April 21, 2006
As gas prices top $3 per gallon, there's an overwhelming sense that we're getting gouged. Is it the oil the companies? The refineries? The gas stations? A group of convenience marts took out an ad in their local newspaper recently explaining to their customers that they weren't making any more money at 3 bucks a gallon than they were at 2. That may be the case but somebody is hosing the American people and I have a sneaking suspicion just who that might be.
Some of the economic gurus who listen to my radio show and read my columns write to me with a “tsk, tsk” attitude of “You poor fellow. You just don't understand how the market works. It's not a matter of gouging. It's a matter of supply and demand.” That's certainly true but it's a matter of supply and demand in the same sense as inland hotel owners jack up their room rates to three and four times the norm as coastal residents flee in the path of a hurricane. Sure, the demand is high and the supply is low. That doesn't automatically mean you have to stick it to your customers.
I've talked in the past about capitalism with a conscience. I usually reserve that for discussions about trade with China or other brutal regimes. However, capitalism with a conscience certainly applies here. Just a couple of weeks ago, amid soaring gas prices and consumer discontent, ExxonMobil gave its retiring CEO, Lee Raymond, a retirement package worth $400 million. They raised their current CEO's pay by 33 percent, to an annual salary of $13 million, while posting record-breaking profits last year of $36.2 billion.
Don't get me wrong. I understand the free market system and I am hesitant to monkey with it. However, what's happening in the oil industry is not some laissez-faire phenomenon. The oil companies have failed to take into consideration some of their partners – us.
About a fourth of the oil produced in the United States comes from off-shore drilling. Who do those oil fields belong to? Us. Not to mention how much oil is being extracted from public land. In other words, we're partners in the oil industry to a very large degree yet we don't even get the employee discount. Every drop of oil extracted from land or sea owned by the American people should go to America but, sadly, it does not. Much of it is exported to other nations and all of it is subject to the world market price, no matter if we have plenty for ourselves or not. America 's oil should go to Americans first.
Refining capacity also drives up the price at the pump. Did you know our refining capacity in the U.S. has been reduced by about 50 percent since 1980? Deregulation closed some, others closed due to the cost to retrofit older refineries in order to comply with new environmental regulations. Because of financial, environmental and legal concerns, there have been no new refineries built in nearly two decades.
In 2000, ExxonMobil said that it made about 5 cent profit on every gallon of gasoline sold. No doubt that profit margin has widened in recent months. However, at the time ExxonMobil was divulging its profit margin, federal and state governments were getting about 40 cents per gallon in taxes. As Congress holds further hearings to ascertain just who is profitting in a time of high oil prices, they need to look no further than themselves and their greedy state counterparts. If we're being gouged by Big Oil, we're undoubtedly being raped by Big Government.