Friday, May 30, 2008

Oil "profiteers"

Yes, we've all received those economically illiterate emails in our inboxes telling us to boycott BP/Mobil/Shell/Caltex to "send a signal" that their "profiteering" has to end, and pump prices come down.

Profiteering?  If you want to know who takes the largest chunk of local pump prices, take another look at the information posted by Bernard Hickey this week -- it's not the oil companies who take the largest slice of every litre sold, it's your government.

And as Stephen Hicks points out, it's the same situation in the States.  Despite economic illiterates bleating about the "exorbitant profits" oil companies are making, the rake-off ripped of by the US Government from oil and petrol dwarfs the amount earned by the oil companies who produce the stuff.  Says Hicks:

    So I paid $4.15 a gallon to fill up my car today. I'm happy to contribute to rising profits of American oil corporations and I thank them for delivering the goods successfully. At the same time I am ticked off at the politicians, both domestic and foreign, who are hobbling production efforts, collecting enormous taxes, and emoting false sympathy for the consumer's pain. The Tax Foundation notes that between 1977 and 2004 the 29 largest energy companies in the US earned $630 billion in profits. A nice big number. During the same period, however, the US federal government collected $2.1 trillion in taxes ($1.5 trillion in excise taxes on gas and diesel, $518 billion in corporate income taxes, and $40 billion in taxes on "windfall profits"). So at whom should we be pointing fingers of blame?

Note that for that $2.1 trillion -- $2.1 trillion! -- the motorist gets the joy of watching most of his hard-earned head down the black hole of big government to buy even bigger government -- a government with even greater powers to hobble production, collect even more enormous taxes, and cry even more crocodile tears over the motorist's plight.

While this $2.1 trillion windfall goes to government as payment for being a meddling intrusive behemoth that all but makes oil production illegal, the $630 billion of oil company profits heads to them as their only payment for the risk, enterprise and diligence in exploring, drilling, transporting, refining and selling the stuff that is the lifeblood of industrial civilisation -- it's not just reward for delivering the goods successfully, it provides the funds needed to reinvest in producing even more oil, which in the end is the only way pump prices are going to come down.

As Matt B. pointed out a few weeks back in my comments section:

   How different peoples' reactions would be if, instead of reading "high prices," they read "scarcity".
    It would transform the debate. The immediate question that follows would not be demands for price controls or export restraints ,etc., but instead, "how do we raise supply?"

What we certainly shouldn't be supporting is a huge windfall gain to the very people who make raising supply impossible.

Think about this next time you pull up at the pump, or receive one of those illiterate emails. Would you rather give more money to those whose goal appears to be the long-term strangulation of oil production?  Or to those who make the long-term reduction of oil prices possible? 

In fact, don't just think about it: do something.  Next time and every time you hear a politician saying there's nothing they can do about high oil prices, write a letter saying "Bullshit!"

UPDATE: British truckies have blockaded streets around London in protest at the UK Government's grab, snatch and take through fuel taxes, which are the highest in Europe.  Liberty Scott has the news.

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