Thursday, November 10, 2005

"The Scandal of Supply and Demand"

Don't get me wrong. Our family's budget has no extra cushion. So the high gas prices and the probable high heating bills this winter are going to kill us just like everyone else. But I am so tired of hearing everyone whine about how evil the oil companies are. Bill O'Reilly whom I agree with about 70% of the time is railing about how awful this is that the oil companies are making profits. Guess what? In a capitalistic society private corporations need to make profits or there is no incentive for them to provide quality products. Rich Lowry has written an excellent article entitled "The Scandal of Supply and Demand" . In it he points out that oil companies make less profit than a lot of other industries. Here are some excerpts:

"Even in this boom, there's nothing untoward about ExxonMobil's profits. They are big, but it is a big company with big expenditures. What is important is the profit margin. For every dollar in sales, ExxonMobil makes 9.8 cents. McDonald's and Coca-Cola make 13.8 cents and 21.2 cents, respectively. Google makes 24.2 cents, and Merck, Bank of America, Microsoft and Citigroup all make more than that.

As an industry, oil and natural gas are less profitable in terms of cents per dollar of sales than banks, pharmaceuticals, software companies, telecommunications, insurance and a host of others. The most outrageous oil profiteer is government, which has collected $1.34 trillion in revenue from local and federal gas taxes since 1977, more than double the domestic profits of major oil companies during that time, according to the Tax Foundation."

So as he points out the people who are stealing most of our money through oil is the government through taxes. So instead of Congress grilling oil executives they should be grilling themselves. Supply and demand is the best way to get oil prices to come down. If the government tries price controls like it did during the 70's it is only going to make things worse. Let's see, in socialist countries in Europe where their government interferes they have cheaper gas, right? No, gas is still cheaper in the U.S. than anywhere else. Let's keep it that way.

What can we really do to lower the cost of gas prices in the future? Build more refineries, drill in Anwar and other place in the U.S. Who is really to blame for high gas prices in my opinion? The extreme environmentalists. I'm for protecting the environment but we can drill in Anwar and other places and not disturb the animals or the land. It is ridiculous that we have to get our oil from abroad because our own citizens have put so many restrictions on building new refineries and not letting us drill in our own land. I have been so excited about the possibility of drilling in Anwar and then today some moderate/liberal Republicans killed it. I am going to find out who each one of them are and they are getting a phonecall from me.

Let's stick with our capitalistic system of supply and demand and keep the government out of it. I would think the fires burning in France should be a stark reminder that a leap towards socialism is not a good idea.


Mahndisa S. Rigmaiden said...

11 10 05

Hello Ms. Chatterbox:
It is so funny that you covered this issue today. On my blog yesterday I pointed folks to an article by the CATO institute about this issue; then in the round up discussion talked about how price controls don't work (if put on by the government) but price fixing CAN and DOES in many instances.

I do take issue with your statement that drilling in ANWAR will have a negligible environmental impact, however. Everytime we drill for oil, we decimate the local flora and fauna. That being said, I really want to see the environmental impact reports for the potential drilling. This is because IF ANWR can produce enough oil to offset our costs, it may be justifiable to do so. Also many environments can be reproduced in other locations. I just want to minimize hurt all around. But at some point, you are right that we will have to do SOMETHING!

I propose that they drill in ANWR only on a temporary basis, like maybe fifteen years or so. After that, we should be using other innovations for power. I don't know if you ever saw the article I did about piss power. But believe it or not, they have pee powered batteries now. This really opens up the door for new developments. Good post! I like the research you did!

Dionne said...

Thanks, Mahndisa. I agree that we should be finding alternative sources of energy. But we have to do that simultaneously with continued drilling. Otherwise I think we end up with problems as the population increases and the demand increases but the supply doesn't.

Eddie said...

Yup, it's the same thing with the pharmaceutical companies. Very low margins overall, yet you would never know that listening to the MSM or the lefties in Congress.

Mahndisa S. Rigmaiden said...

11 10 05

I agree with you guys! We have to solve the issue in a coupla ways: the first is to patch the existing problem. The second is to come up with another alternative. We agree, why can't the LEFTISTS?

Mr. Grey Ghost said...

I don't see people making near as much noise about oil prices going on as they did when they were up. But maybe that's just me.

Dionne said...

Mahndisa: Great point.

Grey Ghost: I know I feel better since gas has gone down a little. In Missouri we are under $2 a gallon now. But it was just yesterday that Congress had the oil executives in grilling them. So maybe its just the media thats still talking about it and not the average person.

Joubert said...

About ANWAR: Have you ever seen pictures of Section 1002 where the drilling may take place? It looks like a concrete parking lot in winter. There are no mountains, no lkaes or rivers and hardly any wildlife except for some herd of diseased reindeer. We need the oil.

The oil profits are also needed for R&D into alternative sources especially nuclear power. The only way you build nuclear plants is by sinking a couple of billion into it and then waiting for decades to reap a profit.

I've linked to you, LMC. Many thanks.

The Exile said...

I certainly agree with you that the people who are screwing us the worst are the thieves in our government, but the profits these oil companies are making are just plain wrong.

LMC, you've read my blog; you know that I'm a dyed-in-the-wool Conservative and that I wouldn't pee on an environmentalist if he were on fire in the middle of the road. It actually pains me to agree with the Left on this one, but I do agree.

The company that I work for is happy to make a 10% profit. To make a 100% profit, like some of these companies have, we'd have to raise our prices by 90% without changing the way that we make the stuff.

I agree that the environmentalists are to blame for a lot of it, but the oil companies are now using them, and the war, to justify these huge profits.

I also agree that price controls are not the answer. Quite frankly I feel like a Lefty at this point because, though I can criticize, I have no solutions to the problem.

Dionne said...

Exile: I understand where you are coming from to a point. But where is your evidence that some of these companies are making a 100% profit? I'm sure there are some of them that are taking advantage but overall it seems that they are walking away with less actual profits than so many other corporations.

I had to laugh at your last line. Very well said :-).

Joia said...

Having grown up in the Southwest, where oil wells are everywhere, including the McDonald's parking lot or the church lawn, I've never understood the hysteria surrounding the Alaska drilling. So I’m feeling absolutely sick right about now. I was so fricking excited about that option being open to us at last! What was it they called Alaska? Seward’s Folly? Looks like it’s still carrying a bit of that legacy of being worthless to us. Bah.

I have no problem with the oil companies making a profit. What I have a problem with is them making record-breaking profits at a time when the rest of us are suffering. Historically, during war time we're all supposed to be cinching up our belts and talking about meatless Fridays and the like. So my issue isn't that they're making a profit, it's feeling like they're ripping us and dancing in their private jets on the way to the Caribbean while the rest of us are making sacrifices just to get by.

And while I do think that the oil companies were exploiting this situation, I don't think that the answer is to go anywhere near a socialist resolution. I’d just like some economic guru like Dick Armey to explain to me what a viable option is for a balanced solution.

Dionne said...

Joia: Some good points. And yes, I would love to hear a Dick Armey solution to this mess.

Dionne said...

Patrick: That's one of the things that frustrates me about this. Where they want to drill in Anwar isn't anywhere near wildlife or anything of scenic beauty. It seems to be all about extreme environmentalists going over the edge again.

Bloviating Zeppelin said...

1. We need to become as energy independent as possible. 2. We need to drill in ANWR. 3. We need to legalize offshore drilling. 4. We need to search for and locate the western and midwest shale oil. 5. Big oil makes horrendous profits. That's capitalism. BABAGOI. There are also years they tank. Next time at the pump, check out how much more per gallon you pay in local, state and federal taxes. 6. We desperately need to build more refineries and resupply our national reserves -- then leave them alone except in exigent circumstances. 7. We need to build nuclear -- efficient nuclear, not the old Babcock & Wilcox style -- and fortify them like Ft. Knox. 8. We need to conserve. 9. We need HUGE R&D into alternate energy sources. 10. It is a given that sooner rather than later OPEC, Saudi Arabia, Mexico, Canada and particularly Venezuela will screw us or hold us hostage under the table or overtly.

Dionne said...

Zeppelin: Well said as usual.

Rivka said...

I about died, your blog is not showing up anymore! What is up?

Rivka said...

great post MC!
AGAIN, the solution is to get real conservatives elected in 2006, and 2008. We need to get fired up and elect conservatives, not liberals dressed as republicans.

We need a conservative president who won't try to bring a new tone to washington. We need one who will be in line with mainstream Americans, which, by the way, believes in the true conservative platform.

Oh yeh, if you start hearing liberals gloating about Bush's poll numbers, you must remind them that one of the reasons he isn't doing so well is because in some important areas, he is not as far right as mainstream America thought he would be. He is still greatly loved by conservatives though.
SO, look forward to more 'real' conservatives invading the senate, and possibly the presidency in 2008. Maybe another Reagan??

This onslaught against Bush could be a good thing for the conservative movement after all, it is exposing the liberal republicans we need to vote against, and at the same time exposing the 'crookedness' of the liberals.

Eddie said...

There is no such thing as a "wrong" profit in a free market economy. Competition is what limits the profits and it's a balance of checks and measures that work quite well. We should celebrate their sucess and the fact that many of these international oil companies are headquartered here, when they could be headquartered anywhere in the world.

Thank God for big oil and the great jobs they create, the dividends they pay, and the pension funds they keep afloat, including UNION pension funds.

Eddie said...

I don't provide access to my blog via my profile anymore. I was attracting too many trolls. You can access it by my address,, or the links on the sites that you and I visit.