Who made the real windfall profits?
it was only a few days ago that I mentioned that gasoline prices in the US had dropped as low as $2.38 per gallon. In fact the plunge in prices continues and the price is now down to $2.29 and lower.
I mentioned how cheap politicians were using the price of gas to try and make themselves appear crusaders for the little guy. And that such portrayals were false and dishonest.
There are a couple of new facts that I've come across recently which help shed light on these issues.
One is that the price of gasoline has dropped 30% in the US but the price of a barrel of oil has only dropped 18%.. Now why is that significant?
Politicians were using the disparity between the increase of oil and gasoline to try and prove that there was a plot to raise prices. My point was simple. Oil and refined gasoline are two different commodities with different supply and demand curves.
The US was hit by several hurricanes that shut down a major portion of refining capacity. Now the fact remains that you could be sitting on a sea of oil but if you can only refine a small portion of it prices for the refined product will rise even if the price for the unrefined product is dropping. It's elementary economics thus beyond most politicians.
So once again we have a dramatic disparity between the two products. Oil prices have dropped a bit but refined oil in the form of gasoline has dropped almost twice as fast. Not one Congressman or Senator has demanded an investigation to expose the cause. There is no political hay to be made from dropping prices so the politicians go mute.
Now the reasons for the disparity is obvious. The refineries that were shut down during the storms have been reopening. The drop in oil prices is do to the supply/demand situation for oil and oil only. The supply/demand curve for refined oil, or gasoline, is entirely separate from that of oil. Because the supply of refined oil has increased against the demand for refined oil it's price has dropped as well. But the supply of refined oil increased (relative to demand) at a far higher rate causing it's price to drop at a much faster pace.
I would bet you anything that you won't see Senators demanding oil company executives explain why they are lowering prices at "too rapid" a pace.
The second issue is that of "windfall profits". Politicians raked the oil companies over the coals for "windfall profits" due to the high price of oil. Here is a little secret they didn't tell you. The US government made more revenue off of oil than the oil companies.
If you take the profits on the sale of a barrel of oil and compare it to the tax revenues derived from the same oil you will find that taxes outpaced profits. They have done so for years.
The Tax Foundation has exposed the scam about the high price of gasoline. They wrote:
"F]ederal and state taxes on gasoline production and imports have been climbing steadily since the late 1970s and now total roughly $58.4 billion. Due in part to substantial hikes in the federal gasoline excise tax in 1983, 1990, and 1993, annual tax revenues have continued to grow. Since 1977, governments collected more than $1.34 trillion, after adjusting for inflation, in gasoline tax revenues-more than twice the amount of domestic profits earned by major U.S. oil companies during the same period."
It was government that was raking in the profits over the high price of oil. In 2004 all the oil companies together made $42.6 billion but the government take was $58.4 billion. Even that was unusual. Take 2002 for example. That year the oil companies made $16.2 billion while the government took in $58.4 again. Or in 1998 the oil companies made $9 billion but government took in $60.3 billion. In the last 28 years oil company profits exceeded tax revenues on the same oil only three times. The last time that happened was in 1982.
If the politicians think people are paying too much for gasoline then they should consider reducing their windfall profits. But don't expect it.
All items in this journal reflect the personal opinions of the author and are not necessarily those of the Institute for Liberal Values or its Board members.
Previous (Is "family" code for hate?) - Next (Money doesn't solve the problems of the poor)
Nannies to Right of Us, Nannies to the Left of Us.
Welcome Home: the journeys of David Mamet and George McGovern.
Dominion Post in needless panic
Does Liberalism Have a Heart?
The moral problems of state power in regards to war.
Kiwi health: spend more, care less
Hurricanes and hot air: the sequel
Morality and Consistency: Why Left and Right both threaten freedom.
Ageing, population and the welfare state.
The bankruptcy of conservatism.
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Institute for Liberal Values, Friday September 3rd 2010. |
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