Wednesday, August 13, 2008

Big Oil and Lonely Grandmas

cross posted at Right Michigan

Today's gasoline prices have helped to politically merge a lot of people that in previous and less complicated times would never have stepped foot under the same political tent, regardless of how large and all inclusive that tent might have been. With people sacrificing vacations, sporting events, and trips to Grandma's house, it is easy to see why this particular issue has served to create a large, common-interest bloc.

A June Rasmussen survey showed that a full 67 per cent of voters believe that new offshore drilling should be allowed in areas where it is currently restricted while only 18 per cent disagreed. (Incidentally that same 18 per cent said they hate puppies and that Grandma's house smells funny anyway.)

This is a losing issue for stalwart puppy haters, and it will remain a losing issue as long as they are left on the opposite side of the river from a vast majority of people that would love to be able to eat another piece of Grandma's homemade pie. The interesting thing to look at here is not that progressives have gotten this issue so spectacularly wrong, (lets face it, we are getting used to that,) but rather the predictable strategies that progressives have cobbled together in an attempt to reasonably explain how they, once again, have happened to end up on the wrong side of the river in the first place.

Essentially there are two general strategies. The first is the one recently taken by The Obama himself, who has, after discovering his ill-advised location, backtracked from his previously crystal clear position of no new offshore drilling to one that would include limited offshore drilling--all the while declaring that this equally crystal clear brand new position is exactly the same as the opposite one that he used to have, and still does.

It is the second tactic, however, the one employed by Harry Reid, Nancy Pelosi and Bart Stupak that I address here. It is the age-old and failsafe, find a scapegoat tactic, or perhaps the more aptly named "gougers!" tactic.

Big Oil has done a lot of things to victimize Americans, say preening class-envy socialists, by mostly profiting at obscene levels, or gouging. Make no mistake, envy can be a very effective motivator, and socialists have perfected its usage as a manipulatory tool.

Of course, this gouger argument doesn't pass the scratch test. In fact, Big Oil's industry ranks number 60 in terms of profit margin (8.7%) trailing such despicable industries as long distance carriers (26.4%) shipping (17.2%) wineries and distillers (14.7%) and the very exciting textile/footwear industry (9.7%.)

There is no doubt that big oil companies make large net profits, but this is the result of the huge sales volume, not huge profit margins. Corporate profit margins have to be maintained at a certain level for the company to remain a worthy investment option for financial institutions, fund managers and individuals.

Every person that has money invested in a pension fund or a mutual fund is most likely an "owner" of Big Oil. These investor funds have placed much of their money in major oil companies because they have proven to be, through the years, a steady if not spectacular investment vehicle. If and when profit margins dip to the point where Big Oil represents something less attractive, investors will leave to higher flying stocks such as Seagram's and K-Swiss. Big oil companies have to have the profit margins that they do to remain a good value to investors--and that is most of us.

While it is true that a large majority of Americans have now lined up with the pro-exploration and drilling crowd, they have done so primarily because of the way high oil prices have affected their own pocketbook and not because of any epiphany involving basic economics. The "Big Oil is evil" argument has not been overly effective for progressives, but any time you can play the class envy card, it will not be a total failure either. The Rasmussen survey also helps to bear this out.

An important finding of the Rasmussen survey is that a large majority of respondents (61%) agreed that oil companies should invest some of their profits into finding alternative energy resources.

Big Oil spends billions and billions of dollars on research every year, and some of it is actually spent on alternative energy research and development. If this money had not been spent thusly it would have effectively traveled to the bottom line and become profits, the same way that cutting other expenses would. To oversimplify things a bit, if a business spends profits in the course of regular business, it was never a profit to begin with, but an expense. Why do survey respondents, or pandering bureaucrats for that matter, feel a need to dictate where the bottom line should fall on what is a slightly above average business niche in terms of profitability?

It is interesting that oil companies are being expected to range outside of their core businesses to develop alternative energy. An oil company specializes in the production of oil and refining it, transporting it, and selling it. It does not typically create wind farms, develop solar energy or raise sugar cane, nor should it be expected to do these things any more than Coca Cola should with its whopping 21 per cent profit margin.

Big Oil is not run by idiots, and its executives are charting a course that they believe will lead their companies not only to short-term quarterly profits and greater shareholder value, but also will help to navigate their companies profitably through an uncertain future where oil is more scarce or gone completely. Who should we trust to do this? Experts in business and engineering or a handful of career politicians pontificating in front of other nodding career politicians waiting their own turn to pontificate?

Big Oil has been vilified by pandering socialist bureaucrats for decades, essentially for exploring for oil, drilling it, transporting it, refining it, and then selling it as gasoline for less than what retailers charge per gallon for bottled water. In the mean time, Big Oil has provided millions of good paying jobs, helped fuel the world's largest and most diverse economy, generated enormous wealth for pensioners and investors, and has done all this both more efficiently and cleanly than what was even thought possible only a few years ago.

Barack, Harry, Nancy and Bart are, as Nancy puts it, trying to save the planet with their energy policy. This policy is one that aggressively embraces an American future of reduced prosperity, heightened world poverty and starvation, worsening American national security, and depressed lonely Grandmas with too much pie on their hands.

What's not to like?

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