Exxon Mobil: The Root of all Evil?

"Since the gas lines of the '70s, Democrats and Republicans have talked about energy independence, but nothing's changed — except now Exxon's making $40 billion a year, and we're paying $3.50 for gas. I'm (candidate's name). I don't take money from oil companies or Washington lobbyists, and I won't let them block change anymore. They'll pay a penalty on windfall profits. We'll invest in alternative energy, create jobs and free ourselves from foreign oil." - Presidential Contender (who shall remain nameless)

In the very emotional debate over oil, our title suggests what at least a couple (we won’t name names) of the current Presidential candidates believe. One recently suggested that Exxon’s (XOM) $40 billion 2007 profit should be subject to a windfall profit tax. Great idea!

Let's punish big oil, they are gouging us at $3.50/gallon. If we garnish their profits, surely we’d all be better off, and the price of gas will fall. We should also force them to contribute to renewable energy solutions, viable or not.

It's not sufficient enough that the evil Exxon empire paid $29.864 billion in taxes last year to Uncle Sam. Nor, that the government picked up another $1 billion in taxes paid on $7 billion in dividends that Exxon paid shareholders last year. Nor that there's a $.184 per gallon federal tax on gasoline; not to mention the billions states receive through gasoline taxes.

Exxon's 11.32 percent net profit margin is obscene. Let's tax them to the point that it is no longer worth being in the oil business, no longer worth developing technology to find oil in very difficult to reach places. That will make us all very happy. We can all grow our own corn, make our own ethanol and we’ll never be beholden to big oil again.

Disclosure: The author does not have a position in Exxon-Mobil, but does have a position in Vanguard's Energy Fund.

Comments

[Blaine]

The House Select Committee on Energy Independence and Global Warming slammed executives from Exxon-Mobil et al. for their opposition to eliminating about $18 billion in tax breaks amid record profits for the industry. Several lawmakers, mostly Democrats, want to take the tax break away from oil companies and use the money to subsidize renewable energy projects. This is where we should be putting scarce resources, not into areas that don't need our help.

In the mid- 1970's, Congress implemented CAFE standards to combat an oil shortage driven by the policies of OPEC. The standards raised fuel efficiency in American cars by 7.6 miles a gallon over six years, causing oil imports from the Persian Gulf to fall by 87 percent.

The CAFE standards worked so well that they produced an oil glut by 1986. That's when the Reagan administration intervened to rescue America's domestic oil industry from gasoline price collapse. Reagan's rollback of CAFE standards caused America, in that year, to double oil imports from the Persian Gulf nations and to burn more oil than is in the Arctic National Wildlife Refuge.

If the United States had continued to conserve oil at the rate it did in the period from 1976 to 1985, we would no longer have needed Persian Gulf oil after 1985. Every increase of one mile per gallon in auto fuel efficiency yields more oil than is in two Arctic National Wildlife Refuges. An improvement right now of 2.7 miles per gallon would eliminate our need for all Persian Gulf oil!

Yet the Republican Congress in 1995 made it illegal for the EPA even to study higher CAFE standards. The result is that America now has the worst energy efficiency in 20 years.

[Propwash]

If one wishes to make very loose correlations how about this one: Every time we increase mileage of autos, total comsumption increases...more people can afford to drive.

The 1986 oil price crash can be solely attributed to the Saudi government reacting to loss of market share (and income), flooding the market with their oil, and running higher cost producers out of business.

[Blaine]

Thank you for making my point. The oil price rises of 1973 and 1979-1980 led to inter-fuel substitution, such as the substitution of oil for gas, and conservation measures being implemented by the Organization for Economic Cooperation and Development (OECD) countries as well as fuel-conserving CAFE standards (auto-mileage) that brought about a collapse in world oil demand.

Saudi Arabia was faced with the no-win choice of either cutting production to maintain the official selling price or cutting prices and flooding the market. Between 1980 and 1985, Saudi Arabia cut production from 9.9 million barrels per day to four million barrels per day losing significant market share.

By 1985, Saudi Arabia was tired of shouldering the full burden of price defense and looking on as its revenues declined. In September 1985, Sheikh Yamani, in conjunction with the Aramco partners, instituted a dramatic change of policy to regain Saudi Arabia's lost share of the crude oil market. Between August 1985 and August 1986, Saudi Arabian production increased from 2.2 million to 6.2 million barrels per day, and the spot price of many world crudes fell to less than $10 from their previous 1985 levels of around $26 to $29 per barrel.

Hence, rising oil prices led to oil conservation and substitution; which led to reduced demand; which led to cutting production in an attempt to prop up prices; which led to lost market share; which led to increased production to recapture market share; which led to significantly increased downward price pressure.

Sounds to me like fuel conserving standards and oil substitution in the form of alternatives is a pretty good thing.

[N58CY]

I agree with Mr. Milton, Let's penalize them for making 11.32% profit. Let's put them out of business, that way the American fat-asses can walk to work or ride a bicycle. That way health care will cost less as the population gets in shape. See, there are many benefits to government intervention in our daily lives. Poster Blaine is clueless on how our economic system functions. If anything, Poster Blaine has proven, once again, the folly of Government intervention in a free market.

[orthodoc]

Gas may be at all time prices but at least it's available at the pump. When the government got involved in the 1970's we had long gas lines, limited to 10 gallons each and the stations were open only a few hours a day due to mismanagement by authorities. If we want lower prices and be less energy dependent on foreign sources then we need to allow drilling in Alaska, the eastern gulf of Mexico, and the East and West coasts of the USA along with building of new refineries less likely to be hit by hurricanes along the Gulf Coast.

[Steve58]

The politicians don't have a clue how the oil industry works. Nor do they want to know: recall the uproar when Dick Cheney met with industry representatives to craft policy? Instead, they like to score voter points by painting "big oil" as the "enemy", then rushing to the voter's rescue by punishing them. Government meddling in domestic oil companies for political purposes will only make us more dependent on foreign oil and drive up prices. Hindering an extremely efficient and competitive industry won't help us! When the government tries to run things, you have the cost effectiveness and efficiency of social security, medicare, IRS, pentagon, etc. Keep the government out of oil and let the professionals do their job and we will benefit. By the way, let's open up more domestic areas to drilling. Isn't that an extremely obvious way to help ourselves? What craziness that we scream about prices and foreign dependence, and instead of adding more domestic production we want to punish oil companies because prices are high...

[Augustus]

I would only make snese for Microsoft, Apple, and Google to donate profits to finding the alternative sources of energy. Exxon Mobile doesn't really know anything about the energy business and should be allowed to simply go out of business.

The $18 billion of so called tax breaks are not "oil company" tax breaks. It simply amounts to the oil companies using the same tax code that applies to every other US Company. For some reason, which I don't understand, members of Congress seem to have the idea that the country would be better off if Exxon was domociled in another country, beyond the reach of US taxing authorities. Why else would Congress single them out for punishment when they are profitable? Maybe Hong Kong would be a better location.

[anneofaspen]

why is it so hard for people to understand the economics of commodities, i.e., oil, copper, nickel whatever. The politicians fan the flames of ignorance, practice the cult of victimization and blame the evil cabal of oil executives for high energy prices. In their demonization of US oil companies they add support for all kinds of silly ideas, like energy independence from growing more corn, which is mostly a sop for the "farm vote". In their perverted wisdom to add government support for ethanol, and if ethanol is so important for energy independence in the US, why do they also impose a $.50 cent a gallon tariff on ethanol imports from Brazil???

Lets tax the hell out of the US oil companies, and the next time they are looking at a multi billion dollar project to bring in more oil, they can decide to let it go by the way side to avoid more "windfall profits"

[Uncle Frank]

Are there companies that are more "evil" than Exxon-Mobil? How about this sampling of current profit margins - Microsoft - 29.3%, Pfizer - 16.8%, Bank of America - 25.9%, Coca Cola - 20.7%, Johnson & Johnson - 17.3%, Intel - 18.2%, Google - 25.3%. Perhaps the most "evil" of all corporations is Wal-Mart with a profit margin of only 3.4%. Ninety-five per cent of all Americans have no clue as to how this country works. They do not understand capitalism and yet they are permitted to vote in our elections.

[lawsonson]

Unfortunately the majority of Americans are myopic lemmings who never bother to think and (heaven forbid) analyze the issues that face us. Instead they react emotionally, look backward through a very simplistic lens and blame someone else for whatever they perceive to be the problem. Further they follow political demagogues who know how to pull their chain and get votes. They have no answers- only complaints. I hope the rational minority finally persists- but I am not optimistic.

[mixter]

I hope the "Dim-wit-o-craps&... freeze to death in the dark! They couldn't find a drop of oil if they were in the middle of the world's largest refinery!

[Ronmac]

To poster Blaine, I am amazed you know many facts about the subject, then come to the exact wrong conclusions.

[TxAggie]

Spot on. Since when is making a profit a bad thing? We cannot all work for the government. Our US oil companies are not the bad guys. Our lack of an energy policy, NIMBY attitude and spineless politicians are to blame!!

[Augustus]

TxAggie,
The last thing we need as a country is a govt devised "energy policy" of anything other than "produce more of it" and hopefully with a profit for the producer. As to the alternative fuels, if profitably replacing $100 oil is not enough incentive for the Alternative folks, they really don't have much of an Alternative to start with.

[GeoDubyahLozer]

Interesting thought. Reverse psychology - the writer must be closely involved with the oil industry. It makes no difference to me how many billions Chevron, Shell, or any of the big oil industry giants pay totally in taxes, what matters to me is that they pay an equal amount of their total income as what poor old Joe Six Pack pays who works for $6.50 a hour gretting shoppers at WalMart. If the oil industry pays an equal amount of their total earnings as Joe Six Pack does, then I will be satisfied that the richest sum bitches in America are paying their fair share. Until that happens, our tax policies are not good for America.

[wbachmann]

Three cheers for Lee Raymond and Rex Tillerson - they have excelled at running a difficult business, and earned every penny of their compensation. I in turn appreciate an opportunity to invest in a stable corporation and its dividends - both their profit percentages and payouts to shareholders are not outlandish by any standards. Mr. Blaine has not checked lately on the value of our currency - where a good portion of the blame for oil prices lies, thanks to our elected leaders. Not Opec, not big oil are the culprits in this mess !

[CommodityBubbleproponent]

Hey geniuses....just a thought

Exxon's real profit margin before share buybacks, and dividends was nearly 71 billion dollars. However, everyone focuses on the net number. Nobody forces XOM to issue 30 billion in dividends and buybacks

The reality is that XOM's real profit margin is closer to 20% than it is to 11.32%. It really annoys the hell out of me that no one in mainstream media or the internet recognizes this.

However, that being said, I don't fault Tillerson & Raymond & co for their obscene profit margin. I'd rather they have it, distribute it to their shareholders, and penetrate the real economy than have the government take it and waste it on stupid pet projects.

[User 12805]

Bravo for 11% profit! There's nothing wrong here.

[stephenrosenman]

think we should force XOM out of business so we can deal solely with Venezuela, Saudi Arabia, China and Russia. That sure will lower the price of gas!

[Ronmac]

Hey 157113 genius, even at 20 percent, they are still beneath Google, Microsoft etc...and so what? The money they are making now is drilling wells that everything about them is obscenely priced. Check out the costs of drill pipe, casing drilling chemicals, leases, equipment..not to mention petroleum engineers..

I do agree with you about the government, but to state that 20 percent is "obscene" is plain wrong in view of the costs they have to incur to provide us with oil in the future.

[TxAggie]

Geodubyalozer- if Exxon paid 29 B$ and had profits of $40 B$ I would say they are well ahead of Joe Six pack in the taxes area. not mentioned is the billions of $$ Exxon paid in royalties and rentals. To answer your next question, no I do not work for Exxon, don't own their stock, don't buy their gasoline and don't particularily like them. I do work for a small independent producer and have competed with them for 27 years. They are a well run American company succeeding in a difficult environment and business. That is a good thing.

[User 177596]

Halleluiah, thank you for a rational assessment amidst all the hysteria and demagoguery.

Rather than have government regulate the oil companies, I’d sooner see the reverse. We’d probably have a budget surplus instead of a half-trillion dollar deficit.

[Rattus]

User 177596

You're even forgetting your own Econ 101. These oil companies would NOT contribute more to a budget surplus. They, like anyone else, do NOT like to pay taxes either. How do you reach the conclusion that we would then have a budget surplus in the absence of regulation? (For the record, I don't think there is great advantage one way or the other, but I am curious as to your argument.)

[User 177617]

Why does EVERYTHING have to revolve around taxes? I am not going to go into the long histrical economic pasts, lets just use some common sense about this. No matter whether it is going to the state or federal taxes or to the oil companies the point is we are paying more than what we need to be in gas. How about some simple regulations to keep the costs down? Whats wrong with only making $20 billion dollars a year? No matter how the oil companies are taxed YOU are going to be paying for it. Any regulations need to be made to help the paople that are paying for it at the pump, not to give everyone in washington a new SUV.

[User 177596]

Rattus

I meant to imply that if the federal government were as financially prudent and efficient as the oil companies, this country would be in much better shape than it currently is.

[averageamerican]

Sir Sid had some very compelling points regarding the price of oil driving all other prices up. Ethanol already is a mistake. We'll not only feel the pinch at the pump, but at the grocery store as well. That's certainly something I'm not excited about. Maybe I'm ignoring or not understanding a lot of the profit margins a lot of posters are throwing around here, but since we are capitalists, isn't profit the name of the game? Exxon is suppling a huge demand for oil. They aren't forcing any one of us to buy it. I've never seen a large man with a gun and an Exxon shirt forcing me to fill up my car. The demand is made by each and every one of us. Most of us couldn't live our lives without at least consuming some oil. I commute over 20 miles a day, without a car, I wouldn't have a job, but that's my choice to work so far away. This entirely understandable demand for oil has left us so hooked on oil that taxing the oil companies so they can't breath would leave our country so locked down we also couldn't breath. Unfortunately, the government is our only answer, who else is going to fund the research for an alternative fuel, certainly not the oil companies, they're doing outstanding business already. There are opportunities out there like hydrogen cars, they do exist, slowly being developed much too late unfortunately to dodge this oil crisis. In my layman's opinion, it boils down to: we as a people need to force this issue front and center in the upcoming election, force our candidates to recognize the energy crises, come up with a solution and implement it. It won't be easy, and certainly we could choose to ignore it, but then again, no one is forcing us, we only have ourselves to blame.

[Plug-in]

We are seeing Peak Oil (demand exceeding supply) converge with the need to reduce emiisions from ICE vehicles for Climate Change reasons. So we must stop burning oil asap.

For this reason, the price of gasoline needs to stay high, even higher in fact, to provide a financial incentive for us to migrate to EV's, like GM's Volt when they start production in 2010/11.

If you want to migrate before then, worth looking at buying a used Prius and converting it to a plug-in hybrid.

[jeff twiet]

they take us at the pump,an run our court sysem. steching a 2.5billion dollar lawsuit out for almost 20 year. its a sad shame. a shame that our goverment lets this happen we need a change.

[User 177596]

Sir Sid:

As for your recommendation to expropriate Venezuelan assets; Exxon tried that a few months ago (after Chavez illegally seized Exxon’s oil properties in the Orinoco Basin). A British court promptly dismissed the case.

Oil producing nations will continue to demand an ever-increasing share of the profits and there’s little the oil companies or the government can to do stop them.

[dtt]

Dear User 157113,

Exxon pays a dividend and buys back shares with after-tax dollars. You cannot add share buyback dollars and dividend dollars to profit. Dividends are actually taxed twice. The company pays income taxes then shareholders pay taxes on their dividends. Many folks in DC want to tax dividends more. THis is why companies like Google and other profitable tech companies do not pay dividends.

Why we are on the topic of taxes, corporations do not pay taxes. People pay corporate taxes in the form of higher prices. Corporations have to make a profit that is suitable for the amount of risk they take. Otherwise bankers and shareholders will not invest. This profit is an after-tax number. Thus the more government taxes corporations, the more risk they take for all investments. Higher taxes make it harder for corporations to invest and grow. America is becoming less competitive globally because we are raising corporate tax rates as most other countries are lowering them.

[footballtaxman]

Hey User, dividends and stock buy backs are not subtracted from earnings so your assertion that XOM made 20% profit margins and $71 million in profits is incorrect.

[footballtaxman]

Should have been billion not million on my previous post.

[oil guy]

Since when does making a profit translate into the Rool of all Evil - If you want to look at the subject wouldn't it be better to look at profit as a percentage of capital expenditure - then you will see whether something is total amiss - fact is it takes big dollars to take on the big expenditures. Also it's a very risky business -hundreds of millions of dollars in exploration expenditures often come up empty - that's right EMPTY - no profit, no nothing in return. What other industry has that type of risk?

[AviGandhi]

Big Oil isn't an enemy of the state because of high gas prices, foreign dependence, or large profits. These are simple economic outcomes of simple conditions: limited quantities, limited technology, growing demand, global resource distribution. Democrats are making a big fuss about foreign oil for terrible reasons.

However, it does amaze me how those associated with the oil industry are so damn terrified of change. Does anyone envision a future powered by petroleum? I for one see solar buildings, trash-based fuels, and fields dotted by windmills.

Is clean energy such a bad thing? Why not push for a shift towards fuels that don't cause acid rain, smog, or greenhouse gas emissions? Why not push for technologies that don't require ridiculous amounts of fuel that will eventually run out?

Oh right. Change is hard. Boohoo, Exxon will lose some money. BP will lose some money. Chevron will lose some money. Boohoo, their profits will go to making the world cleaner and towards giving human technology the ability to stand the test of time. Boohoo, you who are invested in Big Oil will lose money.

Except you're investors. Change is a market reality. Spending money to achieve change is also a market reality. How many major, large-cap, high-profit companies were born out of Kennedy's push to reach the moon before the Russians (and his subsequent spending of billions of government dollars)? How many people laughed at Ford for selling the Model T for such a low cost?

Maybe if fools who are too blind or too scared to take a leap and realize that change is what has driven the American economy since its inception open their eyes to see the tremendous possibilities for economic growth (and investor gain) in the alternative energy industry, then money will flood these companies and they'll have the same advantage that Exxon has for its own R&D: lots and lots of money.

Then we'll see which energy solutions are really more viable.

[Sir Sid]

To all of those who took the time to read my long winded post, I would like to express my sincere thanks! The negative economic conditions that currently exist in this country (and globally for that matter) appear to be positively correlated with high energy prices. The bottom line is that all will continue to suffer if they remain at current levels (or go higher...which is what I suspect they will do since our government isn't doing anything productive to solve the problem).

User 177596 mentioned the fact that what I mentioned as a possible solution regarding the expropriation of Venezuelan assets in the U.S. has already been tried. Yes, I read that too. The problem there is that the case was tried in a British court. It is well known that the European nations embrace Socialism. The outcome of that legal exercise was predictable. The case should be re-tried in a court in the U.S. Why did the case go to a British court when it has to do with Venezuelan assets on U.S. soil?

This is the danger with installing Clinton, Obama or any other communist (democrat) in the White House. They will make the U.S. beholden to the International court (in Europe). This would be a complete disaster! Furthermore, the installation of another socialist to office of President would result in more liberals on the Supreme Court. This could have negative effects on what is left of our Constitution since these people (who aren't for America or American citizens) will legislate from the bench.

User 177596 also mentioned that "Oil producing nations will continue to demand an ever-increasing share of the profits and there’s little the oil companies or the government can to do stop them". This is a valid point. But, I believe that if our government really wanted to do something constructive, it could be done. The "answers"/so... that they have come up with are, in my opinion, ludicrous. Putting an additional tax on companies that drill and distill oil will not lower the prices at the pump! These additional "costs" of goods sold will be passed onto the consumer. Why, because they must maintain (or increase) margins. The execs at XOM and other oil companies must ensure stockholder value by growing the business and expanding revenues. Their bottoms are on the line. I understand this and I am all for capitalism. But how much money do you need? If the answer is more, than why can't companies such as XOM branch off into other products and services in order to generate revenue as opposed to increasing their profit on something that most folks have no choice but to buy (since there are very few substitues -- if any)?

Speaking of substitutes; AverageAmerican, who posted in reply to my rant, sees what I see with the usage of ethanol as a way to shore up supply concerns. It is not a viable substitute. But, this is one of the solutions that was proposed and instituted (mandated). Another "solution" that has been proposed by those in positions of power is to further the usage of coal and/or nuclear power. Both of these solutions could lead to the end of life as we know it.

Why? Very few people know that in addition to sulfur dioxide and mercury (and other particle air contaminants), coal contains intrinsic amounts of uranium. Some of the coal that is mined in the U.S. could be considered ore grade as far as the amount of uranium that is inside it is concerned. What this means is that you could mine the coal for the uranium. It also means that what they are burning in these coal fired energy plants is radioactive! And as far as nuclear is concerned...that is just a bad idea any way you think about it!!

What America needs is some decent heads working to find a solution. I am not convinced that those who are now and have been "elected" in the past, have the mental capability (or the scruples) to do the right thing... even if they don't, maybe the "invisible hand" will come to our "emotional rescue". Greed can be good!!! It is my opinion that high pump prices will probably bring about the increase in the efficiency of photo-voltaics and hydrogen powered fuel cells (p.e.m). They are long overdue in my opinion. Once production costs are lowered and they become mainstream, it is my bet that they will eventually supply most of the energy needs in the U.S. (but the solutions I offered earlier, are of a more short-term nature) ...If you read my earlier post, please feel free to add PV.'s and P.E.M. Fuel Cells to my list of "solutions".

Theres a great deal of things going on right now that are furthering the "burning of Rome". Leaders of the U.S. better get their heads out of their bums and find viable solutions to the "root of the evil". It should be noted though, that sometimes the best solution (as far as the government is concerned) is to do nothing!
Best Wishes Everyone.

[AviGandhi]

RE: Sir Sid's last post

Where will the money for these "decent heads" come from? Are you expecting bright minds to go to solving a difficult problem without good money paying their salaries and funding the equipment needed to do the research? Because that's far more "communist" than the Democrats you so eloquently (and ignorantly) put down.

What needs to happen is an evening of the field. In the same way that globalization has opened the doors to economic growth in previously decrepit nations (did you ever go to India in the early 90s?), a shift in funding from energy sources that do more damage to the world economy (in real costs) to energy sources that do more good will open the doors to new, cost-efficient forms of power.

As for ethanol, I agree that corn-based ethanol is a terrible form of energy, from an economic and social standpoint. But not enough dialogue (or money) goes toward cellulosic ethanol. Bluefire Ethanol has licensed a technology that allows it to use methane from decaying landfills to power plants that turn the waste in the landfills to ethanol. No corn, no food prices. Tell me how that is a bad idea.

And since when is Great Britain "socialist"?

[AviGandhi]

Oh, and we call this shift of funding, in economics, "taxing negative externalities" and "subsidizing positive externalities". You should brush up on your introductory macro.

[Sir Sid]

Avinash, you need to review my post again. Read it again and you will find that we are in agreement for the most part (except for our views pertaining to Europe and of the infestation of the U.S. political process by one political party that sometimes calls themselves "progressives&quo... It has been my experience that those involved with that party do not have America's best interests at heart and rarely have the capability to think beyond their "johnsons".

You mentioned that "a shift in funding from energy sources that do more damage to the world economy (in real costs) to energy sources that do more good will open the doors to new, cost-efficient forms of power." I totally agree and the funding that you mention can and will be used to pay the salaries of the bright minds to bring it about. How you made the connection to what I mentioned to Communism is beyond my capacity to think. I never mentioned that these "bright minds" would be working for free in order to further advanced fuel technologies.
Using landfills as an energy source for the future is exactly what I am speaking of when I mentioned the photo membrane exchange system (P.E.M. fuel cell). Methane is converted into Hydrogen by a process called Electrolysis (which could be "fueled" by solar, wind and/or hydro technologies). It looks to be very promising.

As far as Britain, France, Spain, Sweden and other nations (except for maybe Ireland) located in Europe are concerned, they are extremely socialist! Don't believe me? Look at their tax structure and health care programs. I sure wouldn't want to live in any of those countries. They're banana republics as far as I am concerned(and so is India...at least for now). The bottom line (and the members of congress should take note) is that a country cannot tax and spend its way to "economic freedom".

It appears as though this country is headed down the wrong path (and will look more like Europe within a short period of time). The U.S., as more socialists come to power, is becoming more communistic as other countries become more capitalistic. China (and India) are two prime examples. China especially is kicking our butt right now and it will become more difficult for us to compete if prices of fuel remain at all time highs. It (Socialism aka. Marxism, aka. Totalitarianism) is another "root of evil" that will eventually lead to the fall of "Rome".

The bottom line is, that a country can't tax and spend its way to economic freedom.

[sniffers]

Blaine - check your figures...you say Persian Gulf imports dropped 87%? That's hard to believe. That means we dropped from 5 million bbls a day to 650,000...not true.

[Clyde Milton]

If there was any doubt regarding the tone of this piece, for the record, this was a tongue in cheek response to a serious issue. Oil is being politicized (when hasn't been?) in an election year, and once again, Big Oil is made out to be the enemy. It's easy to make the populist arguments; they resonate well with consumers who are paying more at the pump. But lets see these arguments for what they are: double speak, designed to infuriate the population.

No one likes shelling out $3.50 per gallon of gas or $4.00 for heating oil. But more government intervention will lead to a much worse situation: shortages. Putting controls on profits is the same as price controls---and we all know how that usually turns out.

[Sir Sid]

Amen Clyde Milton!

[justpitchinahissyfit]

Is there anyone who would care to hazard a guess as to how many pension systems have benefitted from the profits of XOM through their investments program? Think of something positive for a change. Enjoy the day.

[DKLYLE]

As an XOM employee....I CAN THINK OF MANNY POSITIVE CONSQUENCES OF HIGH PROFIT. THAT IS WHY WE ARE DRIVEN TO SUCCEED. IT IS THE AMERICAN WAY !

[DKLYLE]

As an XOM employee....I CAN THINK OF MANY POSITIVE CONSQUENCES OF HIGH PROFIT. THAT IS WHY WE ARE DRIVEN TO SUCCEED. IT IS THE AMERICAN WAY !

[AviGandhi]

Sir Sid,

My main question for you, then, is: where do you propose the money to fund these bright minds come from? If not from the profits of companies who are imposing negative externalities on consumers, then where? The principle is the same as forcing tobacco companies to pay for tobacco education ads like "Truth".

Yes, for a while, there will be some price shocks, and there will be some pain. But with the pain of higher gas prices will come the character of driving more fuel efficient cars, updating and using stagnant and archaic public transportation systems, and an eventual transition to forms of technology that will allow us to drive however much we want without worry about the financial or environmental impacts.

Look at our Socialist comrades in Europe: they have the Eurorail and incredible subway systems in every city, their bus systems are well-used and efficiently function, and their cars are clearly not compensating for their "johnsons" - the things are half the size of an American sedan. I agree that the macroeconomic conditions in those countries are less than ideal elsewhere, but in the specific instance of transportation, taxing and spending is exactly what they have done, to enviable effect.

[AviGandhi]

Follow-up to the first paragraph in my response above: while most would argue that private investment will drive these innovations, one only has to look at the amount of money invested in oil vs. cleantech. Exxon and Chevron together have larger market caps than then entire alternative energy industry - combined. The money for development has to come from somewhere, if only for a while.

[wayneS]

The answer to all of our problems is to add another $1/gallon tax on gasoline and make all of the "freeways" toll roads.

[User 177596]

There appears to be growing consensus that grain-based ethanol is disaster (a disaster to be perpetuated, if the government’s current ethanol mandate is fulfilled).

I was involved in the startup of one of America’s first (and still one of the largest) ethanol plants, New Energy Co. in South Bend, Indiana. In 1980, ethanol made economic sense. Corn production exceeded demand; ethanol production absorbed some of the surplus, thereby stabilizing prices. Only a few questioned the long term implications of a food-for-fuel tradeoff. Now we’re left to deal with the consequences.

[Sir Sid]

Avinash,

You have made some very good points! It is easy for me to see that you have put a great deal of thought and have done a lot of research in this area. I agree, motivation must come from somewhere in order to develop new technology. There must be a catalyst. High pump prices will more than likely spur growth in the areas of alt-energy development, fuel efficiency and alternate transportation. Many of these new technologies are indeed, "ecologically friendly". Your question as to where the money will come from in order to advance these projects is one that you probably already know the answer. Private industry, V.C., and the U.S. Government.

The point that I was trying to make is that I didn't think that we had the best minds (in the government) working to find a decent solution to the problems at hand.

But one point that I would like to make that I didn't, is that many folks from foreign countries do not (or do not want to consider) the American culture (what there is of it). We like our own "stuff" and a lot of us like wide open spaces.
You had mentioned: "Look at our Socialist comrades in Europe: they have the Eurorail and incredible subway systems in every city, their bus systems are well-used and efficiently function, and their cars are clearly not compensating for their "johnsons" - the things are half the size of an American sedan. I agree that the macroeconomic conditions in those countries are less than ideal elsewhere, but in the specific instance of transportation, taxing and spending is exactly what they have done, to enviable effect."

Enviable for who? Certainly not for the individual. Individualism is what America is all about and people from foreign lands feel that they (American citizens) should give it up and ride the damn bus. They believe that the individual must work their lives around the schedule of the transportation company if they want to go anywhere. Aint gonna work (other than in one of our crime ridden, pollution filled cities). We love our cars and some of us like em big and loud! (But... it sure would be nice if they got 100 mpg). The car is sort of an extension of self in this country. Yeah, I know..that seems shallow but I think that it is true to a high degree. I am thinking that more than a few people overcompensate for a small johnson by buying a big Ferrari. Think about it the next time you see one driving down the road. Anyway, good luck to you and everyone else who has read and/or posted on this board.

[EricPeterson,PhD.]

I'm an American living in Europe. I have no sympathy for people complaining about $3.50 gas. I pay almost $8 a gallon here. When an SUV goes by, people turn and stare... it's not very common. The US government should add $3 in tax per gallon, still making gas a bargain compared with Europe, and use the extra billions to develop alternative energy sources. Then maybe you wouldn't see all the huge SUVs with one person in them.

[Clyde Milton]

I would not trust the US Govt to manage my retirement portfolio, or raise my kids, let alone use funds from a gasoline tax to find viable alternative energy sources. Comparing European gas prices to US prices is a bit like making the assumption that since Brazil can use 100% ethanol, why can't we? While I don't understand the continued use of SUV's in this country, the fact remains that the US consumer has the freedom to decide what to do with his or her money.

[Sir Sid]

Mr Peterson,

The tax policies of European nations are the the main reason why prices are 8 bucks a gallon there. I am amazed that academics and politicians high gasoline prices appealing. Maybe it is because they don't pay to fill up their tanks? Apparently, they do not consider the impact of high gas and oil prices.

Gasoline is like heroin. People will pay any price for it. They must if they want to remain employed. In the meantime, this "tax" on the people is driving up the price of everything (which is something they apparently do not understand) I shake my head in disbelief every time the price of gasoline goes higher and another tax is levied on the public.
Your salary may support an increase in everything but for many, the net effect is devastating. Poor people are the ones that suffer the most since many live from paycheck to paycheck. If that doesn't deserve sympathy, I don't know what does.

Please read my post titled "Lowering Prices At The Pump" on Seeking Alpha if you would like a little more info. on how gasoline prices affect the economy.

[MichaelBruna]

First of all, Nice post and it's worth a reading. I don't agree with your statement that you bash all democrats as being communist. I'm a registered Democrat and I like the Iraq war, I hate tax cuts, and I disagree with Big Oil and their profits and I think Global Warming is bullshit. (Gore Sucks) Sure, Gov't is full of corrupt people of both sides of the aisle, but to blame it on one party is absolutely heartless and isn't fair. If someone wanted to state a point and make a certain fact that the United States has the worst energy policy of any country, would bring up the fact that we and Australia are the two countries who haven't signed the Kyoto Protocol. The only way that if you want to see change is, not to buy Gas at all! Sure, this is absolutely absurd but, the true answer is not buying Hybrids at all. I agree with the statement that $3 Gas tax would be key. But don't get your hopes up.If the Gov't really wanted to change, then it would already have of changed already. Thanks for the Blog!

[MichaelBruna]

Ignore the sentence about not buying Hybrids at all. That was a mistake.

[Mmarrkk]

Why do you hate tax cuts?

Is it the increased government revenue that results from tax cuts? (go back and check the revenue increases after tax cuts were implemented. go back to Kennedy's and move forward from there).

Is it the freedom to choose what to do with YOUR money rather than give it to a bunch of inefficient, bloated, wasteful government programs run by bloated dishonest politicians of all ilk (see Jack Murtha who has forced millions and millions of dollars of funding on projects no one in government wants but he wants them. the arse.) I just sent a series of payments to the government to the tune of $75,000 over the year 2007 (not including the additional tax rip off we call social security). Just think how much I could have done with that money versus giving it to the government? I'd rather take that money and donate it to charities to feed people, or fund my retirement rather than rely on a ponzi scheme called social security, or directly fund my mother's retirement and medical care.

While I agree that all parties bear similar traits of misdirected spending, when I hear leaders of Dem's I hear tax more, give away more, screw success and screw businesses. At least the Rep's don't want to do all of them!! This year we get to choose from an older Rep who has proposed many things I hate (opening boarders, campaign finance "reform" and others), a habitual lier who will drive us into a nanny state with her policies, or a young, inexperience marxist who hates a certain race of people. Hmmm, I think I choose none of the above. Or Nader. great.

[Sir Sid]

The movie "Brewster's Millions" comes to mind as we prepare to install (I mean...elect) a new President. The candidates appear to have similar thoughts pertaining to economic policies but at least they are different in physical appearance. The way I see it is that we have our "choice" between an old Socialist, a delusional female Marxist, or a dark skinned Socialist with a Fascist wife. I am with Mark, I vote for "None of the above".

As far as social security is concerned, it was a plan (just like ethanol) that the fine folks in Washington dreamed up that never should have materialized. In my opinion, it has been one of the biggest "thefts" ever perpetrated on the populace. Why? because many have paid into this "retirement fund" and did not reach the age to collect. Where did the money go????? Probably into projects such as Hillary's Woodstock Museum. The funds DIDN'T go where they should have (to the heirs of those who died before they could begin collecting).

Micheal, in reference to your post which pertained to "fairness" Do you think that it is fair to put a stranglehold on the U.S. if other nations are not adhering to this treaty? With gas and oil prices at their current levels, unions that have run amok, and a financial system that is in tatters at the moment, does it make sense to place another burden unto the productive? We all want clean air and water but, any time you get the government into the business of regulation and enforcement of business, it is bad news and means higher prices for the consumer due to their lack of efficiency. One important thing to remember, a government bureaucracy has only one mission, and that is to increase its bureau (not to look out for the best interests of the average joe bunda).

[George Enone]

The issue is not how much Exxon pays in taxes to the US Govt but how much damage high oil prices slap on consumers and the US transportation sector. The US economy and lifestyle is 98% based on oil and its just a matter of time it crashes if the price keeps heading toward $120/barrel and higher. This is a fact. And when it does, the government will receive WAY LESS in tax revenues because of loss of jobs and declining industrial production and will have to BORROW to pay for its programs making a bad situation worse. We need a comprehensive energy policy now more than ever, one that puts us on a course of stable growth expectations, so innovation can thrive and not make people decide to buy or sell stocks just because oil is up or down. If we had a stable energy policy, the Dow Jones will be around 25000 and the government revenues from taxes will be much higher. Exxon has a market cap of over 500B with more than 200B in cash. This is an example of market inefficiency which leads to busts followed by booms then busts rather than sustained growth. Case in point, Brazil: this Latin American country is now energy-independent and a NET EXPORTER of energy because they have AN ENERGY POLICY. As a matter of fact Brazil ETF (EWZ) is one of the two country ETFs up YTD in 2008 while the US economy is in the midst of a bust phase. In the case of a major global energy shock due for instance to large scale conflict/war in he middle of Arabia, the Brazilian economy has been ranked the #1 strongest survivor. US economy will be decimated with oil at $200/barrel. I can't even imagine what will happen and we aren't that far off.. Exxon has not discovered any new oil fields in recent memory while Petrobras (PBR) keeps finding large oil deposits off the coast of Rio de Janeiro. In an ideal situation, Exxon would invest their 200B cash into new projects to bring the energy cost down for consumers and the US economy, but we know companies are just concerned about their ROE. So Exxon just sits on the cash and pay dividends while the US economy is suffocating and ordinary Americans bear the brunt of high gas prices. Left alone, the oil market is not a perfect free market, otherwise Exxon will be spending that 200B in bringing new production online. But they're not and its their right. However it's unethical. Now, the market solution is to improve technology and lower energy consumption. This includes ugrading the transportation sector with ultra-modern state of the art bullet trains that run on electricity throughout all metropolitan areas in the US. This will cut the amount spent on driving to work by 50%. This is already a reality in Europe and yes China as well. Try passing this through our current congress and watch the Exxon Lobbyists reaction. This is the problem. Until we have honest politicians and and informed citizenry NOTHING will change and the boom and bust cycle will go on.

[Moneymaker]

The price of gas is not high enough yet. Lets tax the hell out of big oil and raise the price to $5.00 per gallon minimum. The will not pay taxes on their GROSSLY HIGH profits to the goverment and we will really be in a recession. Wake up people it takes money to make money.
Stop blaming big oil for Americas thirst for oil. Americans like big cars that drink the fuel. I sure am proud to be American and to have a great job working for BIG OIL.

[Jack Worgan]

I own both Exxon and Texaco stock. The oil companies are partly to blame for the high cost of gasoline and diesel. A ten % profit margin on gasoline is not a bad penalty at 75 cent a gallon gas, but, at 3.00 dollars a gallon it does become opressive. But, again, you have to consider that wages, shipping costs and other expenses have also risen. I'm not really sure that 10 persent is really excessive.

I believe that what's really happening is that we are fighting two wars in the middle east. One combat and the other economic. I personally feel that we should never put men on the ground anywhere that we don't want to keep. The war in the Middle East is costing us about a billion a week. We are footing the whole bill. And supporting the useless UN operation. ( Who have never been on our side )

The economical war is bleeding us dry at home through higher diesel prices that are forcing the cost of everything we use to esculate.

Both our government and big oil are doing nothing to aleviate this economic problem. Alcohol costs more to produce than we are paying for a gallon of gas. (The political posturing looks good but usually produces nothing). Alcohol has less actual energy. It takes more alcohol to go the same distance than gasoline.

The only sensible direction is atomic power plants, solar power and a large reduction in horsepower and lower rear axle ratios to greatly increase efficiency. Oil fields in Idaho and Canada could help, but, only if they are not restricted to keep prices up.