Logic Times

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Commentary by Aslan, 5/8/06, 12:16am. Comments (6)

"What about profits? Big oil companies like Exxon-Mobil make money at every step of the process because they take the oil out of the ground, refine it and sell it. Exxon-Mobil's profit is estimated at a hefty 29 percent." ABC News, World News Tonight, quoting an inflated value that contradicts the rest of the data presented.

Once again proving the Media Uncertainty Principle, ABC News alters reality by implying that "big oil" company profits are the cause of the pain that consumers are feeling at the pump. Indeed, every time gas prices creep upwards, so do attacks on profits being earned by oil companies. The implication is simple: oil company profits are the primary cause of high gas prices, and if civic-minded big oil took less in profits, then prices would be much more reasonable.

Nothing could be further from the truth. Using data from their very own broadcast, the breakdown of gas pricing is as follows:

In mid-April, this ABC News broadcast reported the average gasoline price at $2.68/gallon. Three weeks later, the average has climbed as much as $0.30/gallon, with reports in several states of average prices over $3.00/gallon. For this analysis, the recent figure of $2.97/gallon is used.

If "big oil" decided to forgo all profits in an effort to help struggling consumers, the cost per gallon would surely plummet, wouldn’t it?

Every penny of those fabled billions in profits surrendered to consumers in an unrivaled act of economic charity would save consumers $0.20/gallon.

Now, a fresh glance at the pie chart above shows a whole lot of light blue, a far larger slice than the evil purple one representing corporate profit. Might not a thorough investigation of costs that make up record high gasoline prices begin with the largest non-product related expense: state and federal taxes? After all, if the government decided to forgo all sales taxes (we are not even counting taxes on earnings) in an effort to help struggling consumers, the cost per gallon would drop significantly:

Yet the very same ABC News report spends only a moment on taxes, taking the time to marvel at how taxes represent a "much lower figure" than one would expect.

"And then, there's taxes — 18 cents for the federal government and 27 cents for state governments.

'Taxes used to represent as much as 40 to 50 percent of the price you paid at the pump,' Kloza said. 'Nowadays, it's a much lower figure than that because they haven't changed in 12 years.'"

How remarkable this perspective that silently declares there is an unassailable place for taxes in the American economy, but that profits are suspect.

Oil company profits have absolutely nothing to do with the current crisis; eliminating those profits would do little to relieve the short-term pain and would eventually drive companies out of business, tanking the stock market and the economy in the process. ABC News and other facilitators of the Media Uncertainty Principle may or may not know basic economics, but they are not to blame. Like the photon, they mindlessly do what they do.

Comments

1: Trekram

May 8, 2005 9:18am EST

Not sure your critical assumption that the $0.18 (6.7%) remaining, after the writer's breakdown in the cost per gallon, represents profit. Therefore, I think you're mixing apples and oranges and your subsequent analysis on profits is incorrect. If in fact Exxon Mobile, as the article states, is involved in every step of the way, then the stated "hefty 29%" profit could easily be achieved. Since oil and gasoline are both commodities, producers and refiners profit margins would increase as the market rises and their fixed cost don't. I'm not knocking oil companies or free markets, just pointing out that your analysis may be flawed.

{Aslan: They can't have their cake and eat it too. If they are going to suggest that there are multiple layers of profit - profit from intermediate production by oil companies - then they need to both show that data and document the tax revenues realized on those intermediate levels of profit as well as the net profit based upon sale price. With incomplete information, they imply "hefty" profits and discount even "heftier" taxes, which could be in the neighborhood of another 5-10% of the total based upon typical earnings rates. I do not have the resources to peel that onion, so I take the face value tax and net profit numbers as a point of comparison.}

I agree with your main thrust that the media’s bias against big business is quite evident and their indifference to taxes indicative of their socialistic bent. Also, that without the writer providing the source and details of the data, it is difficult to "peel the onion." However, assuming taxes have remained constant on the "price per gallon" of gas, you’re left with what’s changed and causing the increase in price per gallon. This is a fair question and worthy of the main focus of the article. Unfortunately the writer jumps right into blaming corporation profits, which as you state, is incorrect.

The reason is the two highest pieces of the cost per gallon, crude and refining, have gone through the roof for numerous reasons. The record oil company profits are a byproduct of these demand/supply market forces. The answer is let the market handle itself and if you want to decrease the prices, increase supply (more refineries and drilling) and/or cut demand (conservation and efficiency), not blame the corporations for good times or legislate profit controls.

As one of your prior commentaries noted, higher prices can be a good thing. I’ve started taking public transportation to work and have tried to cut down on driving. Next move is to dump the 12 miles/gallon mini van and by something more efficient. Too bad our politicians are ineffective in leading the nation to increase U.S. supply and promote energy conservation. In the meantime much of our hard earned money spent on fuel goes to many nations around the world who are directly or indirectly against us. Again the politicians fail to tie the higher prices and unfriendly beneficiary together to move the nation to take action to decrease our dependency on foreign oil. There is no better time and it is unfortunate we’re missing the boat. Ten years from now, as we are today, we’ll be looking back on what might have been.

2: LOGOS

May 8, 2005 10:31am EST

We sheep bitch about "corporate profits" when in fact the government makes twice as much in taxes on a gallon of gas than the oil companies, and the last time I checked those poxy bastards haven’t sunk a single well except in my pocketbook. We are a nation of sheep. Stupid beyond belief. We let these politicians (left and right) bull**** us time and again with their empty vapid rhetoric. We deserve everything they shovel down our dumb throats. Gas up morons.

3: William

May 8, 2005 9:17pm EST

You cannot be surprised by the recent increases. Supply and demand. My dog could figure it out. What do you expect when the US has not built a nuclear power plant or oil production facility in decades! I feel like telling the Media to utilize the hot air they are expending and make some use of it. Instead of complaining, every American should be pressuring for a change to new technology, force the powers to be to build a better mousetrap. Why are we not pressing for widespread use of ethanol fuel? Why can't we advance fuel cell technology? We could land a man on the moon but we cannot seem to develop alternative fuels? Meanwhile we sit on Alaska, where the majority of its population is in favor of us drilling there. The caribou wouldn't even know we are there. Yet the envirofreaks (yes a minority) rule the day.

Lets force change. Until then - drill baby drill.

4: thomaspaul

May 8, 2005 10:25pm EST

The media once again shows its socialist colors. I wonder if they know that the profits accrue to the shareholders – of which no doubt some of them are.

Another thing I hear all the time is that the oil companies are in collusion (re: prices). What would also be helpful to these protons is if you could demonstrate how competition still plays a role. If BP could sell its gas for $2.50 when Exxon/Mobil is selling it for $3.00, they would do it in a heartbeat, thereby causing Exxon/Mobil to drop their prices or else lose market share. Since you are giving lessons in basic capitalism…

5: Greg Helton

May 9, 2005 11:39am EST

I'm not so certain the media is "mindless" in what it does. There are almost certainly individuals in the media who have no clue as to the affect of their actions. But I believe the media, as a whole, knows exactly what it is doing. It is actively advocating the death of all things American: Free Markets, Equal Opportunity, Personal Responsibility, Individual Freedom, Freedom of Religion, etc.

Why? Power! Media and Liberal elites fully expect to be among the few that has total control over the many in their new socialist system of things. They feel entitled to be the ones who make all the decisions for everyone.

Thank God for the Internet and the Freedom of Expression is facilitates!

{Aslan: I am somewhat disinclined to believe that they do what they do with malice aforethought. I think they believe in what they do, not realizing they are helping destroy this country. Most think a God-less country would be a better country, after all.}

6: Larry Horacek

May 9, 2005 9:52pm EST

Thought you'd like to have a graph of gas prices for the past 25 years, adjusted for inflation.

{Aslan: Sorry, couldn't fit a larger one - click for more detail}

Amazing how it shows that the price of gasoline has been relatively stable and the price we are paying today is still less than the price we were paying in 1980.

I haven't heard anyone yet make the following observation: The reason that Exxon-Mobile is reporting record profits is because 1) Exxon and Mobile are now a single company and together would likely produce the largest profits in the oil industry, and 2) today's profits are in 2006 dollars so they will be significantly larger than profits reported during, say 1998, or any other previous year.

I think Rush has it right when he says "Drive-by Media." Think we're done here.

{Aslan: That is like when they report that Tiger Woods set another earnings record on the Tour. With single event purses greater than the entire annual combined purses in Snead’s time, what value is there in that record? The same thing applies here – excellent point.}