Jewish World Review May 11, 2006/ 13 Iyar
The obscene debate of obscene profits
"What are we gonna do about those obscene oil prices by Bush's oil buddies?"
An architect friend told me that a contractor said this to her. While the two of them discussed a commercial project, the contractor added for good measure, "Prices won't go down until Bush leaves office." When my friend told me the story, she sighed, "Can you believe supposedly intelligent people buy into that nonsense?"
Oh, I believe. Believe me, I believe.
Fifty-seven percent of people, according to a recent New York Times/CBS poll, think that Democrats do a better job at keeping gas prices down. Only 11 percent felt that Republicans do a better job. Two-thirds feel that "the increase in gasoline price is not beyond the control of a president."
Sen. Arlen Specter, R-Pa., chairman of the Senate Judiciary Committee, wants Bush to consider imposing on the oil companies a "windfall profits tax." Proponents of the windfall profits theory tax argue that "spiraling" gas prices unfairly profit oil companies, profits that rightfully belong to the consumers.
Here we go again.
In response to another "oil crisis" in 1979, President Jimmy Carter ordered price controls and imposed a "windfall profits tax." The result? People waited in long gas lines, as the windfall profits tax gave oil companies less incentive to use domestic sources and greater incentive to rely on foreign sources. American dependency on foreign oil increased 10 percent, while our domestic oil production fell 5 percent. Well done.
If we attack the "obscene profits" of Big Oil, what about the profits of other publicly traded companies? Of the Standard and Poor's 500 corporations, for example, almost three-quarters reported first-quarter profits that exceeded analysts' expectations. This sort of thing happens when the U.S. economy grows at a 4.8 percent clip during the first quarter of the year. Real wages also posted strong gains.
Just how obscene are the profits of Big Oil? The Cato Institute's Jerry Taylor says, "The [oil] industry has earned less profit than most other industries. Goldman Sachs looked at the earnings from the oil sector from 1970 through the end of 2003 and they found that return on invested capital in the oil sector was less than the U.S. industrial average. If you look at just the most recent quarters and look at net operating profits you will find that Yahoo earned 45 percent in the fourth quarter 2005. Other companies like IBM and Intel, they have made a lot of money. The oil sector itself made about 8.8 percent of an operating profit in 2005. That compares to about 8.5 percent for the economy as a whole. So it's fairly standard. There is nothing unusual about these profits. They're actually somewhat normal."
But what about retired Exxon executive Lee Raymond's "outrageous" $400 million retirement package? It includes stock options, pension payoffs, a $1 million consulting deal, two years of home security, personal security, a car and driver, and use of a corporate jet for professional purposes. But what about the fact that, during Raymond's 12-year tenure, Exxon's stock price increased 500 percent? Critics of Raymond's package might consider that, in the last quarter alone, Exxon-Mobil paid $7 billion in federal taxes ($2 billion more than the same period in 2005), collected $7.6 billion in excise taxes, and another $11 billion in other taxes. Plus the company paid out $2 billion in dividends to its 2 million-plus shareholders.
The retirement and benefit packages of other CEOs fly nicely under the radar screen. Sandy Weill, who recently retired as CEO of Citigroup, received a package valued at $1 billion, including a $1 million-plus annual pension, a consulting contract, a car and driver, offices and administrative staff, and access to the corporate jet. Where's the outcry? Quick, someone call Congress!
Shouldn't we also consider that, when adjusted for inflation, gas prices peaked in 1981 at $3.07 a gallon in inflation-adjusted dollars? In Oslo, Norway, consumers pay $6.90. And in London, it's $6.28; Brussels, $6.16; and Rome, $5.53, and the French where 80 percent of their power comes from nuclear pay an average of $5.80.
Remember the good ol' days when Democrats complained about low gas prices? In 1994, Sen. John Kerry, D-Mass., talked about his " . . . support for a 50-cent increase in the gas tax." In a 1996 senatorial debate, Kerry chastised his opponent: "You can't excuse taking steps that will increase carbon dioxide that increases global warming. You can't excuse taking steps to encourage people to buy gas-guzzlers. You can't excuse creating greater dependency on oil, which weakens the United States of America. And for all those reasons, I think your efforts to reduce the gas tax by 4.3 cents are pandering of the worst order." Kerry stands proudly in the chorus that opposes drilling in ANWR, rejects offshore drilling and considers nuclear power plants a danger to the environment.
The crowd that at one time thought Americans paid too little for gas now complains that we pay too much. As between oil companies' profits versus the cluelessness, economic illiteracy and demagoguery of politicians and so-called "consumer advocates," which is more "obscene"?
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JWR contributor Larry Elder is the author of, most recently, "Showdown: Confronting Bias, Lies and the Special Interests That Divide America."
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