Oil Mythbusters

Today there was a great article in the Dallas Morning News about the realities of our gas prices, oil company profits, service station boycotts, price gouging, and the realities of taxing oil profits. I realize the blog I wrote about these same subjects may have been too long to hold people's attention. This article explains almost to a T exactly what I was trying to say and does so in a much more eloquent manner. I'm not sure if you need to sign up for a free membership to view that article but if you do I can assure you that won't spam you and it'll only take a second.

What I most do not understand is the arguments of price gouging and the argument to tax the profits harder than usual(40%). These are two issues that I did not talk about to the extent that I wanted to in the previous blog.

In the instance of Katrina I understand punishing a company for using the economic laws of supply and demand in a way that really hurts people that are in an unusually vulnerable position. But in everyday normal circumstances what exactly is price gouging? Is it businessmen working for oil companies trying as hard as they can to make money for their shareholders? In the sport of business money is how you keep score thats just the reality of the situation. Businesses are not in business for fun or just to keep themselves occupied. They are in business to turn a profit plain and simple. Oil companies just happen to be in an industry that sells a product that Americans are addicted to and have been led to believe it is their God-given right that they have access to cheap oil and its derivatives. High schools economics teachers: stop letting your students sleep through your class. Its simple Supply and Demand. If you have something that is becoming more and more in demand you are going to be able to rise the price and turn a better profit, you would be stupid not to.

The second issue concerns taxing oil companies harder than normal. In my previous blog I got into how much more profitable most other industries are in terms of profit margins. That defines more why this taxing is unfair but now I will get more into why it's not only unfair but it doesn't make sense and it will end up making oil more expensive in the long run. Lets take ExxonMobil for instance, last year they brought in profits of $36 billion. The first place that profit is going to go is to the shareholders in the form of dividends. The shareholders are the ones who risked their money to make this possible in the first place. At the end of the day the money that is left over is invested in research and development (read future ways to extract tons more oil efficiently). If you tax that profit harder the shareholders are still going to get paid either way its the R&D that you are hurting. But it makes politicians popular to promise middle-class voters added tax revenue from ugly, mean, Texas-sized oil companies and this is an election year so it'll probably happen.

-hj

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One Response to “Oil Mythbusters”

  1. rtryurhs5 Says:

    Here are some links that I believe will be interested

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