Sunday, August 21, 2005

Corporate Welfare

I’m sure just about everyone has noticed that a bipartisan Congress gave some $4 billion dollars worth of subsides and tax credits to the oil companies, and yet oil company executives belly ache about how much money they’re not making. We notice their “plight” every time we buy gas, oil, or anything else made with petroleum (like plastic). We notice Exxon made $7 billion dollars in profit the first three months of this year, but that’s just a fraction of the story.

Last year, according to the Spark newsletter, Exxon made after-tax profits of $26 billion dollars, an increase of 52% over 2003. Chevron-Texaco made $13 billion, an 86% increase from the previous year. Shell Oil was up 48% over 2003, with $19 billion dollars in profits. Poor babies. I suppose the increase in pump prices is to compensate oil companies for hiring more accountants to count all the money they’re raking in.

Continuing increases in oil prices will in the long run severely damage the economy. People will stop spending as much in order to compensate for the increase in gas and oil prices. The decrease in purchases will lead to a decrease in sales, which in turn will lead to layoffs. Service businesses, ranging from anyone in the transportation industry down to the pizza delivery person, will see a decrease in business in direct relationship to the increase in costs of their services as a result of the cost of oil and gas. Manufactures of high end vehicles such as trucks and SUVs will see a decrease in purchases as customers move to more cost effective cars. Businesses which use petroleum based products, which includes everything made of plastics, will see the costs increase. While some of the increase can be offset internally, it will eventually be passed on to the consumer in the form of higher prices for such things as milk (plastic containers) and computers. For fun, take a minute and look around. Count the number of items made of plastic. That will give you an idea of where the increases will come from.

In short, consumers will have less disposable income, and will make adjustments to compensate for the increase. Manufactures will be forced to increase costs to adjust for the increase of supply costs on their end. With less money to go around, companies will be forced to reduce costs in the form of “sales” which may offer a short term boost in the economy, but will make the economy more instable, forcing marginal companies to either layoff or close. Housing and “big ticket” sales will suffer as folks have less money to spend, and are increasing worried about the economy, which feeds into an increasing unstable economy. The Fed may have to step in to reduce interest rates in order to artificially stimulate the economy. This may, again, have short term benefits, but doesn’t address the cause. The long term result could be a recession.

In 1976, during the “Oil Crisis”, then President Jimmy Carter promised Americans that the US Government would do whatever was necessary to harness alternative energy sources. Well folks, we’re more dependent on foreign oil than ever before, and geo-political nature of world is far more dangerous and volatile than ever. The hated “oil rich Sheiks” of the 1970s turned out to be the same US oil companies that boasted such impressive profits cited above. Oil companies stifled any real efforts to develop alternative energy while it was still in its infancy. President Bush recently remarked that he couldn’t understand the public’s concern over the increase in pump prices, and cited that the increases had “been gradually coming over time.” What he meant to say was that the oil company’s dominance over energy has been gradually coming over time. My solution would be simple. First, invest heavily in alternate fuel sources. Set “non-breakable” time tables, and require oil companies to contribute to its financing. After all, since they spent millions trying to stop it, seems only fair they should now have to fund it. Second, demand auto manufactures develop energy efficient cars and trucks (as an aside, the auto industry has been very successful in dodging this one. In fact, cars are less efficient now than just 10 years ago). Set specific “drop dead” dates with stiff financial penalties, and accept no more whiney ass excuses. Third, nationalize oil and gas companies, along with all other energy and water producing facilities. Industries that have such an effect on national security and the public’s well being should not be in the hands of folks motivated solely by profit. Fourth, and perhaps the most important, put the presidents, CEOs, and boards of directors on trial for war profiteering, for clearly that’s what it is.
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