If there’s one thing the American consumer understands, it’s high gasoline prices. And, the consumer sees himself paying well over $2 a gallon at the pump while Big Oil is making record profits _ almost $10 billion for Exxon Mobil in the third quarter.
The consumer is quick to make the connection and congressional Democrats even quicker _ excess profits, windfall profits, unfair profits. Sen. Charles Schumer, D-N.Y., says the industry’s excess profits are running at $7 billion a month and he proposes a 50 percent “temporary” tax. The last temporary levy on the industry, in the 1980s, lasted eight years and is responsible in part for some of the industry’s problems today.
There’s no lack of ideas on how to spend a congressional windfall of $3.5 billion a month _ hurricane relief, heating oil assistance, subsidies for renewable fuels.
Republicans, usually in favor of letting big business do it’s thing, are saying with pursed lips that the oil business needs to explain itself, which the industry will have an opportunity to do at Senate hearings on Wednesday.
An excess profits tax _ and who’s to say what’s excessive? _ is bad economics and bad policy. It scares off investment and aggravates the boom and bust cycle to which the oil business is already too prone. The reason a new refinery hasn’t been built in this country is that investors aren’t confident it will make any money. The prospect of a 50 percent windfall tax isn’t going to boost that confidence.
Oil industry executives will be too circumspect to do so, but they might fairly ask the senators where they were in the ’90s when oil was $10 a barrel (it’s now around $60) _ the industry wasn’t terribly profitable, investment had dried up and companies were merging and downsizing.
The industry largely held off exploration and new drilling rigs, pipelines and refineries, which is why the industry today can’t drive prices down by simply opening a spigot and flooding the market.
Oil companies, perhaps more than most, have to see over the horizon because of the immense lead time in their industry, and it would have taken a seer of the first order to foresee and plan for in, say, 2000 the conflation of a massive surge in Chinese demand for oil, the ruinous Gulf Coast hurricanes and instability in the Mideast.
If excess profits there truly be, exploring and developing new oil fields in politically and geographically challenging parts of the world will take care of them.
(Contact Dale McFeatters at McFeattersD(at)SHNS.com)
