and why Howard Dean is a idiot.
By Colin McNickle
Sunday, April 30, 2006
"Ignorance is the mother of devotion," wrote Henry Cole in 1599's "Disputations at Westminster." And never have so many been so devoted to ignorance than in the escalating debate over gasoline prices.
Let's start with the prices themselves. The current per-gallon pump price for regular gasoline and a barrel of crude oil are not "record" prices. If you calculate the prices in inflation-adjusted dollars, both cost more 25 years ago. If you paid for a gallon of gas in March 1981 in 2006 dollars, it would have cost just under $3.11.
Then there's talk of Big Oil's "excess profits." And there's plenty of misleading prose to bolster the contention, including this passage from The Washington Times:
"The $16 billion in combined first-quarter earnings expected from ConocoPhillips, ExxonMobil Corp. and Chevron Corp., the country's three largest oil and gas companies, will be 14 times greater than the combined first-quarter profits of Google Inc., Apple Computer Inc. and Oracle Corp. and 19 percent more than last year."
So what? Indeed, as world demand for gasoline has soared so, quite naturally, have sales. Increased demand increases prices. It's elementary.
And when you divide profits by sales, as the Cato Institute's Jerry Taylor and Pete Van Doren did for the last quarter of 2005 -- the profit margin hardly is excessive. "The 20 largest investor-owned oil companies earned a collective 8.8 cents on every dollar of sales for that quarter," they concluded.
On the low end of the scale, British Petroleum earned just under 7 cents for every dollar of sales. For ExxonMobil, it was just under 11 cents, all well below the profit margins for at least one of the corporations cited by The Times.
For example, Apple Computer had a fourth-quarter profit margin of 22.7 percent. Messrs. Taylor and Van Doren also cite some other margins: At Yahoo, it was 45.5 percent. At Citigroup, it was 33.4 percent. And it was 24 percent at Intel.
So where are the catcalls of "gouging" and calls for a "windfall profits tax" on computer services, financial and tech sectors? Well?
Pennsylvania Gov. Ed Rendell last week, in a pandering and populist made-for-re-election moment, had the gall to stand in front of a gas pump in Harrisburg and say "There is no excuse for this -- absolutely no excuse. It's embarrassing." He wants a "windfall profits tax" to curb oil industry "profiteering."
What there really absolutely is no excuse for is a person in such a position of power and influence being so ignorant of fundamental economics and even history.
After the oil and gasoline price spikes of a quarter-century ago, Jimmy Carter and Congress, also prophets of pander, got their "windfall profits tax." It was scrapped in the late 1980s as the disaster it was, having reduced domestic production and, by an even greater percentage, increased our foreign oil imports.
What's the surest way to have less of something? Why, tax it, of course.
By the way, will those of Mr. Rendell's ilk be willing to take responsibility when oil investors, knowing full well what a "windfall profits tax" will lead to, start walking away from the industry and everybody's 401(k) takes a double-percentage point hit? Fat chance.
Government, by the way, is more to blame for artificially raising gasoline prices than the oil companies that refine it:
Around a quarter of the price you pay at the pump is tax. While a gallon of regular actually costs less today than it did in 1981 (again, in inflation-adjusted dollars), you're paying nearly 42 percent more in taxes these days. Who's the "gouger" here?
Reformulated, supposedly smog-reducing, gas jacks up the price just as increased summer demand also raises prices naturally. The Heritage Foundation's Jack Lieberman notes these boutique fuels "have done little to improve air quality."
Then there's ethanol, a double-whammy. Not only is a regulation requiring ethanol be mixed with gasoline an incredibly expensive sop to the farm lobby, it's a production nightmare. As a Detroit News editorial recently reminded, "Ethanol can't be shipped by pipeline. It has to be delivered by rail car and tanker trunk and that's more costly."
And I'll bet that government regulations -- everything from permitting to environmental -- have conspired more to stunt refining capacity than anything Big Oil supposedly has done. (If you can "gouge" and charge "record" prices in an era of never-ending demand, hey, why keep product from the market?)
Even the anecdotal talk of higher prices tanking the economy are coming up short. Yes, higher gasoline prices trickle into just about every corner of the economy. But consumer confidence rose this month to its highest level in nearly four years.
And, as the Commerce Department reported Friday, the economy continues to grow -- at about 5 percent in the first quarter of 2006, the largest increase since 2003. That is, the economy is having little real problem with gasoline prices and, in fact, has absorbed them with relatively little pain.
Indeed, should prices continue to rise (they've actually stabilized or fallen in the last few days), there will be a breaking point. But it's not now.
All of this -- even scratching the surface as it does -- is not meant as a defense of Big Oil, per se (though the facts, sans any evidence of domestic collusion to keep gasoline from consumers, do work to defend the oil industry).
Rather it is a call for something that historically has been lacking for decades in this and most other debates economic -- reasoned, critical and independent thinking that's free of group- and mob-think.
Repeatedly saying something doesn't make it so. And mistaking perceptions for reality -- perceptions conceived in ignorance, in error or intentionally for political gain -- then basing some shortsighted policy "reform" on them, will result in far greater harm than the current spike in the price of a gallon of gas