Posted on 05/25/2006 12:05:10 PM PDT by Mr. Silverback
The Democrats and Republicans continued their race to the bottom this week, and for a while they wish to run on the same track. Democrats spouted their annual pretended outrage at gas prices, and this time the GOP joined them, with Senate Leader Frist, Speaker Hastert and President Bush all rushing to call for another fruitless price gouging investigation. While we wait for the Beltway bloviators to call for repeal of the law of supply and demand, let’s look at eight facts they don’t seem willing to discuss.
1. The big oil companies recently posted record profits, but they also recently reported record sales. Funny how those two things go together, isn’t it?
2. Big Oil makes roughly 9 cents per gallon in profit these days. If gas is at $2.75, they’re pulling down a blistering 3.27 % profit margin. Now, ask yourself this: How secure would your job be if your employer had to operate on a 3% profit margin? Would they even stay in business? Would entrepreneurs get out of bed in the morning to make a 3% profit margin running a small business?
I don’t care how much money Big Oil is making, nobody makes 3.3% profit when price gouging.
3. Depending on the state, taxes are somewhere between 26 and 60 cents per gallon. Sure, roads need to be funded and gas taxes are a great way to do that because greater use of roads leads directly to more money for roadwork. Still, consider that a moratorium on Illinois and federal gas taxes would bring us gas somewhere in the area of $2.36 here in Freeport. A graph of Big Oil profits over the last 30 years looks like a roller coaster, while a graph of gas taxes shows a nice, steady climb that well exceeds inflation. Who’s gouging who?
4. Speaking of gouging, why hasn’t the anti-gouging chorus gone after the bottled water industry? Dasani, for example, is currently going for $1.06 per liter. That works out to $4.16 per gallon for something not much different than what comes out of your tap. What do you think the profit margin is on a gallon of Dasani? They’re not the worst, though. Check the per-gallon price on Pepto Bismol, Dom Perignon, Coca-Cola or “inexpensive” Testor model paints. Don’t get me started on the Alclad lacquer I dream of using on my model planes; at $6.96 per ounce the price works out to over $1,000 a gallon.
What could drive these businesses to offer their products at these insane prices? Could it be a little thing called “supply and demand?”
5. Despite Dick Durbin’s recent ludicrous proclamation that there’s “no end in sight” for oil prices, leading Democrats know that crude and pump prices will decline steadily for months before the election. To capitalize on high prices, they have to get the idea that the GOP is aiding and abetting Evil Oil cemented in the minds of voters while prices are still high.
Keep this in mind when the Dems demagogue this issue all summer: According to the April 28 Federalist Digest email newsletter, Senate Minority Leader Harry Reid has voted to raise fuel taxes 12 times and House Minority Leader Nancy Pelosi has voted to raise them 5 times so far.
6. While we’re addressing the Democrats, let’s remember who has opposed new refining facilities in the U.S. for 30 years or so, opposed new nuclear plants for about the same amount of time and been at the forefront of taking up refinery capacity with “boutique” gas mixes for certain major cities.
Each of these things has a consequence at the pump. America’s low refining capacity is a bottleneck that reduces supply and drives prices up, and the boutique fuels exacerbate that problem. Fewer nuclear plants mean more oil-fired plants, which means less crude going to gasoline production, and more pollution.
7. Here’s another good find from the Federalist Digest: Fuel supply coming out of the Gulf Coast is still down almost 20% because of damage from Hurricane Katrina. Gas demagogues aren’t going to tell you that, and they sure won’t be reminding us what happens to prices when demand rises and supply goes down.
8. These days, large American corporations are mainly owned by American wage earners and retirees. Sure, the fat cats in the limos are out there, but the bulk of the shares are owned by pension funds and other investment groups. In other words, Big Oil’s profits are helping Grandma stay retired now and Joe Lunchbox and Jane Teacher look forward to a properly funded retirement in 20 years.
The Beltway demagogues are counting on us to be economically ignorant and easily riled. They surely don’t deserve our help, so let’s not oblige them.
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I read the other day, and I believe it, that "Big Music" makes more money on each mp3 song download off iTunes than "Big Oil" makes on each gallon of gas.
Where's the outrage, I ask you?
All true...but you forgot to look at the traders extracting the "fear premium" or as theycall it in the car business..."added dealer profit".
Good job. The collectivist legislators in the Congress think we're stupid. They'd better think again before trying to sell us their nonsense.
If you want real fun, try calculating hte price of gas over the last thirty years and comparing it to the per-capita fed gov spending, after adjusting for inflation. If the gas had kept up with government spending, we'd be paying $8/gallon!
Bump for a great article. Bill O'Reilly is one of the demegogues. The cost of gasoline is close to what is was 30 years ago adjusted for inflation. Try that calculation on coca cola.
I wonder how the eight Republican Senators who voted to strip the Anwar Ammendment from the Budget Bill feel about it now. The resolution to strip it out was introduced by Nancy Pelosi and was voted for by the following Republicans: Susan Collins and Olympia Snowe, both of Maine; Lincoln Chafee of Rhode Island; Gordon Smith of Oregon; Mike DeWine of Ohio; Peter Fitzgerald of Illinois; John McCain of Arizona, and Norm Coleman, ashamedly from my home State of Minnesota. It passed 52-48.
Whereas I will vote for Coleman again, I will lose no opportunity to embarrass him in State and local caucuses for this foolish abberation.
Bump, bump and bump.
Ping!
If the margin is 3% on a gallon of gas then if a gallon costs 1.00 their marginal profit is 3 cents. If a gallon costs 3.00 their marginal profit is 9 cents.
Increased demand in the face of higher price also contradicts the law of supply and demand. Higher prices drive demand DOWN, not up.
If anyone is immune from the law -- in more ways than one -- it's the oil companies.
Explain to me how somebody gets a 3.3% profit margin from a no-competition situation.
Dodge wants you to buy their vehicles over Ford or Toyota. They have aggressive advertising, test drive promotions and incentives Tell me what ConocoPhillips is doing to win your business from ExxonMobil or Shell.
Since almost every gas station I go into seems to have a contest or a special credit card deal, it seems they are competing with incentives. But let's put that aside and have a lesson in fungible commodities: Tell me what aggressive advertising and incentives grain elevator A does to gain advantage over grain elevator B.
Ping.
Once upon a time, it was channeled into Napster memberships. :-)
Of course, we can't take the "steal it" approach with gas!
Thanks for the suggestion and the kudos, guys.
Ooh, great stat!
Yeah, I don't know if O'Reilly is just doing that for ratings or "Look at me, I'm fair and balanced" or if he was just asleep during econ at Harvard.
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