This morning, I stepped out my door to pick up the Free Press and the screaming front page headline – in larger than normal font – read, “Congress attacks $3 gas.”
Okay, this is it. I cannot believe the ridiculous depths to which this issue has rapidly plummeted. The Senate Judiciary Committee voted unanimously to allow the Justice Department to prosecute OPEC member nations for price fixing. Someone please stop the insanity!
First, of all, I am opposed to the government doing ANYTHING to try to fix this “problem.” Understand this: the government does not fix problems, it only makes them worse.
The Democrats suggested suspending the federal gas tax for two months. Sounds good, but unless they plan to cut spending, too, we the people will just have to make up the money some other way.
The Republicans suggested sending everyone $100 checks, which sounds nice, but would cost too much to administer. The Republicans also support a price-gouging law. The Republicans!?! What is this world coming to? I think all Republicans should be required to attend a two-day economics seminar with Thomas Sowell before they can vote on any more legislation of any kind.
Back to the paper, next to the headline, there was, of course, a graphic of the Exxon Mobil quarterly profits. I have had it with the “blame the evil oil companies” game. Oil prices are set on the international market. Gas prices – like the prices for any product in a free economy – are only as high as the consumer market will bear. It’s supply and demand. There is a rapidly growing demand for oil products, but the supply is not keeping pace. That is why the prices are climbing.
The truth about Exxon Mobile’s profits is that they are not obscene. In 2005, they only made 9.7 cents on the dollar.
My grandfather owned a small store called Kelley’s Bargain Outlet, in a small town in VT that sold seconds wall paper from a supplier in Canada and random stuff my grandfather bought at close-out auctions.
When they had good years, they would do around $250,000 in sales, sometimes more. Would you call $24,250 profit obscene for a mom and pop operation like that? That’s what Exxon Mobile’s profit would be if they had only $250,000 in sales.
People keep yelping about record profits. Well, if you have record sales, you will have record profits. You can’t not have record profits when you have record sales. The consumption of gas is rising every year, and so it would follow that the profits will rise. That is how it works.
Is it obscene that Exxon Mobil paid $84 billion in taxes and duties to governments last year? That’s a heck of a lot more than their measly $8.4 billion first quarter profits for ’06. And now congress wants to raise taxes on the oil companies. Someone please explain to me how that will lower gas prices.
The problem is supply. When demand outpaces supply, prices go up. The company is now investing more of their obscene profits into new production. They are increasing their investment in capital and exploration projects by 41% over 2005; that’s $4.8 billion. That is a good thing. Hopefully, it will lead to a supply and demand balance and prices will level off.
In the mean time, the government needs to stop trying to tinker with the free market and get off the blame-the-evil-oil-companies bandwagon. As for the rest of us, read some Thomas Sowell to learn more about the economics of gas prices, I’m sure he has plenty of columns on this topic, and visit Tirade Parade for some tips on how to save gas money.