Wednesday, February 01, 2006

Gripe: Economic Illiteracy

Exxon makes money! Que horrible... but really, so what? Maybe I have to write the same post every three months, but the dollar amount of profit, while impressive, is not especially illustrative of anything. Considering the level of sales ($99.7bil), a $10.71bil profit is just under 11%. Good, but not ludicrous. Businesses go through up cycles and down cycles, and right now is a good time to be in the oil business - it's hard to imagine conditions being better to make a buck on oil.

This isn't to say that their aren't reasons for concern from this story. A company that has annual revenue of $371bil can exert a tremendous, possibly unhealthy, amount of influence over policy matters. The short term interests of Exxon not congruent with the long term goals of America in terms of energy strategy.

Similarly, one worries to a degree about the amount of effective subsidization Big Oil gets in terms of governmentally provided security, both in the middle east, and elsewhere. If you think significant tax dollars aren't spent protecting the Trans-Alaska Pipeline...Similarly, foreign policy may insulate companies from foreign competition to a degree. However, it is not entirely clear to me that this drives profits: any increase would almost certainly be passed on to the consumer (which might reduce consumption at the margins.) Additionally, fuel prices are factored in to a huge range of other goods and services: shipping, travel, heating, even groceries all cost more when oil prices are higher.

All I'm saying is that before we run around demanding another Congressional Kabuki dance (and maybe get a replay of the 7 dwarvesCEO's of big tobacco averring "I believe oil is not addictive") we should remember that profits are, generally speaking, a Good Thing, and should usually be celebrated, not decried.

Pastor Jeff has similar thoughts to me, while one of Mark Daniels's commentors explores some of the reasons for concern.


mortnut said...

On the other hand, to what extent do you think the 9th Circuit, which heard oral arguments last Friday on Exxon's appeal of the "measely" 5 bil of punitive damages awarded after the second remand to the District of Alaska trial judge, will be influenced by the fact that the award on appeal equates to a bit over one month's profits?

Pooh said...

Well, for it to really be "punitive" it's got to sting a bit.