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James Madison Quote

The truth is that all men having power ought to be mistrusted.

ideas > A Politicians Favorite Pasttime: Attacking Oil Companies

A Politicians Favorite Pasttime: Attacking Oil Companies
I would like to share with you a couple of paragraphs from an incredibly insightful book, ďFreedom to ChooseĒ written by the Nobel prize winning economist Milton Friedman. On page 218, Mr. Friedman, says the following:

ďThe embargo of the United States instituted by the OPEC cartel in 1973 ushered in a series of energy crises and occasional long lines at gasoline stations that have plagued us ever since. Government has reacted by establishing one bureaucratic organization after another to control and regulate energy production and use, terminating in the establishment of the Department of Energy in 1977. Government officials, newspaper reports, and TV commentators regularly attribute the energy crisis to a rapacious oil industry, or wasteful consumers, or bad weather, or Arab sheikhs. But none of these is responsible. After all, the oil industry has been around for a long time-- and has always been rapacious. Consumers have not suddenly become wasteful. We have had hard winters before. Arab sheikhs have desired wealth as far back as human memory runs. The subtle and sophisticated people who fill the newspaper columns and the airwaves with such silly explanations seem never to have asked themselves the obvious questions: why is it that for a century and more before 1971, there were no energy crises, no gasoline shortages, no problems about fuel oil--except during World War II? There has been an energy crisis because government created one.Ē

This was obviously written several decades ago, yet it could have been written today. Each generation of politicians seems to recycle the same old tired attacks on the oil and energy business, claiming that they are ripping the people off, that the oil will run out, or that they pollute too much. The attacks are endless and for the most part are designed for one thing only, not relief for the citizen, but as a cheap and easy way for the politician to get into office and consolidate power in the hands of the government.

Have you ever asked yourself, why 40 years after the energy crisis of the 1970s do we seem to not have run out of oil? Sure, prices have gone up, but there are myriad of reasons for that. The truth is that this oil crisis or energy crisis that we are in is government-made.

First, the energy industry is heavily regulated by the government. It is also controlled heavily by the environmentalist lobby. We all agree that fossil fuels produce pollution, but without fossil fuel we could not enjoy the standard of living we enjoy today. We canít just end all fossil fuel consumption and expect to have the kind of living we have today. The truth is that fossil fuel production is the cheapest form of energy production for the amount and volume of energy that we need. Yet the environmental lobby aided by the strong arm of the government is slowly killing the goose that laid the golden egg, fossil fuel companies. We have abundant sources of energy which could easily ease the price that we pay at the pump, from nuclear energy which is very safe. France is primarily powered by nuclear energy and they love their environment. The oceans have hardly been explored for oil. And then there is the oil that our Congress wonít let us touch because of some wildlife. They put wildlife above providing cheap energy to Americans who are being squeezed financially to the breaking point. It is pure insanity.

Second, the price of oil is being driven up because of inflation. The value of the dollar has been slowly declining for decades and has recently hit a low point. This means that oil companies will demand more dollars for the same amount of oil. Inflation is caused by the government through the borrowing and printing of money out of thin air. Inflation happens when the supply of money in the economy increases faster than the productivity of the economy. Who controls the supply of money? The federal government through the Federal Reserve controls the supply of money. The governmentís incessant spending is creating inflation. Since the government spends much of the money in wasteful, unproductive ways, that money that could have gone to productive investment instead is going to less productive investment and slowly killing the productive economy. In essence, we are producing less and less stuff that people want. Wasteful government spending funnels money towards unproductive activities. I think an example would help illustrate this point. Letís say the federal government decides that it wants to repave all the roads in highways in America because it believes that the people should have smooth roads. Could the government do this? Sure, but it would take a lot of money to do this. The government could raise taxes, but most likely people would not want that to happen. So what the government, in essence, is have the Federal Reserve print money that it can spend. Letís say that currently there is $700 billion of money in circulation in the economy. This money is being spent by consumers to buy and sell products that they want. Businesses are produce the products and services that people want because of the incentive of money and profit. In essence, businesses chase the money. Now letís say the government decides that it will take $700 billion to repave the roads, so it prints up the money, and puts bids out for contractors to pave the roads. Before this infusion of money, businesses were organized to meet the goods and service needs of the consumers. But when the businesses see all the money to be made by repaving roads, much of the economy will become reoriented around repaving roads. Resources will be diverted to where the money is. So now the majority of the resources will go towards repaving roads, not goods and services that people want. And what really is wealth but only the goods and services that you want. Can people consume roads? Do roads make people rich? So now we see that if the government prints money out of nowhere and introduces it into the economy that it can divert limited resources to its projects only at the expense of the consumers. In the end, the consumer gets nice new roads, but he or she is poorer because he or she has less of those things that make up his or her standard of living.

Do oil companies really make obscene profits? Letís use Exxon as our example. It seems to be the poster child for bad behavior among big oil. At least that is what Barack Obama and Hillary Clinton and many of the other progressives, socialists, and liberals tell us. Last year, Exxon had revenues of $358.6 billion dollars and its net income was $40.6 billion dollars. Itís profits were 11% of its revenues. Coca Cola had revenues of $28.9 billion and net income of $6 billion. Itís profits were 21% of its revenues. Google had revenues of $16.6 billion and net income of $4.2 billion. Itís profits were 25% of its revenues. In whole dollars Exxon makes a lot of money, but it also takes much more money to make what they make. It is less profitable that Coca Cola and Google, yet no one is crying for someone to do something about these companies. An eleven-percent profit margin is not that high. It costs a lot of money to find, process, and distribute oil. Does anyone honestly believe that a product that is vitally important to our way of life is ripping off its consumers by making an 11 percent profit? Just take a moment and imagine what your life would be like without readily available energy on demand. Imagine flipping the switch and your lights not going on immediately. Imagine you going to your computer and trying to get on the internet and nothing happening. Imagine climbing in your car to see your gas gauge on empty. For decades oil companies have been providing us cheap energy so that we could enjoy our lives and we have the audacity to rake them over the coals for an 11 percent profit? Are we insane? I would think that if oil companies made a 25% percent profit just like Google or Coca Cola that we should still be happy. Instead, we allow our politicians to rake them over the coals. We cheer them on. We allow them to put chain after chain around the energy industry and then wonder why gas prices are through the roof. Are we that stupid? I suppose we are.

Finally, some politicians and commentators love to castigate the oil industry for not investing money in alternative energy production. Asking the oil industry or fossil fuel industry to do so would be like asking automobile manufacturers to invest in mass transit systems. Why would they want to do this? A fossil fuel company is good at finding and producing fossil fuels for consumption? Why would they want to invest money in their competition. Isnít that the job of alternative energy companies? Do we force other industries do invest in their competitors or to waste their time investing in something that they have no expertise in? Why would the oil industry be different? In reality, the federal government has been throwing hundreds of billions of dollars into alternative energy production for decades and we still consume fossil fuels. Why do you think that is? Because fossil fuels are the cheapest, most abundant form of energy out there. It takes less space and money to produce a unit of energy via fossil fuel than anything out there, save nuclear; but the environmentalists would never want us to enjoy cheap energy at the expense of an owl or a moose, would they? I believe that most people are somewhat insane when talking about the energy industry. We all need to take a collective step away from the edge here and quit killing and berating an industry which has a relatively modest profit margin when compared to other industries and yet provides the most important resource next to food for our economy. We also need to wake up and realize that oftentimes the reason things are so expensive is our federal government and its wasteful spending and regulation, which on the surface looks like it is protecting us, but in reality is really protecting the power of the politician and the government to control your life and live your life as they see fit.

Lastly, there are calls by some politicians to remove the tax incentives that the oil industry is given for exploration of oil. I am against any form of subsidies to any business. The subsidies and incentives that go to oil are a pittance when compared to agriculture or other industries. If you truly want to be fair, then eliminate all subsidies to all industries. The oil industry is just a cheap way for politicians to get elected because the people fall for it every time. It wonít be so funny once we experience rolling blackouts. They have already experienced these in two of the most regulated states, California and New York. Donít you find it ironic that these two liberal, socialists states with overbearing regulation have experienced rolling blackouts? Do you think it is a coincidence or could it be the regulation?

Take some time to unplug from the propaganda spewing forth from your TV, magazines, and radio and just think about the benefits of fossil fuels and cheap energy. You should be grateful for what the oil and fossil fuel industry have done for you and your family instead of playing along with the crowd and attacking the goose that laid the golden egg. Eventually that goose will die if you beat it too much and then what will you have. Better get the candles out and get ready for the rolling blackouts. They are coming if we continue down the strangling path of government regulation and taxation of the one industry that provides us the most, save the food industry.
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