“Human beings are born with different capacities. If they are free, they are not equal. And if they are equal, they are not free.”
― Aleksandr Solzhenitsyn

Monday, April 24, 2006

Jennifer Granholm is a fool

She's not the only one of course, Sen. Carl Levin is right there, talking about "extreme, obscene profits," and he's joined by such GOP luminaries as Sen. Arlen Specter who said a "windfall" profits tax is "something worth considering".

Granholm, however, has taken to the bully pulpit by establishing a Website where you can sign up to lobby George Bush
for additional taxation on oil companies. Since she does not yet recognize that "high paying manufacturing jobs" has become an oxymoron, and is demonstrably ignorant of the fact that you pay the gasoline taxes, not the oil companies, this populist stupidity is no great surpise.

Since our Governor is asking us to sign up to add cost to the production of gasoline and/or to reduce the development of new sources, and her party is already primarily responsible for restricting domestic supply, a reasonable question might then be; what are the components of gasoline prices that the government already controls and how well do they do that?

State taxes in the U.S. average about 21 cents a gallon, while federal excise taxes are 18.4 cents a gallon. In Michigan the tax, if gasoline were given away by the oil companies, would about 40.5 cents a gallon (19.874 cents state excise tax + 18.4 cents federal excise tax, plus 6% sales Michigan sales tax on tax). Michigan also receives sales tax revenue on the actual product price which, of course, increases with that price. Talk about windfalls.

At a 9% margin, oil companies receive about 22 cents per gallon. Whose profits are obscene?

Since 1977, the obscene government profits were $1.34 trillion (that's a "T") while industry profits were $643 billion.

OK, you might say, but what have oil companies done for me lately?

Well, first ask what government has done for you lately, and then recognize that oil companies have to live in a world of cyclical commodity prices. When oil was cheap in 1986, for example, the oil companies' profit was $9 billion, but the government still got $41.5 billion in taxes. Nobody was screaming about saving the oil industry by cutting gasoline taxes and giving them the proceeds.

Once we start deciding that some particular industry has "excess" profits, what's to stop us from deciding what "reasonable" profits are for all industries? The oil industry's margins trail those of banking, financial services, pharmaceuticals, telecommunications and computer software. Why are those industries' profits not under threat of confiscation?

Someone should ask Senator Levin what he thinks would be reasonable profits, since once he starts regulating oil profits, that number will tell you something about the severity of the shortages he would cause.

We refuse to allow drilling in areas with proven reserves (like ANWR and off the Florida coast), so why would an oil company explore in the US for new domestic sources?

We refuse to build nuclear or coal fired electrical generation. This is forcing us to use natural gas to make electricity. Guess where natural gas comes from.

We've prohibited the building of any new refineries for almost 30 years. Our Byzantine regulation of gasoline formulation is responsible for a spike in prices every spring, because there is no capacity to produce the new formulations in advance and no place to store enough of it if the production capacity existed.

We're fools for allowing this to go on. And if the fools signing Granholm's petition are successful, gasoline will be as expensive as it can possibly get - you won't be able to buy any at all.

Update 7:40PM. Long, but a very good explanation of gasoline and market forces. OILY POLITICS



elborbah666 said...

If you want to take a more thorough look, as what I did - pull up the ticker chart of ExxonMobil and compare to Microsoft, Philip Morris, WalMart, and Johnson and Johnson, and go back to 1970. ExxonMobil underperformed all of them over the long term. Plus, if they were having such 'obscene' profits and were expecting them for the intermediate term, their stock prices should have a huge premium compared to the others.. but they don't!

Anonymous said...

Send an email to Governor "Grandstand" and let her know you're not fooled by her political chicanery. After all, she is up for re-election this year.

Hershblogger said...

I have communicated my displeasure on several items, including this one, over the years.