Defending the Oil Companies

Shikha Dalmia uses the pages of Reason to defend the oil companies, since they apparently can’t do a very good job themselves:

Good morning to you all.

We would like to thank you for giving us the opportunity to address this august body, but, frankly, being summoned for a Grand Inquisition and threatened with the confiscation of our so-called windfall profits is not our idea of fun.

Yes, we all made record profits this past quarter. We are proud of this achievement and, indeed, in the future hope to surpass it. Our survival and success depends on producing value for our investors, most of whom are ordinary, middle-class Americans—your constituents, as a matter of fact—who invest in our stocks through their pension funds or 401K accounts…

In fact, the oil industry’s margins are well below those of Gannett, the largest newspaper corporation—and no doubt far, far below those of Fox News, whose pandering populist anchor, Bill O’Reilly, maximizes his company’s profits by questioning our right to maximize ours. If you really want a reliable revenue stream, why not tax windbags instead of windfalls?

Furthermore, if we are prohibited from recovering our exceedingly high storage costs, we will be less inclined to maintain large oil inventories that help tide the country over during production disruptions caused by calamities such as Hurricane Katrina. Please note that even though oil prices went up during the hurricane, no one outside the disaster area had to go without oil. Surely that is preferable to acute shortages and long waiting lines at the gas pump, which cause American workers to lose wages and the American economy to lose productivity.

Read the whole thing. Clearly, I side with Shikha and the oil companies here, at least as far as windfall profits taxes are concerned (notwithstanding my resentment of the corporate giveaways in the Energy Bill).

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24 replies
  1. 1
    Pb says:

    Why choose–can’t we tax them both?

    Also–you want to produce some more ‘value’ for “ordinary, middle-class Americans” (who I sincerely doubt actually hold the most stock, by the way)? How about lowering your corporate salaries a tad, and raising the salaries of your “ordinary, middle-class” workers?

    Yeah, that’s what I thought.

  2. 2
    Jcricket says:

    Nationalize the oil industry!

    Kidding. But that’s how they keep prices down in places that produce a lot of oil. Last I checked we still produce something like 40% of our own oil.I can’t blame them for responding to the situation the way they have. They’re for-profit companies.

    The sad thing is that other countries that have high gas prices also have a high tax on gas which goes back to the people (pays for services, roads, etc.), most of the increase in gas prices only goes to the oil companies.

    I’m guessing the best (i.e. most practical) way to deal with high gas prices is to build vehicles that use less gas. Price at $5/gallon? Use 1/2 as much with a Prius (or something).

  3. 3
    ppGaz says:

    The oil market is a relatively stable and traditional supply-demand model. Sometimes you’re the Louisville Slugger, sometimes you’re the ball. To coin a phrase.

    Poiticians ranting over oil profits are posturing. Having failed to heed sensible warnings in the past, impose appropriate mileage requirements on vehicle manufacturers and encourage more efficient heating and cooling strategies for homes and buildings, and construct sound energy policies based on the realities of an extractive economy …. they now posture in front of oil company profit reports as if they are representing the interests of the people.

    Day late, dollar short. Fact is, cheap oil, right now, is the surest way to hasten an oncoming energy train wreck. Even at $3 a gallon, Americans are getting cheap energy. The large fleet of SUVs out there? They’d be done with $5 gasoline. That’s why you don’t see SUVs clogging the expressways of Europe.

  4. 4
    Mr Furious says:

    I’m in the ppGaz club. Not really defending the oil companies (like John) but recognizing that much of this hoopla is BS posing in Washington.

    Washington has been fumbling this for years, and now need somebody to blame for a pissed-off constituency.

    That said, the oil companies are certainly engaged in some dubious pricing, and I wouldn’t be holding my breath for the next “hard time” in the cycle for them.

  5. 5
    jg says:

    Furthermore, if we are prohibited from recovering our exceedingly high storage costs, we will be less inclined to maintain large oil inventories that help tide the country over during production disruptions caused by calamities such as Hurricane Katrina.

    Is that an empty threat or empty promise?

    Personally I feel that if we’re willing to pay it they should be allowed to charge it but since they do get lots of bucks back in terms of energy subsidies I say fuck em. I have no sympathy for any kind of hard luck story they might ever put out.

  6. 6
    Steve says:

    Washington subsidizes the oil companies like nobody’s business. Do they really have no right to take some of those subsidies back?

    Maybe what’s being objected to here is simply the name of the windfall profits tax. In concept, it’s no different from saying that the subsidies were intended to help the industry deal with rough spots, and when we’re in a decidedly non-rough spot right now, the reasons for the subsidies no longer apply.

  7. 7
    jg says:

    it’s no different from saying that the subsidies were intended to help the industry deal with rough spots, and when we’re in a decidedly non-rough spot right now, the reasons for the subsidies no longer apply.

    IIRC the subsidies were to help them research how to stay in business when the oil runs out, its for researching alternative fuels. They should adapt or die, why are they getting fed help?

  8. 8
    metalgrid says:

    The people that compose the base of both parties are suckers. There is overwhelming support from both the Republican and Democrat base to end the subsidies. So why hasn’t there been any progress in ending it? Because the politicians are in the pockets of the industry. Same with pharma, same with agriculture, etc.

    The only reason the Dems are pissed off is that since they no longer control a branch of government, their pockets just aren’t being lined as well with payoffs from the industries for their votes.

  9. 9
    Lines says:

    I think the question should more be: “Is price fixing the reason you ALL had high profits?”

    You know, that whole spirit of competition that should be the driving force in any capitalistic society?

  10. 10
    metalgrid says:

    You know, that whole spirit of competition that should be the driving force in any capitalistic society?

    It would be competition if the capitalism was based on free markets. When it’s based on the crony kind, we may as well be better off nationalizing it.

  11. 11
    Steve S says:

    I don’t give a rat’s ass about windfall profits or windfall taxes or whatever.

    There are two questions which are pertinent at this point and time:

    – WHY ARE THESE COMPANIES BEING SUBSIDIZED WITH MY TAX DOLLARS?

    – WHY AFTER GIVING THEM MY TAX DOLLARS ARE THEY CHARGING ME INFLATED PRICES FOR ENERGY?

    That’s the question for the day and Dalmia avoids the answers.

    A true Libertarian would not approve of Corporate Welfare. Our economy is not dependent upon the existence or bankruptcy of a single company. If Mobil oil goes away tomorrow, the market demand will still be there and another company will fill the need.

    If the supply is reduced, prices will go up, yielding greater profits to the companies and then encouraging them to explore new methods to boost supplies.

    That’s the way a market economy works.

    That’s the problem with Reason magazine. It’s populated with statist moonbats instead of true Libertarians.

  12. 12
    Davebo says:

    Well, others have already covered my points.

    Anyone remember a windfall loss credit to Exxon when oil was selling for $11.00 a barrel? What would the response been from Congress had oil companies said “Hey, we’re just gonna stop producing for a few months till the price recovers and we can do it profitably”.

    But it’s also obscene that we are giving tax credits to oil companies to spur exploration when oil is at $60.00 a barrel.

    Silliness abounds, which is par for the course in Washington.

    As to nationalizing oil companies.. Which ones? ESSO/Exxon/Mobile? Royal Dutch Shell? British Petroleum?

  13. 13
    Kimmitt says:

    Again, if we are to be required to absorb the risk of bad times for oil companies in the form of corporate welfare, then we are entitled to the windfall profits.

  14. 14
    model_1066 says:

    So…
    what are these ‘subsidies’ people are whining about? the offshore lease provisions, environmental provisions, or what? Seems like nobody wants to be too specific, or else the phony assertion of the government taking your money and giving it to the oil companies loses its appeal. The completely useless assholes of the Sierra Club – who take in millions of tax-free dollars to make your gas more expensive – have more to blame than the oil companies.

    How do you take seriously people who are as stupid as this:

    “Oil refineries are not being built because the industry, not because environmental laws are holding them back.”

  15. 15
    guav says:

    My problem is not that the oil companies are making huge profits. My problem is not even that the oil companies are making huge profits while the average American is paying out the ass for gasoline.

    My problem is that we are subsidizing an industry that does not need the subsidies. Why are we giving tax breaks and other forms of corporate WELFARE to an industry is clearly doing just fine?

    If we’re going to be subsidizing anyone, it should be the oil consumers, not the oil producers.

  16. 16
    Lines says:

    Gee, Model, maybe because the oil exec’s themselves claimed that building additional refineries isn’t necessary, that they can produce more than the country needs with what exists right now?

  17. 17
    srv says:

    How do you take seriously people who are as stupid as this:

    “Oil refineries are not being built because the industry, not because environmental laws are holding them back.”

    I’ll make a wager with you. For every subsidized refinery that is built, others will be shut down by the industry itself. You seem to think they’re unhappy that there’s a physical constraint that helps them maintain a monopoly and prices. You might look at how many refineries have been shut down over the last 20 years, and it isn’t about tree huggers making them.

  18. 18
    Davebo says:

    Model

    In July of this year the president signed into law an energy bill giving $14.5 billion in tax breaks and incentives to the energy industry.

    Incentives? At $60.00 a barrel that should be enough incentive wouldn’t you think?

    If you want specifics on the bill I’d suggest you avail yourself of the plethora of public information regarding it.

  19. 19
    Davebo says:

    As to refineries, from 1985 to 1995, 10 California refineries closed, resulting in a 20 percent reduction in refining capacity.

  20. 20
    Steve says:

    I used to work in the oil industry. The failure to build refineries has precious little to do with environmentalists, trial lawyers, or any other group the Republican Party loves to blame everything on.

    Quite simply, it was an economic decision, based solely on the fact that in a vertically integrated industry, corporations have little incentive to invest resources in a market segment with low margins when they can make a lot more money by concentrating on a different market segment. Thus, comparatively little money for exploration and refining. Vertical integration prevents it from acting as a free market should.

  21. 21
    Jcricket says:

    Every single corporate subsidy should have performance audits and claw-back provisions built-in, to avoid this kind of debate as the economy waxes and wanes. I’m comfortable with the idea of subsidizing some industries, whether it’s for purely national (protect us in case our supply is cut off) or economic (want to encourage job growth) reasons.

    IOW, I’m not a libertarian.

    But there has to be some reasonable-ness to the subsidy. It should benefit those who need the benefit, accomplish the goals it sets out, and if the companies that benefit don’t hold up their end of the bargain, they should give the money back. And, the subsidies should be tied to the economy and performance of the corporation as a whole. Otherwise it’s just off-loading the true cost of doing business onto the rest of us taxpayers. Robbing Peter to pay Paul, as it were.

    Yes, I know it’s not dead-simple, but claw-back provisions are pretty standard in M&A and other deals, and they seem like a good solution to explore.

  22. 22
    Jcricket says:

    Vertical integration prevents it from acting as a free market should.

    Reminds me of the healthcare debate. People on one side of the debate keep shouting, “free markets are always better”, ignoring the fact that things like monopolies, vertical integration and other “free market forces” can actually result in bad results for consumers.

    That’s precisely why we have limits on how far we’ll let corporations “succeed” if it’s on the backs of consumers.

  23. 23
    Robert Wallis says:

    Gee Guys, there are some facts that are not being exposed
    1 the gov is taking in more in taxes than the whole industry is in profit (http://taxprof.typepad.com/tax.....excee.html)
    2 old refineries are shut down because they are unprofitable (too expensive to meet enviromental spec. and they are becoming unsafe) new ones meet too much resistance from the enviroment groups.
    3 gasoline is cheaper today than it was in 1980 (in todays dollars it would be 3.50 a gal)
    most of the bitching I read here is from people who want every thing for nothing

  24. 24
    Ken Hahn says:

    If the purpose of “windfall profits” taxes are to force the price of fuel to reasonable levels, shouldn’t we consider that taxes on gasoline represent far more of the cost per gallon than profits of all kinds? The government could lower gas prices dramatically by lowering the taxes. I think we need a windfall profits tax on the taxers to be paid back to the citizens.

    For those who want to increase taxes on oil companies, just who do you think pays those taxes? All corporate taxes are a fiction that allows the government to use companies to collect taxes for them. All business taxes are paid by consumers. I’d just as soon not contribute to more pork.

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