Haters of Profit

ExxonMobil just announced record profits of $10 billion for Q4 2005,
and the local news radio station hit the streets this morning to get
the reaction of passersby. The reporter said most people dropped
their jaws and/or shook their heads. One person who was interviewed
said, "There's really no need for them to make that much money. It's
making it harder and harder for average people to afford gas. They
really ought to get the prices back down to a more fair market level.
But they're not going to do that -- I heard the guy the other day
testify in Congress that if they set the price too low, they won't
produce as much, so they're just blackmailing us."

Wow. Where to start? Let's unpack each of these statements:

"There's really no need for them to make that much money." So there's
an acceptable level of profit, and above that it's unacceptable? One
of the reasons our country has prospered is its unprecedented
entrepreneurial vitality. And entrepreneurship, because of its
greater risks, requires greater returns. But you might say, forget
the higher returns if it means fat profits for fat cats and high
energy costs for the common man. Well, look at your 401k or
equivalent retirement savings vehicle sometime. If you're a cop,
teacher, firefighter, or any number of countless jobs in which you can
save for retirement through your paycheck, I'll bet you ExxonMobil is
in the portfolio. Which means the reason they make money is to enrich
their shareholders. Including you.

"It's making it harder and harder for average people to afford gas."
Maybe you should do what rational people do when the price of
something they guy goes up: buy less of it, and/or buy something else
instead. The reason we have suburban sprawl, traffic congestion, and
bad pollution is that gas is artificially cheap. Gas should be more
expensive, not less. And if that affects your pocketbook, use public
transit or walk or pool errands. (I make an exception for home
heating: even after you turn down the thermostat and weatherproof your
house, you're still looking at a bill that many people struggle to
afford, and with no alternatives to choose into. But home gas
companies have assistance programs for these situations.)

"They really ought to get the prices back down to a more fair market
level." Um, what do you think "fair market level" means? It means
what is set in an open market between buyers and sellers, absent of
price controls imposed by governments. If you really want to get
"fair market level," add in the true cost of gas: pollution,
congestion, highway fatalities, road construction/maintenance. I bet
you'll arrive at about $5-10 per gallon, or what people pay in every
other part of the world except North America and oil countries.
People don't really want "fair market," what they want is
"ridiculously, artificially, irresponsibly cheap."

"But they're not going to do that -- I heard the guy the other day
testify in Congress that if they set the price too low, they won't
produce as much, so they're just blackmailing us." I wasn't old
enough to understand back then the oil shortages of the 1970's, but I
understand them now: when you artificially set the price too low,
suppliers have less incentive to sell so they sell less. And the
difference between demand and supply leads to long lines and irate
consumers. And oil companies are motivated by profit to drill for new
sources and to get more efficient in their extraction; take away the
motivation, and not only will we have less oil now, but we'll have
less oil later.

OK, I'm done.