Mud And Blood
I happened upon some Congressional hearings yesterday, and watched open-mouthed as this travesty occurred:
Don’t blame us, oil industry chiefs told a skeptical Congress. Top executives of the country’s five biggest oil companies said Tuesday they know record fuel prices are hurting people, but they argued it’s not their fault and their huge profits are in line with other industries.
Appearing before a House committee, the executives were pressed to explain why they should continue to get billions of dollars in tax breaks when they made $123 billion last year and motorists are paying record gasoline prices at the pump.
I have often spoken about Big Oil and their role in the current oil price spiral—the Cliff Notes version being that unless the oil companies make decent profits in times of high demand, they have little left with which to invest in further exploration and/or refining capacity during leaner times. Moreover, of course, demand for oil is being driven by the rapidly-developing markets in China, India and other Asian countries.
All that is simple Business 101, and perhaps Congress should be forgiven for not understanding business—they are, of course, mostly socialist busybodies and nannies—but what got my goat was the sheer effrontery of Congress in grilling th oil executives in the first place.
One of the reasons that oil is more expensive is that the U.S. dollar has lost a large amount of its value against other countries over the past few years, and therefore it takes more dollars to buy the same amount of oil as hitherto.
There are many reasons for this fall of the dollar, and I don’t want to go into too much detail here. Suffice it to say, however, that a currency loses value for two major reasons: inflation (when government prints more money than it can cover) or loss of confidence in the country’s economy by domestic and foreign investors, who stop buying dollars (T-bills and other financial instruments) as a mark of that loss of confidence.
That loss of confidence, by the way, can be caused by the government of said country pursuing economic policies which are irresponsible or potentially ruinous.
That’s the ivory tower: here’s the mud ‘n blood.
Congress has been spending money like a drunken sailor during Fleet Week, and worse, creating future obligations (in the form of entitlements like expanded Medicare coverage) which savvy foreign investors look at, and think, ”Hmmm. I don’t think they’ll be able to meet those commitments.” So they buy fewer and fewer dollars, and the dollar becomes worth less and less.
So now, those same animals who have caused our dollar to weaken are treating oil companies like a bunch of criminals, threatening to “cap” profits and “rein in” the companies’ “greed”.
I expect the usual nonsense from economic morons and populists [some overlap] like Bill O’Reilly to follow—and it shouldn’t, because the crisis which faces us is almost completely of Congress’s making.
Worse still, their hypocrisy extends still further: because if they really wanted to cut the price of gasoline at the pumps and help consumers, they’d reduce the federal tax on gasoline—but to expect them to do that would be naïve in the extreme.
That would be advocating for government that which they would seek to impose on business, and we can’t have any of that.
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Afterthought: From the TaxProf comes this, so we can be absolutely sure of who, exactly, has profited most from the oil business:
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.
And lest we forget, Congress just spends, it never invests or pays dividends.
