Feb
2
It is stories like this that made me start this blog:
HOUSTON - Exxon Mobil Corp. on Friday reported a profit of $45.2 billion for 2008, breaking its own record for a U.S. company, even as its fourth-quarter earnings fell 33 percent from a year ago.
The previous record for annual profit was $40.6 billion, which the world’s largest publicly traded oil company set in 2007.
In light of all of the companies laying off employees and seeking corporate welfare from American taxpayers, Exxon Mobil should be earning our praises.
However, plenty of liberals and people that are simply ignorant sought to antagonize Exxon Mobil even though they clearly have very little knowledge about the company, the industry, or economics. The discussion section at Newsvine was rife with ignorant comments such as this gem from “Luu”:
I always say, those making a grand profit NOW - must be screwing some one…US!!or should I say U.S..
Or this from “BLNEWL”:
Unbelievable. The government should buy this company instead of the banks!
Morons who say such dangerous things are lacking three basic principles relating to Exxon Mobil’s profits: perspective, cause, and consequences.
First, the profits of Exxon Mobil need to be put into perspective. Sure, $42.5 billion sounds like a lot. And it is. But put in perspective of the sheer size of a business like Exxon Mobil, the “raping of the consumer” or “price gouging” accusations start to ring hollow. Exxon Mobil’s profit margin, or how much profit they make in relation to gross revenues, is 10.57%.
Maybe it’s because I’m from western New York, but I always like to use apple metaphors to illustrate basic economic principles. Suppose it costs Jack and Jill ten cents to produce an apple, and Jack sells ten apples for fifty cents each and Jill sells eighty apples for twenty cents each. Jack has $5 in revenues and $4 in profit, for a profit margin of 80% (for every dollar Jack takes in, $.80 is profit). Jill has $16 in revenue and $8 in profit, for a profit margin of 50% (for every dollar Jill takes in, $.50 is profit). If we just look at profits without any perspective, we might look at that fat cat Jill and her fortune, double that of poor Jack! But if one of these two is really screwing their customers, which one is it? The one whose profit margin is highest! Jack, you greedy bastard! You’re making an 80% profit! But we usually won’t see MSN or AP writing about Jack because he is easy to miss. Jill, on the other hand, stands out when she reports her “record profits” of $8, double that of Jack, even though she sells each unit at a cheaper price and therefore has a lower margin.
Also, many will say that Exxon Mobil can garner these huge profits because of some oligarchy or price-fixing scheme for which no evidence is ever offered for. In fact (as of 2006) Exxon Mobil is the world’s 17th largest oil company, so the logic behind that argument really doesn’t work with me.
Secondly, we need to examine the cause of Exxon Mobil’s profits. When it comes down to it, Exxon supplies a very useful product that has huge demand. I don’t know about you, but I love oil. Because of oil, I can live in a rural community with lower prices, and commute to the city to earn a wage and occasionally have fun. Yes, I could work at the grocery store in town for $8 an hour, or live in the city where I would fight with traffic every day and never see open green spaces, but it is because of oil that I can have the best of both worlds.
Plus, petroleum is used to manufacture countless other products, including plastics, which not only give me extra perks in life, but are vital in such aspects as medical technology and food preservation. Before the advent of oil, human existence was somewhat destitute. However, since the advent of ‘fossil fuels’ and the industrial revolution, human standards of living have exploded all over the world (with the exception of places where government has weighed down the progress of the free market).
So, we agree that we need oil (for those who don’t agree, the following arguments can be applied to solar, wind, geothermal, and ostrich power as well). Well how are we going to get it? With the capital, technology, and know how of professionals of course. Listen, if you put me in Saudi Arabia and gave me 10,000,000 years, I wouldn’t have a clue how to give you a gallon of gas. It is because of the hard work of thousands of employees, researchers, executives, and investors that human beings can go out to the desert or an ocean, drill a hole, extract some smelly black stuff out of the ground, refine it, turn it into plastics and gasoline, and we can run cars, heat homes, and have plastic heart valves. Or, in my apple analogy, someone has to buy the land, plant the orchards, water the trees, harvest the apples, and man the apple store. Before producers like Jack, Jill, or Exxon Mobil, we had none of these products. Now, because of their hard work and ingenuity, ours are the most cushy and plentiful lives in the whole of human history. It is a bit of a stretch to say that we are being “exploited” or have inherent rights to these products all along.
Also, the central theme of this story and all of free-market economics is that a firm is successful because of the conscious decisions of consumers acting in their own interests. Some people say they are ‘forced’ to buy gas at high prices. Bull shit. As we saw over the summer, consumers can and will curtail their consumption of oil if it is not in their own self interest. Some people may say they have to buy gas to get to work and get around their daily lives. Lord knows I was hurting when oil was $147 a barrel. But I didn’t have to work or live where I did. I cut down on unnecessary trips, turned my car off at stop lights, and drove slower. So did millions of Americans because such behavior was in their own self interest. The purchase of any product at a price is voluntary (unless someone has a gun to your head or they lie to you about the terms). The only reason Exxon Mobil is so big is because consumers repeatedly made the decision that buying their product at the advertised price was better than the alternative, which is either finding another supplier or going without the gas altogether. No one bought it just to be nice to the company. A voluntary, free-market transaction will only go through if the result is a better alternative for both parties involved than if the transaction had never happened at all.
There is nothing wrong with this. In my Jack and Jill example above, an apple consumer was faced with four choices. They could go produce their own apples. In the real world, people do this all the time when they grow their own food, do their own taxes (just don’t pull a Geithner), or change their own oil. But maybe their time is better spent at work or with their family. So then the consumer could go without an apple. However, this would lower the consumer’s standard of living as opposed to having the apple. We are left with the last two choices, buying an apple from Jill at twenty cents, or buying an apple from Jack at fifty. The choice is obvious here - no wonder in my example Jill sold eighty apples! So is it schocking or wrong that Jill and the consumers of apples would simply repeat this decision over and over again, ending up with Jill having profits in the billions? But what about a monopoly, you ask? Couldn’t Jill just be forcing Jack out of the game to (no pun intended) jack up the prices on the consumers? While I disagree with this logic (Coyote has a nice piece on so called “robber barons” here) I don’t think this is the case if Jill is the 17th largest producer of apples.
The cause of such large profits is because Exxon Mobil has provided a product that consumers were willing to exchange money for to raise their standard of living.
Lastly, we need to consider the consequences of “doing something” about Exxon Mobil’s record profits. It seems the “solutions” to this “problem” are:
- Enacting a “windfall profits” tax
- Enacting price controls on oil
- Government takeover by:
- Nationalization
- Force
The first two options simply lower the incentive to produce a product, leaving us with lower supply and higher prices, and also shortages (e.g. the Jimmy Carter days). Of course, we could just force the oil companies to produce the product without compensation, but that is generally referred to as slavery, which was outlawed in 1865.
That leaves us with nationalization, a tactic employed by our buddy Hugo Chavez in Venezuela (if nationalization proponents are uncomfortable with the comparison, too bad). First of all, as Katrina, Social Security, and TARP have shown, government is a grossly incompetent steward of resources and only rarely makes good decisions. Having them in charge of something as important as oil (or health care, or retirement, or anything) is a risky proposition at best. Secondly, I have a problem with the logic behind the government buying up companies as an instrument of stopping “big business crooks” from harming America. If this is supposedly what they do, couldn’t they just take the money they got from the government, go start another business, and do the whole thing all over again? So the only option left would be to take the assets by force, which is generally referred to as stealing.
Also, Exxon Mobil is owned by many mutual funds and government pension plans. In my 401(k), XOM is the largest single stock holding. Sticking it to the owners of this oil company would be sticking it to a lot of regular folks.
To recap, the consequences of not accepting Exxon Mobil’s record profits are:
- Lowering the supply and raising the price of a vital product,
- Enslaving tens of thousands of employees, or
- Robbing the assets of millions of working Americans
If you do not prefer any of those solutions, maybe you should just join me in congratulating Exxon Mobil in their success and hoping they keep right on chugging along.
Feb
2
Tax Evasion Under Obama an Epidemic?
Filed Under Uncategorized | 2 Comments
Earlier this week it was revealed that Obama Health and Human Services secretary nominee Tom Daschle had neglected to pay some taxes, much like Treasury Secretary Timothy Geithner. The article showed the dangerous precedent towards law-breakers in high positions being set:
Republicans grudgingly acknowledged that any serious damage to Daschle’s chances for confirmation in the Democratic-controlled Senate are unlikely given that Timothy Geithner’s nomination for treasury secretary, held up after it was revealed that he had failed to pay more than $34,000 in taxes, eventually was confirmed by a 60-34 vote.
Why is it that the Democrats routinely demonize millionaires who do not want to pay high taxes, yet are, in fact, millionaires who do not want to pay high taxes?
But, as we were told with fellow Obama nominee Tim Geithner and House Ways and Means chairman Chuckie Rangel, this was just an “oversight.”
With “oversights” like this, its clear Daschle is uniquely qualified to control the nation’s health care.
