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No Crass Shortage
Think all those hikes in the price of gas were to cover the oil companies' increased costs, and maybe R&D of alternative fuel sources or searching out new sources of gas? Think again. From an LA Times story by Tom Petruno:

Even for Big Oil, the numbers have never been as big as this.

When major U.S. energy companies including Exxon Mobil Corp. and Chevron Corp. announce their third-quarter earnings in the next few days, the results are certain to be staggering.

Pumped up by soaring prices of oil, natural gas and gasoline in August and September, Exxon Mobil alone is expected to report quarterly profit of about $8.7 billion. That would be more than what such titans as Coca-Cola Co., Intel Corp. and Time Warner Inc. earn in an entire year.

For the energy companies, the record results amount to an embarrassment of riches — an invitation for attack by foes and even by some traditional allies.

"The question increasingly is going to be, what is the industry going to do with this money?" said Amy Jaffe, head of the James A. Baker Institute Energy Forum at Rice University in Houston.

On Tuesday, House Speaker J. Dennis Hastert (R-Ill.) called on the companies to spend more to build refineries and boost production to help "ease the pain" of high energy prices.

"It's time to invest some of those profits," Hastert said at a news conference in Washington.

With oil holding above the $60-a-barrel mark, double the level of two years ago, some Democrats in Congress have another idea: Slap the industry with a windfall-profit tax like the one imposed in 1980.

Some consumer advocates, meanwhile, want Congress to mandate that a share of oil and gas earnings be plowed into alternative-energy research.

The sheer size of the industry's profit mountain makes it a tempting target. Together, the 29 major oil and gas firms in the Standard & Poor's 500 stock index are expected to earn $96 billion this year, up from $68 billion last year and $43 billion in 2003.

Posted by aalkon at October 27, 2005 7:41 AM


Amy, where's the libertarianism in this piece? Do you think there's any manager in the WORLD who can take these profits and autocratically move them towards PRODUCTIVE research in alternative fuels?

I don't understand how a woman who claims to have been to lunch with Virginia Postrel can admire such thinking.

$96 billion is roughly twice the wealth of the richest man of all time, Bill Gates. But those earnings are for a GLOBALLY popular product, and spread across 29 firms, several of which are presumably huge, and broadly-held.

Capitalism means you don't get to decide what to do with the other guy's money, any more than you get to decide when people want what he's selling.


Posted by: Crid at October 27, 2005 2:04 PM

I am a capitalist, so I understand that. But, there's no law against trying to do more than sock away money, and in fact, it often seems to positively impact the bottom line.

Same with preventive health care for poor people. You can be the biggest anti-humanitarian there is, but the fact remains, it's cheaper to give somebody preventive care than to treat them for long-untreated diabetes and other diseases down the line.

Posted by: Amy Alkon at October 27, 2005 2:37 PM

I did put this up in a hurry, so I guess I didn't explain myself well enough in putting it up (or at all). Anyway, it seems the gas crisis is putting a bite on everybody but the gas companies. Furthermore, if you search Pigou on this site you'll see the Pigou-ean notion of profit-taking...costs to the rest of us must be incorporated in the the environment, etc., which we end up paying large part, so the gas companies can call their take "profits" and not have to use it to pay costs they've incurred. Virginia and I have sat at the same lunch table, and I like her, and usually agree with her, but I'm not her Mini-Me or anything!

Posted by: Amy Alkon at October 27, 2005 3:35 PM

> costs to the rest of us must be
> incorporated in the price...

Absolutely true, they should be and they're not. (And for the record I have no idea what VP thinks of oil profits.)

> You can be the biggest
> anti-humanitarian there is,
> but the fact remains...

Well jeez, what exactly do you think I'm defending?

25 or 30 years ago there was this article. I'd kill to see it again, though the source is long forgotten... Probably Rolling Stone or someplace. At the time Detroit was getting thrashed in the marketplace by the Japanese, its isolation reflected in the hideous Ren Cen, and its incompetence reflected in riots at Cobo Hall.

This article claimed to have found the secret to Japanese success: A government authority called MITI, translated as Ministry of Technology and Industry. The piece was -- if you'll permit the word -- scary. By centrally targeting particular industries for tax breaks, education initiatives and so forth, the sinister Japan would continue to devour American enterprises as it had cars and electronics. The American Century was expected to be over by about March of 1983.

It didn't work out. By the 90's (if I understand correctly and someone should speak up otherwise) the Japanese economy was hobbled in a morass of banking scandals both petty and grand in which organized crime featured prominently. The more likely reason they'd been able to kick Detroit's ass was that Detroit sucked. Eventually consumers had an option, and they took it.

I agree that we're not good at balancing the costs and prices of an oil economy. But the whole point of an ecomomy, as opposed to authoritarianism, is to let things slip around a little bit so that different approaches can be tried, and the good guys can be rewarded.

If there were an alternative fuel with a future, you can bet that T Boone Pickens of Mesa and John Browne of BP would be throwing billions at it quietly, instead of trumpeting the importance of it in the newspapers. When prices for oil go up (on top of unpaid costs you mention), options will be more attractive, and will be developed. This will hurt... but it's not the end of the world.

In the economy as in so many matters, the Los Angeles Times has freaky ideas about how great life would be if we could just tell people what the right thing to do is.

Posted by: Crid at October 27, 2005 9:41 PM

Good points. And don't take that "anti-humanitarian" crack personally! (I meant it generally.)

And I'm all for suggesting to people what to do, but not commanding them.

Posted by: Amy Alkon at October 28, 2005 1:43 AM

The funny thing to me about all this is that despite the incredible amount of money earned, and the prospect of high oil for the foreseeable future, XOM (Exxon/Mobil) closed down both yesterday and today, following this "disappointing" earnings announcement.

Both Exxon and Shell had 100mm+ blocks of stock sold at a discount this week, which is almost unheard of. Wall street seems to currently be in a state of "irrational melancholy", or the big money doesn't expect the good times to continue for big oil.

Posted by: eric at October 28, 2005 8:34 AM

oops- today XOM went from down 1% when I wrote that to being up 1.3%.

Posted by: eric at October 28, 2005 12:36 PM

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