics, law firms and accounting firms earned a profit on average of about 50%, compared to the oil industry’s 10%. If you want to label something as obscene, which I don’t, it seems that the doctors, lawyers and accountants are earning the obscene profits.
Published: July 22, 2008 10:02 AM
One fact that I'm surprised wasn't mentioned in this article is that the oil industry--like many other American capital-intensive industries--is cartelized, which means that the privileged players allowed by the state to compete in it are able to charge higher prices than they otherwise could in a free market.
I don't recall hearing or reading of any oil company executives denouncing this highly immoral arrangement with the state to force oil conumers to buy from a narrower set of producers than they otherwise would have to choose from--and pay the comparably higher prices--as a consequence of cartelization.
Contra the economic ignorance of the statist left, oil executives should not be strung up--they should just be stripped of their government-enforced privileges and their industry liberated to a truly free market.
But please don't ask me to feel pity for oil companies and their corporate bureaucrats. I find it hard to believe that they're unaware of the privileged game they're playing. It's far more likely that they're quite cozy and comfy with it.
Published: July 22, 2008 10:27 AM
Quote from Bob Kaercher: "I don't recall hearing or reading of any oil company executives denouncing this highly immoral arrangement with the state to force ..."
The people without guns are working with the people with guns to make their lot better. It must be the fault of the people without guns.
Published: July 22, 2008 10:55 AM
Keith: I think it would be far more accurate to say that the "people with guns" and the "people without guns" are enabling one another to achieve their respective ends. Oil companies are more than happy to have the big guns of the state protect their market share by force and coercion, and the state is more than happy to have the power to do so. If oil company owners and managers are truly upset by the latter, then they should be willing to give up the former and say so.
BTW, what did you think of the idea of liberating oil to a free market?
Published: July 22, 2008 11:21 AM
Remember, that in the United States, there is no such thing as Big Oil. Something like 90% of world wide oil production comes from state owned oil corporations.
Compared to Aramco, Gazprom, and the rest, Exxon-Mobil is your local Mom and Pop heating oil delivery service.
Published: July 22, 2008 11:49 AM
"Let's suppose that in response to these criticisms Atlas shrugs, so to speak, and the oil companies disappear tomorrow. Some might be ecstatic (California Congresswoman Maxine Waters, for example, has gone on record expressing support for possible nationalization of the oil companies)...."
Then Atlas would shrug in vain.There are two classes of business as you know; the John Galt class and the James Taggart class. In my estimate all Oil executives are in the latter class. And I mean All of them. So there is no chance of seeing the oil companies disappear, even though we would very much like to see that happen. In fact these executives will fight tooth and nail, call in all their political markers and buy a few more senators befoe they see control of the golden goose pass to the "public".
Published: July 22, 2008 12:10 PM
Talk about obscene profits, look no further than credit card companies who consistently charge rates of over 20% who target college students, elderly, poor and moreover people who recently came out of bankruptcy.
Also, the predatory lenders aka payday loan companies who target mainly poor minority neighborhoods.
Published: July 22, 2008 11:29 PM
Art, while I am sympathetic to you in principle, like Bob and EnEm I think you ignore the close sybiosis between the state and the big oil companies.
Further, while you have indicated with we "need to examine .... with a more critical eye" the accusations that some fossil fuel firms (not only oil co. execs) have deliberately - via contributionss to various proxies - tried to manipulate our public debate about climate change and our social and governmental response to it, you have unfortunately declined to actually engage in such an examination. Maybe that's because most of the criticism is well deserved.
Instead, you have simply offered a rather absurd reframing of oil co. activities as "working to defuse criticism of oil's role in propagating global warming," when such criticism is very clearly directed to oil and coal PR and lobbying efforts to influence policy.
Published: July 23, 2008 4:53 AM
Quote from Bob Kaercher : "Oil companies are more than happy to have the big guns of the state protect their market share by force and coercion, and the state is more than happy to have the power to do so."
Its obvious that the root cause of the problem is the power of the state. Without that the oil companies wouldn't have any power. The state would have power without the oil companies. Refusal to accept the state as the root cause, only calls state based solutions into question.
Published: July 23, 2008 6:29 AM
Keith: I want to eliminate the state entirely. My point is: How many oil companies have you heard of that also call for the abolition of government, or at least the elimination of government regulation from their industry? Not very many at all, I'll wager, especially considering the tens of millions of dollars that the oil industry contributes to the two major parties each year. Somehow I doubt we'll be seeing an Oil Executives' Freedom March on Washington any time soon.
The biggest oil companies like the regulation and government control, Keith, just as the biggest meat packing industries liked the creation of cartelizing regulations several decades ago. They help to reinforce statism for the benefits that accrue to them from it, i.e., the blocking of competition that enables them to charge higher prices. If you can't acknowledge this, then you're only looking at one side of the statist coin. As for me, I know better than to see these guys as victims.
Awareness of these facts does not naturally translate into advocacy of "state-based solutions" as you claim, but to highlight the pervasiveness of the statist system. Executives of big oil companies would be the LAST people to cheer the elimination of government regulation from their industry.
Published: July 23, 2008 9:28 AM
It is this symbiosis between government and industry that makes the elimination of the state so daunting. Whether these people consciously know what they're doing, they would fight tooth and nail to retain the privileges that they receive. Indeed, in our government By The People, almost everyone believes that they have a stake in the state even though only a small few really benefit.
Then, you get articles such as this - from a writer who ought to know better - defending the arrangement.
Published: July 23, 2008 10:57 AM
Joe: I wouldn't say the author is "defending the arrangement" - he isn't even taking it into account. It would be more accurate to say that he's simply ignoring a key component of the overall context.
Published: July 23, 2008 11:07 AM
I read somewhere that Murray Rothbard once said that he didn´t believe in conpiracies...but, then again he didn´t totally disbelieve them. The way people percieve the oil situation is based on three facts: First, buyers will always scream when prices of goods and services go up, sellers will do the same when prices drop (our own self-interest). Second, "normal" people (us common folk) do not understand basic economic principles, and guide themselves by what "official" opinion tells them, or by common knowledge. Third, Government no matter if they´re left-wing or "free-market" interventionists will always use this situation to try make goverrnment bigger and to take more from the rest of us poor saps. Like it´s been explained many a time in this website, the prices of any good will rise when the consumer feels that he values it more than that which serves as exchange for that good. That much is clear. What´s the common denominator in all similar circumstances? Government, of course. Unfortunately, nothing indicates that any of the suggestiones that my fellow bloggers indicate (which are all of common sense) will ever materialize.
The big question is: Are you heading towards a nationalized oil industry. I think probably ney. What you might have is more regulations. After all, who needs nationalization, which may be politically impossible to do anyway, when you have mercantilism?
Published: July 23, 2008 11:13 AM
Actually, correction of my last comment: By framing the context as a reaction to the statist anti-free market left, the author ignores or at the very least minimizes a key component that would render a far more accurate representation of the context as it actually exists.
But in any case, the author is not defending the corporate-state nexus. Rather, in focusing on the claims of the statist left he minimizes the responsibility of the corporate side for reinforcing that nexus.
Published: July 23, 2008 11:23 AM
Actually, correction of my last comment: By framing the context as a reaction to the statist anti-free market left, the author ignores or at the very least minimizes a key component that would render a far more accurate representation of the context as it actually exists.
But in any case, the author is not defending the corporate-state nexus. Rather, in focusing on the claims of the statist left he minimizes the responsibility of the corporate side for reinforcing that nexus.
Published: July 23, 2008 11:24 AM
In the US, at least, Big Oil, for as long as I can remember, has had very little sway with Congress. This goes back at least to the Carter Administration and the Windfall Profit Tax. Indeed the Sherman Anti-Trust legislation was initially enacted to target Standard Oil.
If you want to see how poor Big Oil is at lobbying, consider this:
Is anybody clamoring for jail time for Fannie Mae's Franklin Raines, Jamie Gorelick and Bear Stearns James Cayne, the same way that the were for Enron's Ken Lay and Jeff Skilling?
Published: July 23, 2008 2:35 PM
Walt: If I recall correctly, Standard actually benefited from antitrust laws, didn't it? In that antitrust laws hobbled Standard's competition? And didn't Standard go on to get the American taxpayer to pick up the bill for their oil concessions from the Saudi regime? Rockefeller's Standard Oil is a pretty poor choice for the point you're trying to make.
As for the corporate windfall tax, we all know that corporations don't pay taxes. They collect them. Ever notice that no corporation--let alone an oil corporation--has ever led an anti-tax movement?
I'd say that everyone at Fannie Mae and Freddie Mac needs to be held accountable for what they've particpated in, but what has that got to do with the special privileges accorded to the largest oil companies by the state?
Here's Murray Rothbard from an essay written around the time of the first Gulf war, published in "Making Economic Sense":
"The Rockefeller interest and other Western Big Oil companies have had intimate ties with the absolute royalties of Kuwait and Saudi Arabia ever since the 1930s. During that decade and World War II, King Ibn Saud of Saudi Arabia granted a monopoly concession on all oil under his domain to the Rockefeller-control-led Aramco, while the $30 million in royalty payments for the concession was paid by the U.S. taxpayer.
"The Rockefeller-influenced U.S. Export-Import Bank obligingly paid another $25 million to Ibn Saud to construct a pleasure railroad from his main palace, and President Roosevelt made a secret appropriation out of war funds of $165 million to Aramco for pipeline construction across Saudi Arabia. Furthermore, the U.S. Army was obligingly assigned to build an airfield and military base at Dhahran, near the Aramco Oilfields, after which the multi-million dollar base was turned over, gratis, to Ibn Saud.
"It is true that Aramco was gradually 'nationalized' by the Saudi monarchy during the 1970s, but that amounts merely to a shift in the terms of this cozy partnership: over half of Saudi oil is still turned over to the old Aramco consortium as management corporation for sale to the outside world. Plus Rockefeller's Mobil Oil, in addition to being a key part of Aramco, is engaged in two huge joint ventures with the Saudi government: an oil refinery and a petrochemical complex costing more than $1 billion each.
"Oil pipelines and refineries have to be constructed, and Standard Oil of California (now Chevron), part of Aramco, brought in its longtime associate, Bechtel, from the beginning in Saudi Arabia to perform construction. The well-connected Bechtel (which has provided cabinet secretaries George Schultz and Casper Weinberger to the federal government) is now busily building Jubail, a new $20 billion industrial city on the Persian Gulf, as well as several other large projects in Saudi Arabia.
"As for Kuwait, its emir granted a monopoly oil concession to Kuwait Oil Co., a partnership of Gulf Oil and British Petroleum, in the 1930s, and by now Kuwait's immensely wealthy ruling Sabah family owns a large chunk of British Petroleum, and also keeps enormous and most welcome deposits at Rockefeller-oriented Chase Manhattan and Citibank."
Oh, cry me a river for poor, poor, put upon Big Oil...
Oh, but according to some people here, Big Oil doesn't even exist in this country. I guess they'd assume Rothbard didn't know what he was talking about.
Published: July 23, 2008 3:57 PM
"The oil industry is everybody's favorite whipping boy, and indeed it is tempting to criticize them for their acceptance of past government largesse."
past and present largesse me thinks.
Published: July 24, 2008 3:57 PM
Hmmm, I still fail to understand, as usual, the exact models that drive gas company profits. For Aramco & co, that's pretty clear, they are parts of the government.
For the others, isn't the country of origin actively getting a cut of the windfalls? How big is that cut? When Exxon pumps one barrel out of one of the 'Stans, does that Stans government get the same cut at $70/barrel as at $140?
Most of the arguments are emotional. Usually, they run against the oil companies. Here we have the poor oil companies being unfairly judged for acting in a free market and the governments being criticized for taking in taxes (and possibly correcting for negative externalities in doing so).
Again, emotional and ideological, very little hard numbers. I have yet to see graphs anywhere detailing how the costs of inputs and gains of outputs relate to company profits under different types of ownership/drilling franchise arrangements/company involvement in the oil market. Clearly a gas station does not necessarily benefit from really high oil prices, unless it is vertically integrated from the production on up.
For all this site's vaunted economic focus, this particular article isn't clearing that up one bit.
By the way, how a politician can claim with a straight face that charging $140/barrel isn't doing a fair bit to wean the world off oil is laughable.
Published: July 26, 2008 1:32 AM
Quote from the article:
>..it is important to note that gas remains only slightly more expensive than it has been historically, adjusted for inflation,
I think the real price of gas is down. My calculation follows:
Back in 1928 grand-daddy would go into town and fill a 200 gallon gas tank to take back to his farm. Gas went for 10 cents per gallon, so a $20 dollar bill paid for 200 gallons. Or, he could pay with a $20 gold coin (one ounce of gold) and buy 200 gallons.
$20 paper = 200 gallons 1 ounce gold = 200 gallons
Forty years later, in 1968, gas was selling for ~ 28 cents per gallon. Ten cents of that 28 was for gas tax that wasn't levied in 1928. Another 4 cents of the 1968 price was for better refining and 'free' services that gas stations provided in 1968. (Free air, water, cold drinking water, windshield cleaning, oil and tire checking, free maps. Those were the days!)
Subtracting these 14 cents from 28 cents gives us an apples to apples comparison with 1928 prices. A $20 dollar bill would buy 143 gallons. But a one ounce gold coin was worth $35 in 1968 and it could buy 250 gallons. Gasoline had gone up in price in "dollars" but down in price measured in gold.
$20 paper = 143 gallons 1 ounce gold = 250 gallons
Forty years later, in 2008, gas is selling for ~ $3.85 per gallon. We have to subtract ~ 68 cents from that to get a true apples to apples price comparison. (Eliminating taxes and quality improvements.) The adjusted cost of gas in 2008 is $3.17 per gallon. A $20 dollar bill will buy 6.3 gallons. A one ounce gold coin can buy 300 gallons of gas today.
$20 paper = 6 gallons 1 ounce gold = 300 gallons
* $3.85 / gallon, and $950 / ounce were my best guesses for the average 2008 prices.
VJM
Published: July 27, 2008 10:08 PM