Byron's Blog

Anonymous believes the recent House hearings on oil profits were nothing more than a diversion, designed to distract attention away from the ineptness that permeates the majority of activity on Capitol Hill.

Congressional Gas

by Anonymous

It's so easy to hide your shortcomings when you're a U.S. Representative or Senator. Just call hearing about oil companies, invite chief executives and say bad things to them about the money they make. There it is -- you've made yourself look big and important, while you've accomplished zilch. It's a heck of a trick, but when your busy gorging yourself at the public trough, that type of stunt helps perpetuate the illusion that you've actually done something, when you've really done nothing at all.

It's far more useful to understand why gas prices rise, why oil profits enable you to drive and why Congress members ought to blame themselves for a great of the pain you feel when you top your tank.

Gas prices have risen to their current level because demand is strong. That's the whole story. You want evidence? Check the highway during rush hour. Do you see traffic getting any lighter? Not a chance and while you're at it, just check what people are driving. They're still lumbering along in gargantuan SUVs that get abysmal gas mileage. Drivers are sucking down gas about as quickly as oil companies can produce it and unlike politicians, most people understand the law of supply and demand, which means as long as Americans have a hearty appetite for gas, the price will reflect that. Sorry, but that's the reality.

Now, about the phony anger that the desk-pounding House Representatives exude during their semi-tough but visibly deficient questioning of the oil executives -- it's theater, nothing more. All that outrage about oil profits is merely hot air. You think for a nano-second that any company would be motivated to produce anything that's a money loser? Not a chance, which is why profitability ensures that you can get in a car, start it and go where you want everyday.

Profits enable firms to find oil and produce gas, which is an expensive proposition. Now consider that gas prices have risen more slowly than inflation for at least a few decades now, which means oil companies have actually been highly efficient in the way they conduct business. So let's see -- highly efficient firms provide the fuel that enables America to be an affluent society and the price of that fuel is low compared to most of the industrialized nations on the planet. Yeah, let's knock those oil guys down a peg or two.

Then there's the profitability that flows to shareholders and this goes beyond high net worth individuals. Anyone who hired a competent financial planner probably wound up with an investment portfolio that included energy. The people who profit in this scenario are individuals with retirement accounts or others who are already retired and rely on income that from their investments. Stick it to the oil companies and you stick it to those people too. That makes no sense, but it does not matter to the politicians who never miss an opportunity to make themselves look good at the expense of others.

It's also worthwhile to know that gas and oil profits come in increments. Think of it this way -- say you sell paperclips for a living and you earn a penny for every one you sell, but you sell millions and millions each year. You're going to earn a tidy profit, but your profit per unit sold is not that high. It's somewhat similar with gas. Oil companies do well because they sell so much gas. That's why any tax or penalty you impose on oil companies has a direct and almost immediate at the pump, which leads to the answer to the question, what can government do to reduce the cost of gas? Cut the tax on it.

Federal, state and local taxes add up to around 40 cents a gallon, or more. Reduce the tax and you reduce the burden on working people. It's really that simple. Oh sure, politicians are going to bellyache about how they're strapped for cash and need the money. Don't believe it. Tax payers constantly have to reduce expenses to get by, government can too. Lord knows politicians waste gobs of cash anyway, why not help you with a tax break instead of throwing away dollars on pork projects? What a concept.

Politicians need to stop wasting time beating up oil executives and work on ways to create incentives for people to drive hybrid, fuel efficient or green cars, but that actually involves doing something, which is pretty much counter to what government is all about.