Sunday, 13 November 2005

Yeah, some more about those oil company profits

Jeff Jacoby:

But profits can’t be judged by dollar amounts alone. What counts is the percentage of revenues those profits represent. “Our numbers are huge because the scale of our industry is huge,” Exxon CEO Lee Raymond tried, probably in vain, to explain during last week’s big Senate hearing on oil company profits. Exxon’s profits last quarter amounted to 9.8 cents for every dollar of sales. Is that obscene? Well, it was more profitable than Shell (which netted 7.8 cents of each dollar of revenue) or Chevron (6.6 cents) or BP (4.6 cents). But compared to Coca-Cola (21.2 cents), Bank of America (28.3 cents), or Microsoft (33.2 cents), it was nothing to write home about.

Everyone is complaining about the price they’re paying at the pump, yet no one seems bothered that a can of Coke that used to cost 35 cents has now doubled in price, or that they don’t see any dividends returned on that free checking account from BoA, or why the cost of Office isn’t $99 instead of $299.

I’m not begrudging Coca-Cola, Bank of America, or Microsoft their profits any more than I begrudge the oil companies theirs. The market is clearly bearing what the market will bear in each of the industries the above companies find themselves. Do you want Microsoft Office to cost under a hundred bucks? Then stop buying Microsoft Office. Use one of the scores of alternative word processors available. Well, if you’re using a Macintosh, any way. Microsoft seems to have strangled word processor development for Windows. But you see my point.

When there’s less demand, companies are forced to reduce prices. Gas prices haven’t gone down, because Americans aren’t buying less gas in significantly high numbers to warrant bringing the prices down dramatically. It’s called free enterprise, last time I checked.

Smacking oil bosses around may be good politics, but the unglamorous fact is that Big Oil’s earnings, 7.7 percent of income in the second quarter of 2005, is lower than the overall US corporate average of 7.9 percent. The oil industry is more profitable than some (automobiles, media, utilities), but it can only envy the profits earned by semiconductors (14.6 percent), pharmaceuticals (18.6 percent), or banks (19.6 percent).

Can you just see the CEOs of Intel, AMD, Motorola, and IBM being dragged before Congress to explain why they’re making so much money? Ridiculous.

The kicker, though, is this:

Government revenue from gasoline taxes alone has exceeded oil industry profits in 22 of the past 25 years.

Does the road work, including on roads which appear to need no work, ever stop where you live? Perhaps instead of gouging consumers with high gasoline taxes, state and local governments should examine their budgets more carefully. Rather than begin “improvement” projects on roads which are perfectly fine, under the guise of the “use it or lose it” excuse, perhaps state and local governments could channel those gas tax revenues in to paying off debt. Should there be no debt, then why not cut the tax? I suppose that would be too easy.

posted on November 13, 2005 3:02 PM




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