A disturbing trend?
Exxon has been in the hotseat with Congress. Why? Well, for one, thier profits are soaring each quarter into the tens of billions. Secondly, Congress believes that Exxon isn’t reinvesting enough of their profits back into development of alternative energies. Probaby true too.
But as a capitalist (it’s not a bad word), I cringe a little at a company being persecuted and penalized for making a profit. Where do you draw the line? Can you draw the line? If a company is successful, and operating within the law, shouldn’t their profits be as high as they can make them?
And to tell a company how to spend it’s profits? Yikes. Granted, the situation is more complicated with oil companies getting govt subsidies, tax breaks, etc. But for some reason, as a businessman, seeing a company getting nailed to the tree by congress is a little disturbing.
I think about my own industry, and hypothetically, let’s say I owned a shoe company that had a profit of $50 billion last year. Awesome. I was one of 12 companies selling shoes. You needed shoes every week. Shoes become such a hot commodity that investors start speculating the future price of shoes to try and make some scratch. The price of shoes continue to rise. I run a tight ship, so my expertise allows me to make some serious scratch as well.
Then BOOM! Because my company is so profitable, so profitable that it is almost offensive, the govt and public believes that something is wrong. It has to be. It’s just not fair for a company to have so much profit when it’s consumers are spending so much! What? Secondly, congress steps in and threatens me that if I don’t start investing in ways for people not to have to buy shoes, then they will penalize my business. What? What happened to supply and demand?
I have yet to read or hear a good explanation on why gas/petroleum is so expensive. Most of us don’t know. I don’t think it’s just a bunch of old ball dudes sitting around a conference table setting the price.
I guess what I’m trying to say is that I don’t want to see sucessful companies, in any industry, be scapegoated within a much bigger problem. Has the war affected the price of oil? Probably not. It’s supply and demand. Demand is high, supply is low, prices increase.
Basically, I don’t like the government telling companies how much they can make and how to spend. It has happened to railroads. It has happened in technology with anti-trust laws. What’s next, shoes?
In other news: Kanye has a blog and I’m going golfing for three days. See you Monday.
29 responses so far ↓
Kevin Morris // April 17, 2008 at 3:03 pm |
Sweet sweet crude… totally agree with your comments. Where is our buddy Ron Paul (or some other, better version that doesn’t have an asinine stance on Iraq) when we need him? I saw a great related bumper sticker the other day: “The Constitution, a shield, not a sword.”
mike // April 17, 2008 at 3:52 pm |
I agree. I think it’s revealing to note that while Exxon’s net profits are crazy high, their gross profit margin is nowhere near the top of the list. Investment banks, pharmaceutical companies, and even tobacco routinely outpace big oil in this measure – making Congress’s attacks on “windfall” oil profits even less justifiable. In my view, though, the two best arguments in favor of tighter governmental regulation on oil companies are climate change (extraction, production, and consumption of oil & gas are killing the planet) and national security (we would provoke fewer acts of violence if we weren’t defending oil interests in the Middle East). Many argue that the government must incentivize big oil to make certain changes in their business practices or else we’ll never overcome those two problems. However, I think the free market can do it better.
Oil companies will squeeze every drop of oil out of the Earth for as long as it’s profitable. Higher prices at the pump indicate that it is becoming LESS profitable, not more. Crude oil is a finite commodity, and its extraction becomes more difficult and costly with every barrel pumped. At the same time, high gas prices benefit entrepreneurs developing alternative fuels and vehicles by making their products more price-comparable. As more consumers migrate to these products, producers achieve economies of scale, further driving prices down. Suddenly, big oil is facing pressure to compete seriously with alternative fuels as the cost of its commodity continues to skyrocket. Boom, big oil croaks, the Earth re-greens, and we have peace in the Middle East. Is the transition painful? Yes. But soon owning that hydrogen-powered car will be just as costly as owning my 20mpg Maxima, and some entrepreneur like J-Mac will open a hydrogen station on my corner and make a killing. Of course, the real question is whether the transition will happen soon enough, i.e., before the ice caps melt or some country ending in -stan sets off a nuke. I believe it will; it’s happening NOW. If the people want their government to speed the process, tell them to do it with a carrot rather than a stick. Don’t penalize big oil for successful capitalism; rather, subsidize the Johnny Macs who will be tomorrow’s big hydrogen or ethanol or solar or whatever.
A few years ago, Julie and I toured an abandoned gold mine in Breckenridge that is still full of gold. The cost of extraction is higher than its per capita market value, so it sits idle today. That’s big oil’s future if they don’t adapt, and they know it. Too much government regulation stifles innovation. Just ask the commercial airline industry – if ever there was an industry that should be raking in the dough, right? Instead, it seems like a new airline goes belly up every week.
Chris // April 17, 2008 at 3:56 pm |
I’m no ecomomic or political expert and I wear my skepticism for corporations on my sleave, so take these comments in that light. But, isn’t it part of the government’s job to monitor such excess profit? One could turn the question asked about the government to the grotesquely profitable companies, “Where do you draw the line (on profit)?” We live in a republic, a democratic nation. The government’s job is to look out for the demos, the people who elected governmental figures. It is not the government’s job to insure corporations’ profitability over the good of the demos. And, if profit gets in the way of the demos’s well-being, then the government has the right, nay, the responsibility to step in. If shoes become such a necessary commodity that people can’t live without them, have little choice as to the price they must pay for them, and have very few options from whom they can buy them; and if the shoe business becomes consolidated in the hands of a very few, who, understanding the supply and demand notions, are able to manipulate supply (I think demand will remain pretty constant or even continue to rise) and thus line their pockets more than necessary, then I should hope that the people the demos elected will take action for the good of the demos. Profit is not always what the demos as a whole need. We run afoul of our country’s foundations by imagining that profit is the highest good.
Just thinking out loud. Thanks.
jmac // April 17, 2008 at 4:28 pm |
I’m enjoying the discussion so far. I will respond when I get back from my golf vacation, sun-burned and happy.
mike // April 18, 2008 at 12:59 pm |
Chris “Stalin” Spinks. (sorry – couldn’t resist)
Nate // April 18, 2008 at 10:03 pm |
comparing oil to shoes is like comparing gold to semiconductors.
Chris // April 18, 2008 at 10:27 pm |
Mike,
Nyet! Stalin would never go for the idea of people actually electing their leaders.
Socialism and Communism, in some ways, were right to stress the social and the communal. But in so doing the people themselves got squelched in order to maintain the order of the communal. Likewise, if we imagine our nation as solely a capitalist nation, capital rules over all. However, as a republic or representative democracy, the government derives it power from the people and is accountable to them for the use of that power. The people rule.
What I was getting at in my response was where we place the focus in imagining the US as a capitalist nation, apart from a democratic one. I worry that capital has become the focus of our lives. Even in your very good hypothetical scenario, it was only when money could be made that solutions developed. That worries me.
I do wish that something like what you described would come about, but I am concerned that money always seems to be center stage. There is something very disturbing about this. I think Christianity offers a counter-cultural alternative to this focus. But, I’m not so sure the Christian option would be a very good governmental/economic option.
Christianity aside for the moment, I believe the danger is in allowing capitalism to trump democracy. In other words allowing capital to become the higher good over the demos.
By the way, when I started typing my response yours had yet to appear. I wish I had seen it before I started mine. I must say, on the whole, I find much with which to agree, especially your two reasons for government regulation of the oil cartels. I also think the free market has much to contribute to the solution. I wonder why we have to view it as an either/or issue. Does it have to be either government regulations or the free market? Is there any possibility for a symbiosis?
mike // April 21, 2008 at 1:33 pm |
J-mac, vacation’s over buddy. We need you here.
Chris, sorry about the bloodthirsty dictator comment–it appears you took it in jest, as i meant it. Perhaps a Robin Hood or Sherwood Forest comment would have been less insulting!
I think there is certainly room for the symbiosis you suggest. We currently have extensive anti-trust regulation designed to curtail insider trading, price fixing, gouging, bribery, extortion, and other activities the demos has deemed too unfair to be legal. (As an aside, there are a number of economists who believe that even the above regulations are too stifling; I am not among them.) I object to the notion that “excess” profits are inherently offensive and should be taxed or regulated because, c’mon, who really needs that much money? (What is “excessive?” Who decides how much profit is “more than necessary?”) Others object to the massive profits profits because they view them to be taken at the expense of the environment or national security or John Q. at the gas pump. But I argue that curtailing profits is both un-American and ineffective. I believe I addressed the latter point in my earlier comment; here I will only add that curtailing profits does not make the activity altogether unprofitable, and so it will continue to the detriment of the harmed parties mentioned previously.
As to the un-Americanness: In my view, democracy and capitalism are two sides of the same coin; that is, neither exists fully without the other. The beauty of the market solution is that it encourages and rewards members of a free society to innovate and solve problems. It’s true that the reward is financial, but I don’t see why that should be cause for concern. People generally act out of self interest. A free market uses that fact to the benefit of the society by providing reward to those who bring a useful product or service to the masses. Any encumbrance on that reward risks fewer entrepreneurs and fewer innovations. I believe a motivated class of smart people stand a much better chance of getting us off our oil dependence than does a bureaucratic government, which is susceptible to myriad political influences.
Big oil companies served our country well for many years. They innovatively developed more efficient methods of finding, refining, and distributing oil and its byproducts, and our economy flourished. They have been rewarded handsomely. However, their days are numbered. Low supply, high demand, war, and environmental concerns will cause the next generation’s innovators to rise to the challenge unless the government gets in the way.
mike // April 21, 2008 at 1:35 pm |
j-mac, your blog put in a weird smiley face in my comment. it’s just supposed to be a parenthesis. take it out!
hiller // April 21, 2008 at 2:48 pm |
Chris, very interesting comments. I think your perspective is shared by many, but it is not in line with the intended and decreed system of government of the US. I blame the misunderstanding primarily on the embarrassing lack of civics/government education in schools.
With respect to your question, “isn’t it part of the government’s job to monitor such excess profit?” the answer is certainly and emphatically “No.” I think a reread of the Constitution would be helpful as it clearly lays out the very limited functions of the Fed govt.
On the broader questions about economic policy, I have found no better or more easily digested book than Thomas Sowell’s “Basic Economics” to enlighten on the merits of free market capitalism. I learned and understood more about economics from reading that single book than from my undergrad Econ degree. I cannot recommend it highly enough.
jmac // April 22, 2008 at 12:24 am |
Yes, I am back from ‘vacation’ and it was glorious. I will be gathering my thoughts from the above comments shortly. Mike, no way in hell am I removing the smiley face. Thanks for the discussion.
Chris // April 22, 2008 at 12:34 pm |
hiller writes, “With respect to your question, “isn’t it part of the government’s job to monitor such excess profit?” the answer is certainly and emphatically “No.” I think a reread of the Constitution would be helpful as it clearly lays out the very limited functions of the Fed govt.”
I hesitate to say the answer to my question is certain and emphatic. It may be “no” but there is wiggle room. Whatever the Constitution meant at the time of its writing, its current interpretation is what matters most now (of course what it originally meant plays into its current interpretation, and, if I am not mistaken there are various views on how it should be interpreted). These are hermeneutical conversations, not unlike those that go on around the notion of biblical interpretation. But, that’s a different threaded discussion altogether. My point is that government does in fact “monitor” business practices. The debate is what government should do with the observations that come from that monitoring. I’m not sure. I’m just raising questions. Also, aside from the role of the federal government, state governments too play a part in the monitoring and taking of action. So I’m happy to concede a lesser role for the federal government, but I still wonder whether some governmental powers ought to be keeping an eye on corporate practices.
mike writes, “It’s true that the reward is financial, but I don’t see why that should be cause for concern.”
That’s exactly my concern! As a Christian, I have a hard time reconciling a society that thrives on financial rewards and a “kingdom” that does not. Aside from my Christian convictions, I suppose I put less hope in the free market system than you are suggesting. Sure people are innovative and entrepeneurial in it, but people are also greedy and self-absorbed, what in biblical language we might call sinful. Because of this, I am not opposed to having a layer of oversight. Of course, that layer should not overwhelm and become the focus. I insist, yet again, I am not Stalin or Marx! But I am also not Bush or Cheney (as I understand them with regard to this question).
Chris // April 22, 2008 at 12:35 pm |
jmac, can I have a smiley face too!
Chris // April 22, 2008 at 1:02 pm |
Last comment for a while, I promise. This webpage caught my attention today: http://money.cnn.com/magazines/fortune/fortune500/2008/snapshots/387.html
Exxon-Mobil is #2 in revenues but #1 in profits according to Fortune.
jmac // April 22, 2008 at 4:18 pm |
…still gathering my thoughts. There is a lot to read over the past four days. comments coming soon…
mike // April 22, 2008 at 7:30 pm |
Chris, I think you’re right to take exception to Hiller’s statement that the federal government has a “very limited function” in monitoring business practices. The Commerce Clause (US Const. art I, sec 8, cl.3) confers upon Congress the very broad authority to regulate interstate commerce. At one time, this authority was interpreted by the Supreme Court to be so limitless that even wheat grown by a farmer solely to feed his own cattle was subject to federal regulation (Wickard v. Filburn). The Commerce Clause is now interpreted somewhat more narrowly to mean that Congress may regulate only activity that “substantially affects” interstate commerce. (US v. Lopez). This, of course, is quite broad. (Ever wonder why ballplayers have to answer to Congress about steroids? MLB=interstate commerce.) So, the regulation of national oil companies is certainly within Congress’s Commerce Clause power. I just don’t think limiting subjectively “excess” profits is a legitimate or wise exercise of that power. (BTW: the article you posted indicates that Exxon’s profit margin is 10.9%. That doesn’t seem so outrageous to me. Johnny, you know more about that than me.)
You worry about the greediness of the individual actor in the free market but you assume the benevolence (and competence) of those providing the oversight. I’d prefer to risk a few bad apples in a diffuse market than to consolidate that same risk into the hands of a few in the government. As I mentioned previously, I believe existing anti-trust regulations are sufficient prophylaxis against those seeking to abuse the market.
But not all entrepreneurs (maybe not even most) seek “financial reward” so much as they just seek to make a decent living. Witness J-Mac: he saw that KC’s shoe stores were lame, so he jumped in to fill a niche. He did it because he loves shoes and good design, but also because he believed it could provide for his family. I don’t think there’s anything inconsistent with the Kingdom in that.
getitgotitgoods // April 22, 2008 at 9:24 pm |
I began to respond to many of the above thoughts, and saw myself typing through page 5 of a word document and getting slightly overwhelmed. So I just wanted to quickly throw out a quick comment and some questions.
I think we can all agree that the role of our government is to protect the rights of our nation’s individuals from ‘threats’ to our freedom, either from within our nation or from outside our nation.
Is price a basic right as an individual consumer when we simply have the choice not to buy something if we think the price is unfair?
Do you think current gas prices are unfair?
What are you willing to pay for gas?
What’s crazy is that we could soon be having this same discussion on corn, wheat and pigs.
NJ // April 23, 2008 at 8:00 am |
Congress is tackling big oil because the American people are starting to notice gas prices. $4 gas messes with the excessive consumption and entertainment-focused lifestyle that drives our economy. And Congress is scared. It means votes.
As Mike pointed out, high gas prices and profits are part of big oil’s business plan. They know oil is running out, and that American universities are pumping out brilliant PhD students who do nothing but study alternative energy. So they are charging as much as possible while the gettin’ is still good. Same thing with health care. Health insurance companies know that the day is coming when some form of national health insurance will be instituted, creating a direct reduction in their profits. So why not charge as much as possible right now? The question is – is there anything wrong with this? Probably not, but unless they are investing in the future, big oil and health insurance will go the way of the dinosaur. That’s capitalism baby.
Regarding the free market, there is no such thing as a perfectly free market and there never will be. The moment two cave men stepped out of the cave and started trading buffalo hides, the market has been manipulated. It’s manipulated by people, governments, acts of God, etc., etc. Regarding the US, Mike is right mentioning the commerce clause, but there is also a little thing called the Fed that really controls the economy. That’s why there has been no great depression since the 1930s. And many argued during its creation that it was unconstitutional, but few will disagree that it has been absolutely essential in the prosperity of the US.
And the whole capitalism v. Christianity thing, I agree with Chris’ comment that it is a whole different discussion. I do think there is a way to reconcile the communal focus of the Bible with the individual focus of capitalism. It would involve abandoning ideological positions that place money and systems over people and the of love God. That’s what the church should be trying to do.
Chris // April 23, 2008 at 10:59 pm |
I feel the need to respond, as quickly as possible, to a few things Mike wrote. I do this because I sense that Mike and I are not that far apart. But, its that thin difference that is sticking with me.
We began this with Exxon-Mobil as the focus of discussion. Exxon-Mobil hardly represents an “individual actor in the free market” And where is the “diffuse market” that Exxon-Mobil is a part of? I pray that the innovators and entrepeneurs do in fact begin to develop alternatives so that Exxon-Mobil will be competing in a more diffuse market. But, we must admit, Exxon-Mobil and their ilk have aleg up even on the innovation end of things. Until then, I appreciate that regulation is in the hands of a few whom we’ve elected rather than in the hands of a few whom stock-holders have elected.
I completely agree with the notion that many if not most entrepeneurs are trying to earn a decent living. But, again, I was not writing much of what I wrote with jmac types in mind. I had the Exxon-Mobil types in mind. It does not make sense to me to fear for jmac’s means of living because of governmental regulations put upon Exxon-Mobil. It’s an apples/oranges comparison.
jmac // April 24, 2008 at 7:56 am |
I have a confession. I netted $30B last year. I just choose to live like I netted -$10K.
Kevin Morris // April 25, 2008 at 1:07 pm |
Chris- yes, apples and oranges, but they’re both fruit.
And, if the majority of people decide that we should be able to take other peoples’ oranges, it’s not that big of a step to say that we should take their apples too. After all, it’s all fruit (or profit). How does a gov’t of a diverse people draw an arbitrary line by which it judges the sins of excess and greed? (God I hope the rest of the world doesn’t vote in the creation of that line; if it does, I’m totally S.O.L. for being way too rich.)
So, do we as a gov’t tax our citizens to raise $ to protect our citizens’ rights to live freely? Or, do we as a gov’t tax to impose moral standards set by a majority to reduce the freedoms of the minority?
I’ve always hated the “slippery slope” rhetoric… but I think that the hard lines of the constitution are beautiful for a reason. It truly is a slippery slope.
hiller // April 25, 2008 at 9:30 pm |
Constitution = rules agreed on. Changing arbitrarily by the whim of a Supreme Court thinking in evolving terms is an undemocratic and potentially dangerous course.
btw, over the last couple of days, y’all were spared a number of my ramblings by the cantankerous gnomes of jmac’s blog. lucky you.
mike // April 30, 2008 at 7:41 am |
Supreme Court = established by the Constitution.
This is from today’s CNN political ticker:
“In response to rising gas costs, both McCain and Clinton have called for a suspension of the gas tax ahead of the summer driving season. McCain’s plan would lift the 18.4 cents per gallon tax during peak summer travel months and would suspend the 24.4 cent diesel tax.
Clinton, who rejected a similar idea in 2000, said her plan is different from McCain’s, claiming his proposal would cost the government up to $10 billion that would otherwise be used to improve roads. Clinton has said she’d make up for the lost revenue with a “windfall profits tax” on oil companies, meaning their profits over a certain amount would be subject to a 50 percent tax.”
I think this is a great example of what worries some people. Clinton’s plan is dangerously arbitrary.
getitgotitgoods // April 30, 2008 at 10:54 am |
http://www.nytimes.com/2008/04/30/opinion/30friedman.html?em&ex=1209700800&en=5e50edff9f212b25&ei=5087
Chris // May 2, 2008 at 10:19 am |
1. The slippery slope argument is a weak one. It’s arbitrary. At what point in regulations are we on solid, level ground and when do we begin to slip down a slope? Life is lived on slippery slopes. Governments are created as ways to negotiate the slopes. Some want to avoid the slope of excess and instead slip down the communist slope. Others want to avoid the slope of governmental oppression and slip down the widening-gap slope. The debate in our country has to do with correcting the slipping we seem to be in at the moment. And, that itself is up for debate.
2. Imagining the Constitution has hard lines and that the Supreme Court is filled with whimsical twits is all a bit naive.
3. The gas tax holiday is idiotic. I am worried about Clinton’s AND McCain’s (tellingly missing from Mike’s comments?) arbitrariness and pandering for votes. Despite all his faults (and there are some), Obama continues to impress.
mike // May 2, 2008 at 12:26 pm |
for the record, i am presently for obama. i don’t like mccain’s gas tax idea either, but at least he doesn’t want to pay for it with a “windfall” tax.
Kevin Morris // May 7, 2008 at 2:59 pm |
Okay…. what about this to spur on the discussion- Do you all think that we, the citizens of the US, are entitled to access to energy?
Kevin // May 7, 2008 at 3:09 pm |
I was going to say cheap energy, but that opens up “clean energy”, “safe energy”, etc. I think it is best to leave it open to just energy in general. Do we have a fundamental right to access energy sources such that it should be protected, promoted, incentivized, etc. by government?
So, to relate it directly to this blog– When the government perceives that the market is not providing energy appropriately to its citizens has a fundamental right of the citizens been violated such that intervention is necessary?
hiller // May 7, 2008 at 9:47 pm |
in short, no.
citizens of the US are not entitled to have someone else provide energy for them any more than they’re entitled to have someone else provide them with health care. being entitled to something necessitates someone else being forced to provide it. if i buy a solar panel, i think i’m entitled to all the energy it can provide, but i can’t force someone else to send me the energy from their solar panel or the oil from their well.
if the government perceives that the market is not providing energy appropriately, i would argue that the government has a misperception and they should refrain from intervening – at least in the most commonly tempting ways of controlling prices or subsidizing producers. these approaches create distortions that disable the healthy role of price (triggering changes in supply and demand) and end up doing more harm than good.
p.s. several responses related to what i wrote about the SC and the constitution missed my point. it’s my fault for not being clear, but i’d rather move on than clarify so long after the fact.