SpearsofTruth

Handling Oil Profits, the George Will Way

It may seem like I’m waging a one-man war against George Will this week, but I’m not. Really. It just seems that he is a standard barrier for conservative views, particularly on capital.

In a recent column (Dec. 4, 2005), Will takes on Democratic efforts to create windfall profit tax on oil companies as way to do one of two things; 1) punish the oil companies for price gouging 2) protect consumers. But the way he expresses his views in this case is only to stab at the Democrats and does not really answer the problem of how to handle the price gouging of the oil companies during the previous fall.

He rails on about how a proposed windfall profit tax will hurt oil companies and their shareholders. He cites that the six largest oil companies will disperse $31 billion in dividends. He also states:

“…that 41 percent of oil company stocks are owned by pension plans and individuals' retirement accounts. Hence much of the tax's burden would have fallen on current and future retirees, reducing both the market value of, and dividends paid by, those stocks.”

What bothers me most about Mr. Will’s perspective is that he only looks at the capital side of the equation. Capital investments are largely apart of those who are most privileged. Yes, many retirement funds probably do contain oil company investments in their portfolios, but for the Average Joe, who probably has a modest retirement account that he won’t tap into until he retires, the worry is for today. And now, because of high energy costs, he’s probably having to cut back on his voluntary contributions to fill up his car.

And why most people have investments in stocks and some in oil stocks, how many, in comparison drive cars? I would say that nearly 95% or more.

I ask, what about the astronomically large increase in energy costs, specifically gasoline, right now? These seem to be left out of Mr. Will’s equation. How do they affect the “life-style” dividends of the Average Joe today? How do you balance out the dividend payouts with the increase of the pain at the pump?

Now, some will defend of the oil companies, stating that it’s really OPEC’s fault. Or that the hurricane in the Gulf caused the spike in prices. While yes, I expect an increase in prices because of these two factors, I don’t expect the oil companies to use these as an excuse to price gouge an already stretched middle class.

Here’s a hypothetical scenario. You own a peanut butter production plant. You buy peanuts from South America. The South American’s decide to increase prices. You can decide to become more efficient or pass the cost onto consumers. If you do pass the cost onto consumers, they may start considering the competition. Now add to the scenario hurricanes damaging your facilities. Again, you have a choice to raise prices.

To follow the scenario a little farther, you know what the price of peanuts are. You know that you will have to increase prices.

What would you do:
A: Raise them a reasonable amount?
B: Go into collusion with all other peanut butter producers, blame external factors and then raise your prices 25%?

You know what the oil companies did. They didn’t raise prices to a reasonable level, they decided to price gouge their way to record high profits. ExxonMobile made $9.9 billion dollars on one quarter.

How can anyone in their right mind say that oil prices were raised to a reasonable price and an oil company to come away with record profits? Why is it that the consumer was the only one to suffer at the hands of Katrina and the OPEC price increases?

If indeed, the oil companies are adversely affected by OPEC prices increases and the hurricanes in the Gulf, again, how can they walk away with such enormous profits? Why aren’t they limping by with modest profits when their companies are being put under the twin pressures of OPEC prices increases and natural disasters bedeviling them?

And why am I the only one to see that their excuses are farce?

And getting back on topic, how can George Will defend the oil companies when it is obvious that they decided it was time to make a killing? Mr. Will has already decided that stock portfolios trump the Average Joe’s wallet.

Now, peanut butter doesn’t drive the economy, but oil does. Americans don’t really have much choice about owning a car. It’s an integral and an almost indivisible part of life for most Americans. And the effect goes far beyond what the consumer pays at the pump because almost all business depend on trucking to get products to stores. Many business have already stated that they will have to increase prices to off-set the price the increase in gasoline prices and this yet another example one silo of economy deciding that it can make a maximum profit at the expense of the rest of the economy.

Getting back on point, while I don’t see the windfall profit tax as the most reasonable method to protect the consumers, I really don’t see Mr. Will contributing anything other than letting the oil companies off the hook. It seems that excess profit taking at the expense of the American citizen is all right with him as long as he can take potshots at the Democrat’s solution.

In all candor, congress would probably misspend all the money they garnered from the windfall profit tax anyway.

Now, my solution comes after the horse is already out of the barn, but what should have been considered was price controls. I can almost hear an audible gasp from free market capitalists everywhere. From my perspective, there seemed to be no other reasonable answer. Windfall profit taxes will probably be misspent. Letting the oil companies make a killing just so the privileged can have tidy dividend checks seems to be robbing from the poor to pay the rich. Letting the oil companies protect their reasonable profits while protecting the consumer from volatile prices through modest price controls seems like a reasonable solution to me.

Anyway, sorry to pick on Mr. Will again, but he left himself open with his one-sided attack that didn’t really offer much to the Average Joe. If only he had decided to look for a solution instead of an attack.

Sources:
George Will's Article

posted by Random @ 2:21 PM