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    Here begins your journey into the mind of everybody's favorite asian, and I don't mean Jet Li.
What follows is the somewhat inane, mostly irrelevant, and self-important ramblings of a man on the brink of madness.
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Monday, April 24, 2006
 Exxon and "enormous profits"    [L]

A lot of my friends have been harping on Exxon and their "enormous profits" lately - and the one phrase I hear most often, and without fail, chills me to the bone, is that "the government should do something." My friends, this is one of the most dangerous and irresponsible things to say.

For the first part, the government is a blunt instrument - you swing this club around, and you WILL cause collateral damage. You use government force to keep oil companies from making "too much" money, and I guarantee you'll end up with many unwanted negative consequences.

Secondly, the government is slow and inefficient. For the most part, slow is good, for we do not want a quick-acting, flexible government, at least not in its current make-up. The fact of the matter is, any part of the market the government gets its hands on, it will destroy its productivity, increase its burden, decrease its flexibility, stifle innovation, and in the end, cost much more than it saves.

If the government should do ANYTHING about the oil companies, it should be to remove ruinous regulations and requirements, and reduce gasoline taxes.

John Hawkins over at RWN also makes several great points:
Gas prices get high in an election year and next thing you know, you have Dennis Hastert doing his best Lenin impression. Since when are Republicans worried about what companies are doing with their "enormous profits" and the "compensation packages given to executives?" What business does anyone in Congress even have getting involved in something like that?

Listening to politicians in Washington complain about how much money a corporation like Exxon makes is like an enormous, bloated tick complaining that the Cocker Spaniel it's attached to is using too much blood. The truth is that if you add in the state gas tax, the Federal gas tax, and the enormous taxes Exxon and its employees pay out, you'll find out that the government drives up the cost of gas far more than any profits Exxon takes, even at $3.00 a gallon plus.

Yet, they're mad that Lee Raymond is making "too much money." Because I'm not running for anything, I can tell you the unvarnished truth, which is that Lee Raymond is probably UNDERPAID. The guy has been the chief executive of Exxon for 12 years and just last year they made a $36 billion dollar profit (which incidentally, is only a 9.7% profit). Considering how much money he has helped them make over the years, if they paid Raymond a billion dollars, it wouldn't be too much.

See, you're not supposed to say that though. Nobody likes oil companies. Nobody likes rich people. People are mad about how much they're paying at the pump. But look, folks, we live in a world where Derek Jeter can get paid $189 million dollars to play baseball for 10 years and top Hollywood actors can make $20 million plus per film. So, why shouldn't Raymond be able to make a bundle for running a company the size of Exxon? Just because it turned out that gas prices were extremely high when he retired? Please!

Lee Raymond deserves the giant pile of cash he's going receive, but he doesn't deserve the cynical carping from the politicians or the petty jealousy of people who are envious of his success. America is much better off because of high achievers like Lee Raymond and more people should recognize that fact instead of gnawing at his ankles in envy.

Also, think about how much of a profit margin the oil companies make on gasoline - it is far less than in many other profitable industries. The difference, people, is VOLUME. I can state with firsthand knowledge how high the profit margins are in the tech world - for sure, our services are valued much higher than simple time & materials would account for. But we don't have anywhere near the same volume as gasoline stations.

Let's not forget about the oil companies' most profitable items - those $1.59 16oz bottles of Coke in the convenience store, the $2.00 bag of pepperoni combos, the $1.25 package of twinkies. You want to complain about "enormous profits" and "obscene markup", start there.



I'm not dependant on the over priced coke and nachos. I'm dependant on gas. If it were up to the companies, they would jack the prices up as much as possible and outsource all the jobs. I do agree though that the gov needs to decrease their red tape. However, what would stop the companies from jacking up the prices? There is a huge demand for oil and available supply is questionable. It's like me being dependant on running water in my house, but say it's supplied by some company. What's to stop that company from jacking up the prices? How do we enforce competition with no regulation? Everyone talks about reducing red tape, but I haven't heard any good ideas for control. If we just let these companies do whatever the hell they want, we'll end up with 1 company (Walmart) who owns and sells everything, outsources everything, dumps their waste wherever, and employs idiots at 5 bux an hour. A general goal of a business is to maximize their profit....they don't give a shit about poor chu's gas expenditure. At this point, I say let the gov have total control of the gas, just like they do our water, sewage, other needs. So, lets change the topic of discussion from enormous prices, to what are the alternatives to bringing down the price of gas. Rush needs to stfu and stop addressing the whiners and address the problems with solutions. The problem isn't that people are whining about profits...they are mad cuz the price of gas is rediculous. So, lets ignore the BS about the profits and concentrate on reducing gas prices. If Rush spent more time addressing the problems instead of the hype, he may provide value. How did this turn into rush bashing. Have I turned liberal? :-)

By Anonymous Jeffy bear, at 4/24/2006 09:14:00 PM      


Jeff, I hope you're not as lazy in your coding as you are in your logic.

If it were up to the companies, they would jack the prices up as much as possible and outsource all the jobs.
Yeah, it's called BUSINESS. It's called the free market. You know what would keep them from taking the prices too high? It's called competition. And don't bring up "Predatory Pricing" without evidence of it happening, which you won't find.
It's like me being dependant on running water in my house, but say it's supplied by some company. What's to stop that company from jacking up the prices? How do we enforce competition with no regulation?
Water doesn't apply, since there's usually only a single choice per house. It's an effective monopoly, not to mention an actual necessity, which you can certainly make the case for regulation. Gasoline, however, has many competitors, distribution points, and although difficult, you can live without it. After all, we've survived the vast majority of our recorded history without it.
Everyone talks about reducing red tape, but I haven't heard any good ideas for control. If we just let these companies do whatever the hell they want, we'll end up with 1 company (Walmart) who owns and sells everything, outsources everything, dumps their waste wherever, and employs idiots at 5 bux an hour.
Firstly, as long as a company can provide a better value for a product, people will buy it. Also, what's the problem with people getting a better deal, even if it's from a single company? If Walmart can maintain their level of quality while offering a better value to the consumer, so what? It's called a win-win scenario. Secondly, I don't know where the waste dumping issue came from, so I'm going to drop it, just like I dropped off your mother last night. Thirdly, walmart isn't forcing people to work there. If their employees want to leave for greener pastures, then they are certainly free to do so. But it seems as if many of them are quite content with their wages.
A general goal of a business is to maximize their profit....
This is not "a" general goal. This is "the" general goal of business. Anything else is not business, but charity. Man am I glad you don't have any power at work.
At this point, I say let the gov have total control of the gas, just like they do our water, sewage, other needs.
They already have effective control on the American oil industry, through environmental laws, strict regulation, and taxation. And again I point out, gasoline is not an actual need. If you still believe otherwise, then let me introduce you to the 1800s.
So, lets change the topic of discussion from enormous prices, to what are the alternatives to bringing down the price of gas.
AlphaPatriot has some ideas, as does the Right Wing Prof. It seems that one major bottleneck in the crude->gasoline delivery system is the lack of refineries to produce gasoline from crude. I'll let AlphaPatriot explain:
The last new refinery built in this country was in 1976. (We would have had another one in Virginia but after nine years of court battles brought by environmentalists and local residents and an equally wearying nine years of facing state and federal regulators, the company just gave up.)

Worse yet, over half of the existing refineries have closed down over those twenty five years (308 in 1979 to 146 today) due to the prohibitive costs of meeting ever-more-stringent government regulations. This trend is expected to continue, especially among the smaller facilities.

Our refineries are old, inefficient and possibly dangerous. They are certainly running at near-capacity (although total U.S. crude oil processing capacity peaked at 18.6 million barrels a day in 1981, it is estimated that our refineries are running at 90 to 95% capacity). The situation has worsened as some refineries knocked out by Katrina are still not operating.

With the decrease in competition and soaring demand, the existing refineries are making a killing. It takes a two to four billion dollar investment to build a new refinery, but with profits up it shouldn't be hard to encourage new construction.

Then maybe we can keep up with Canada, Thailand, China, India, Kuwait, Nigeria, and Iran — all of which are expanding crude oil processing capacity.

Ok, back to thrashing Jeff:
Rush needs to stfu and stop addressing the whiners and address the problems with solutions. The problem isn't that people are whining about profits...they are mad cuz the price of gas is rediculous. So, lets ignore the BS about the profits and concentrate on reducing gas prices. If Rush spent more time addressing the problems instead of the hype, he may provide value. How did this turn into rush bashing.
Actually, people are whining about profits - they see the money the companies make and they think they're getting scammed. But they whine about it in a scalar fashion - that is, they seem the bottom line, but don't realize what it actually means in percentages. This is a common Democrat class-baiting tactic. If you recall the run-up to the 2004 election, you'd hear nothing but liberals whining about conservative tax cuts for the rich, and how the rich would be getting enough back for a new car, while a middle class family would only get enough for a muffler. Of course, this is the worst sort of misleading, as the percentages involved were outrageously in favor of the non-rich. It is much the same with the recent furor over oil company profits - sure, the bottom line is huge, but the overall profit margin is slim - it is only because of the volume of business that they have that sort of income. Think about this way: say they earned $1.1 billion the last year - it sounds a lot, but not when you subtract the $1.0 billion for expenses. That's their profit margin: 10 cents on every dollar. Jeff, you make more than that whoring your body out on Saturday nights.

Now this isn't to say that big business can do no wrong. This is more of a defense of a free market system than anything else. Business will try and maximize their profit - people will try and get the best bang for their buck - and business and consumers will meet somewhere in between for the optimal solution. If you want to figure out why gasoline prices are so high, you must look at the entire process - discover the bottlenecks. The cost of crude is the baseline, followed by delivery, refining, and distribution. I daresay that in each of those steps the major hindrance and main reason for the high price is government interference.

Overall scarcity and availability of crude - We're sitting on some of the biggest known oil supplies on the planet, yet we refuse to allow ourselves access to them. Maybe in a couple hundred years when the middle east runs out, we may have the last laugh, but supplies are generally worth more now than they will be down the road. In the meantime, we are in thrall to the middle east oil sheikhs and the Venezuelan madmen.

Delivery - again, we have access to domestic sources of crude oil, but instead we shop in a different hemisphere. How much could we cut prices by getting our oil from Colorado, Texas, or Alaska?

Refining - as I stated above, perhaps the biggest bottleneck in the process is the lack of refineries. This is a compound problem - the existing refineries are operating close to maximum capacity, and they are forced to operate at that capacity because of the regulations for custom blends. To drop prices, they need to 1) increase capacity by building new refineries, and/or reduce the need for custom blends, decreasing the overall need for capacity.
Have I turned liberal? :-)
Your journey to the dark side is almost complete. I may as well just throw you down the death star reactor shaft now.

By Blogger Chu, at 4/24/2006 11:21:00 PM      


[Note: this post has been edited for idiocy]

Yes chu, I'm a lazy programmer. However, that is a good trait of a programmer since it helps to avoid repetition and time in maintenence

So, we both agree that competition is one of the keys to keeping costs down and keeping quality up, but if u remove the gov (which helps competition by punishing monopolies), there will be no competition...just wally world. And ur right, I wouldn't care if they produced quality, but walmart and quality aren't synonomous. Competition drives quality. If I was walmart and gobbled up everything, I'd drop my quality in all sectors to increase profit.

I really don't "need" running water in my house as I can get it from the pond out back or dig a well..haha. I do "need" to get to my job though to make money. Are u suggesting I move in with you and walk to work? :-)

I agree with tapping our internal oil sources and setting up new refineries....in US's newest states (iraq and afghanistan)...well and anywhere else in the us :-)

So, most of the red tape needs to be cut and major improvements can be made, but the gov still needs to be involved...to enforce competition.

Make it so chu!

By Anonymous Phil's Mom's Lover, at 4/25/2006 10:44:00 AM      


Yes chu, I'm a lazy programmer. However, that is a good trait of a programmer since it helps to avoid repetition and time in maintenence

It also prevents you from starting with a good design, and by analogy, a logical argument.
So, we both agree that competition is one of the keys to keeping costs down and keeping quality up, but if u remove the gov (which helps competition by punishing monopolies), there will be no competition...just wally world. And ur right, I wouldn't care if they produced quality, but walmart and quality aren't synonomous. Competition drives quality. If I was walmart and gobbled up everything, I'd drop my quality in all sectors to increase profit.
The government ends up hurting industry far more than it helps. If walmart's products were not of sufficient quality per value, then people would shop elsewhere. This is why you'll have the more affluent people shop at Target, because the perceived quality per value is higher, and they are willing to pay the price premium. If people shopped elsewhere because of this, then walmart would increase their quality per value. Competition is inherent to the free market, and the biggest detriment to the system is usually government interference. Reference the transcontinental railroads, German Bromide vs. Dow, Steel tariffs, etc.
I really don't "need" running water in my house as I can get it from the pond out back or dig a well..haha. I do "need" to get to my job though to make money. Are u suggesting I move in with you and walk to work? :-)
You can get a job at the local McDonald's within walking distance of your home. You can survive without gasoline. Hundreds of thousands of inner-city residents are proof that you can live a life without direct consumption of gasoline. However, nobody can survive without potable water, and for the majority of the US population, they have very few choices (if any at all) as to how they get it - which lends itself to regulation (not to mention it's also a public health concern).
I agree with tapping our internal oil sources and setting up new refineries....in US's newest states (iraq and afghanistan)...well and anywhere else in the us :-)
See, if Bush had billed it as an actual War for Oil, I imagine his popularity would be a lot higher right now :)
So, most of the red tape needs to be cut and major improvements can be made, but the gov still needs to be involved...to enforce competition.
Let me correct your sentence:
So, most of the red tape needs to be cut and major improvements can be made, but the gov still needs to be involved get the hell out of business ...to enforce competition stop hindering the free market.

By Blogger Chu, at 4/25/2006 10:50:00 AM      


Blatantly stolen from Right Wing News:

Taxes cost you about $0.42 per gallon on average. So the next time you hear Sen. Chuck Schumer (D.-N.Y.) worrying about the price of gas having an impact on “working families,” such as those who I imagine work for him, just remember that the Federal government could lower the price of gas $0.184 per gallon overnight, if it simply suspended the excise tax it impacts upon those poor working families. State governments could reduce the cost by more than $0.22, if they really wished to.

Is it marketing and distribution making prices rise? Nooooooo. Although advertising on “The O’Reilly Factor” undoubtedly is expensive and delivering gas to every street corner in North America is quite a feat, these items are only a small part of gas costs: just $0.11 per gallon this last March. That’s pretty amazing when you consider the post office can’t get a lightweight and non-flammable letter to your neighborhood for less than $0.39.

Well then, maybe it is refining costs that have made gas so expensive. You’re getting warmer. Refining costs shot up noticeably after Hurricane Katrina, since several refineries were knocked out by the damage to the Gulf Coast. Most of our refineries are concentrated there because people on the East and West Coasts are too good to have to look at them. To ease the Katrina price crisis, the government suspended all sorts of very important and wise rules telling the petrochemical engineers that run the refineries how to best make gasoline. The price then dropped suddenly, proving that regulation does not affect cost much. [Note: Sarcasm]

But now the rules are back in place. And the government added some new ones. Most fuel in the U.S. must now contain ethanol, which is expensive, cannot be transported in pipelines and is a pain in the barrel to work with. So costs have gone back up, and then up some more.

Well that just leaves crude oil costs. Have they gone up? Well, yes, apparently they have. In the three years in question they have gone from about $0.70 per gallon to $1.34 per gallon -- a 91% increase. Perhaps the rise in crude oil prices was an underreported story, and thus missed by Mr. O’Reilly? Together with the increased costs of refining by Congressional committee, the increase in crude oil prices totally explains the price of gasoline, without the need to examine if Exxon had a second shooter on the grassy knoll.

However, Mr. O’Reilly rejects the idea that the price of crude should affect the price of gasoline, because it is just a “paper price.” I’m not sure what other sort of price he thinks there is (a “street price,” perhaps?) but Mr. O’Reilly, a graduate of Harvard, thinks that the “paper price” is some sort of new-fangled hocus pocus created by speculators: “These speculators operate in the so-called commodities markets. They gamble on where the price of oil and other tangible assets will be months from now. These Vegas-type people sit in front of their computers and bid on ‘futures’ contracts.” -- Mac Johnson
*** Update #1 ***: More on gas prices from National Review:
"Harvard economist Joseph Kalt found that price controls in place from 1974 to 1980 kept domestic production 0.3 to 1.4 million barrels per day lower than it otherwise would have been, and the Congressional Research Service estimates that the windfall tax on oil profits from 1980 to 1988 decreased domestic production by 3 to 6 percent.

Those are just the kinds of numbers we don’t want to see if keeping gas prices low is our goal. The only way to put downward pressure on prices over the long term is to make sure supply can match demand — and that means encouraging domestic oil and gas production, not discouraging it. Hastert, Frist & Co. have it exactly backward.

If Congress really wanted to be helpful, it could allow drilling in the Arctic National Wildlife Refuge and oil exploration on the continental shelves off the western and eastern coasts of the U.S. It could also streamline the onerous regulatory process that has kept the U.S. from building a single new refinery since 1976.

And it could undo the ridiculous ethanol mandate in last year’s energy bill. For years, Congress has required that gasoline contain “oxygenates” to make it cleaner. One such oxygenate, ethanol, is made from corn (among other things). It has accordingly been the traditional additive in the Midwest, while coastal regions have found it cheaper to use the petroleum-based MBTE. No longer. The energy bill requires the use of 7.5 billion gallons of ethanol each year by 2012; at the same time, Congress has denied liability protection to makers of MBTE, who have become a favorite target of tort lawyers. The consequence has been to end domestic MBTE production almost altogether. But since the ethanol industry hasn’t been able to pick up the slack yet, we’ve gotten shortages — and higher gas prices." -- National Review

By Blogger Chu, at 4/25/2006 12:03:00 PM      


Good points, Chu. I agree that Congress is going about "fixing" this problem all wrong. Taxes aren't the answer, more production is. More production begins at home, with ANWR and other reserves we haven't even begun to explore.

By Anonymous gordy, at 4/25/2006 10:44:00 PM      


"It could also streamline the onerous regulatory process that has kept the U.S. from building a single new refinery since 1976." No wonder we're in the unfavorable situation we're in! I admit I was born in 1976. And I can tell you firsthand that a LOT can happen in 30 years. To be at a standstill and not allow new refineries in that long is really upsetting. No refinery developments since 1976 is reason alone for our prices to be so high. Ugh.

By Anonymous BicentennialBoy, at 4/25/2006 10:47:00 PM      


http://www.tcsdaily.com/article.aspx?id=042506G

That's a link to a good article by Glassman that sheds some light on gas prices, oil company profits, etc.

In my opinion, Exxon can't be blamed for having enormous profits when the demand for their profit is massive and worldwide. It's all a matter of volume.

A high demand and a low supply are a natural formula for rising prices. If the government is going to do something, it should be to loosen up-- cut the red tape for oil companies to expand refineries and let them tap in to domestic oil sources.

By Anonymous lucky, at 4/26/2006 03:52:00 PM      


What's the quote from Ronald Reagan about the scariest thing you could ever hear? "I'm from the government and I'm here to help?"

Government intervention is seldom the answer. Personal accountability and action often are.

And if we investigat Exxon where do we draw the line? Should we investigate Google, Yahoo, eBay, and Starbucks for excessive profits? Please, this is not a road we want to go down.

By Anonymous Bobby, at 4/26/2006 08:13:00 PM      


Taxes are never the right answer! Unless of course you are talking about a tax break :) Our domestic oil companies are taxed enough already. Around $.46 per gallon if I'm not mistaken! We need to reduce our dependence on foreign oil by opening up more domestic sources like ANWR and we need to get serious about instituting alternative energy sources.

By Anonymous Anonymous, at 4/26/2006 11:11:00 PM      


Right on, Gordy. More production and more domestic supply sure sound good to me!

By Anonymous honeymoon, at 4/27/2006 06:01:00 AM      


^^^ speak up ^^^