George Will on "Soaring" Gas Prices

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As sure as daffodils bloom, the media decry soaring gasoline prices every spring. Washington Post columnist George Will notes:

The next wave of stories about "soaring" gas prices will predictably trigger some politicians' indignation about oil companies' profits. The day after Exxon Mobil's announcement that it earned $39.5 billion in 2006, Hillary Clinton said: "I want to take those profits, and I want to put them into a strategic energy fund that will begin to fund alternative smart energy, alternatives and technologies that will begin to actually move us toward the direction of independence."

Clinton's "take" reveals her confiscatory itch. Her clunky "toward the direction of" suggests that she actually knows that independence is as chimerical a goal as Soviet grain production goals were.

Interestingly, Will goes on to report:

In the 20 years from 1987 to 2006, Exxon Mobil invested more ($279 billion) than it earned ($266 billion). Five weeks after the company announced its 2006 earnings, it said it will invest $60 billion in oil and gas projects over the next three years. It will, unless a President Clinton and a Democratic-controlled Congress "take" Big Oil's profits, which are much smaller than Big Government's revenue from gasoline consumption.

Will also properly dismisses "peak oil" alarmism:

In 1971, according to M.A. Adelman, an MIT economist, non-OPEC countries had remaining proven reserves of 200 billion barrels. After the next 33 years of global economic growth, Adelman says, those countries had produced 460 billion barrels and had 209 billion remaining. As for OPEC countries, in 1971 they had 412 billion barrels in proven reserves; by 2004 they had produced 307 billion and had 819 billion remaining.

Note the adjective "proven." In 1930, U.S. proven reserves were 13 billion barrels. Then we fought a global war, fueled the largest, most sustained economic expansion in history and achieved today's electricity-powered "information economy." Today, America's proven reserves are about 30 billion barrels—not counting the perhaps 15 billion in the field discovered last year in deep water 175 miles off Louisiana's coast.

America produces about one-quarter of the 20.6 million barrels of oil it uses a day. Unfortunately, just as liberals love employees but not employers, they want energy independence but do not want to drill in the "pristine" (read: desolate) Arctic National Wildlife Refuge ( potential yield: 10.4 billion barrels) and are reluctant to countenance drilling offshore.

Whole Will column here.

My recent reporting on gasoline prices here and peak oil alarms here and here.

Disclosure: I still have those 50 Exxon Mobil shares. Also, Exxon Mobil has been a periodic supporter of the Reason Foundation. I don't know when the company last made a contribution nor for how much–that's not my job. If Exxon Mobil wanted to give the Foundation a few more (or even more than a few) no-strings-attached bucks to support Reason's ongoing defense of free markets and free minds I'm pretty sure that our development folks would be happy to accept.

NEXT: Passion Play or Gwar Show? You Decide.

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  1. Now that was a decent disclaimer. Seriously. For once. Nice job.

  2. Meanwhile, gas at my local Sppedway went up $0.40 a gallon overnight. What world event did I miss in the last 12 hours?

  3. steve: I don’t know for sure, but maybe the annual switchover to more expensive, pollution reducing summer blends had something to with it. Or maybe not. At the risk of tediously promoting myself, take a look at my column on gasoline prices.

  4. I’m not dead yet!

  5. Steve:

    how about the simple – people are starting to take today off and drive off to grandma’s for whatever holiday they’re celebrating!

  6. Confiscating an entire year’s profits of a pillar of modern civilization, in order to begin to begin to… what was it again?

    I love it. Not literally, of course.

  7. Now that places like Berkeley are seeing the light and refusing to accept millions of dollars of research money from a corporation, it’s going to be a lot harder for them to invest their dirty, capitalist money.

  8. George Will has just demonstrated again that he keeps up to date on the present depletion of oil reserves as much as the average ballet dancer.

  9. I am not sure if I remember it differently, but I thought the 30-something billion profit was for just one quarter of 2006…not for all of 2006. Anybody know for sure??

  10. —The day after Exxon Mobil’s announcement that it earned $39.5 billion in 2006, Hillary Clinton said: “I want to take those profits, and I want to put them into a strategic energy fund that will begin to fund alternative smart energy, alternatives and technologies that will begin to actually move us toward the direction of independence.”—

    She’s like Hugo Chavez in a…let’s see…what is word…oh yeah – pants-suit.

  11. Nope, it was for the whole year.

    Net Income Avl to Common (ttm): 39.50B

    XOM also made headlines when they had their first $10B Quarter. That may be what you are remembering

  12. Here is a fun game if you have a 401K at work. Find the liberal. Get them to complain about Wall-mart, Exxon, McDonalds, ect. Ask them about what funds they hold in the 401k. Show them how they own part of Wal-mart, Exxon, and McDonalds.

  13. Does anyone know anything about the allegation that Exxon has yet to pay the damages assessed against them after the Valdez disaster?

  14. Look south. Mexico politicians have already taken PEMEX’s profits, though no one can point to what was done with them. Some predict that in fifteen years PEMEX will be unable to produce a barrel of oil for lack of maintanence, research, or discovery. But, of course, Hillary wouldn’t let that happen, would she?

  15. The price of oil is higher than it need be because GWB has deliberately taken a substantial portion of the supply off the market. Directly through the War in Iraq, and indirectly though the War on Drugs.

  16. According to a recent press release from Exxpose Exxon (take it for what it’s worth), Exxon has not yet paid any punitive damages for the oil spill. A March 7, 2007, AP story says more specifically that in late 2006 a federal appeals court affirmed to $2.5 billion punitive-damage award. That decision is apparently still in litigation (Exxon sought a rehearing and IMO will probably also appeal to the Supreme Court if the rehearing is unsuccessful, which it almost certainly will be). Once the award is final (i.e., subject to no further legal challenge), then Exxon will have to pay unless it wants a lien placed on its assets.

  17. Now that was a decent disclaimer. Seriously. For once. Nice job.

    I read the disclaimer a different way–it seemed to suggest that the idea of revealing any financial ties to the subject of a story was unnecessary, because those ties wouldn’t affect the reporting an institution like Reason or a journalist like Bailey does on the donor. If Bailey really believes that, why not just flout the convention that a disclaimer is required and stay silent?

  18. Does anyone know anything about the allegation that Exxon has yet to pay the damages assessed against them after the Valdez disaster?

    According to Wikipedia, Exxon is still disputing the punitive damages; they’ve paid $1 billion in settlements for other suits.

  19. I looked at Exxon’s 2005 10K and it revealed they paid much more in taxes than they made in net profits. Then, the shareholders had to pay more taxes on their dividends. Then I compared it to Journal Register Co., which newspaper editorials were was bashing Big Oil Profits – guess which company had a larger return on equity for 2005?

  20. sam-h,

    Here’s a fun game if you use the internet or roadways. Find the libertarian in work…

  21. Here’s a short list of the people and institutions to whom a corporation must satisfy its obligations before it makes ANY profit or distributes ANY income (doubly taxed, naturally) to shareholders:

    Employees
    Suppliers
    Customers
    Government (regulations and taxes)
    Bondholders

    As far as I’m concerned Exxon’s entitled to every cent of profit it can muster once all these claimants get paid.

  22. Mexico politicians have already taken PEMEX’s profits, though no one can point to what was done with them.

    They have been taking those profits for years. It is how they pay for the government’s budget, at least 40% of it.

    Some predict that in fifteen years PEMEX will be unable to produce a barrel of oil for lack of maintanence, research, or discovery.

    Actually, it may be TEN years. But since Mexico’s constitution (or book of assorted laws, to put it more accurately) prohibits anyone but the State to explore and exploit oil in that country, and since leftist kooks in the Mexican Congress are more than UNwilling to ammend the constitution to allow private investment, there is little the government can do about the upcoming and sad conclusion to Mexico’s oil enterprise.


    But, of course, Hillary wouldn’t let that happen, would she?

    Nah, she is omniscient . . . or must be, which is what is needed in order for the State to manage everything, just as State lovers want.

  23. The price of oil is higher than it need be because GWB has deliberately taken a substantial portion of the supply off the market. Directly through the War in Iraq, and indirectly though the War on Drugs.

    Do not forget also Iran’s announcement that they will only accept Euros as payment for THEIR oil…

    Better buy me some of those gold coins… the dollar does not have much time to live.

  24. Isn’t the $39 billion figure misleading without comparing it to total income, to calculate the company’s return on income? Isn’t it more likely that ExxonMobil’s earnings are a function of its size, rather than anything sinister?

  25. Graphite,

    Beholders?
    Who are they?
    Can I be a beholder?
    Is it as easy as walking up to a refinery, looking at it, and saying “Behold! The refinery. Now where’s my check?”

  26. Well, hey, if Ron Bailey quotes George Will saying it, that’s good enough for me.

    Such renowned seers, those two.

  27. Warren,

    Take another look at the post. Look REAAAAAL close now.

  28. Gamito’s post reminded me of another point: the rise in the price of oil is part of a broader rally in commodity prices. Increased demand (read: China) has a lot to do with this, but it is also in large part a reflection of the falling value of the dollar thanks to years of central bank inflation.

  29. Lots of people (George Will amongst them) seem to have the idea that our way of life is “the news.”

    Cheap energy supports suburban workers, suburban workers then labor happily towards supporting the growth-for-growth’s-sake economy which, in turn, keeps Pax Americana on the leading edge of consuming cool stuff (clinical depression (for which we consume Valium, Darvon, Librium) and ulcers (Zantac, Tagamet, Pepcid) are the price many willingly pay to maintain our sacred lifestyles)

    we’re all so busy living The Good Life, that there’s no room on our schedules to give paradigm shifts, such as dwindling energy supplies in the face of wildly rising demand, much time. (It’s well known fact that people complain about gas prices in the springtime–now, get back to work.)

    Cargo Cult Capitalism.

    The way we live now is the only way to live.

    I want more stuff please.

    Bill me.

    Get off my lawn!

  30. The price of oil is higher than it need be because GWB has deliberately taken a substantial portion of the supply off the market. Directly through the War in Iraq, and indirectly though the War on Drugs.

    er, no. The price of oil is up because global demand is up. A lot.

    Global production is flat to up a little. Iraqi supply is down, what, 600,000 barrels a day. Which sounds like a lit, until you realize that is around 0.7% of global production of 85mm bbl per day.

    Not sure how the WoD has hit world oil production capacity. That’s a new one for me

  31. Corporations may (or may not) be greedy, but government is voracious.

  32. The “peak oil” arguement seems to have worked out mightily well as prediction of what was coming out from US oil fields.

    There’s a lot of suspicion that Ghawar has reached its peak and is going down the other side. Industry analysts are having to figure out how much of the data is happy talk being put out by the Saudis–sort of like Soviety production statistics.

  33. Iraqi supply is down, what, 600,000 barrels a day. Which sounds like a lit, until you realize that is around 0.7% of global production of 85mm bbl per day.

    Except that competition happens on the margin, in the slack or reserve capacity.

    For instance, if you want to see apartment rents drop you don’t need to build a number of new units that’s significant relative to the number already present. You just need to build enough units to significantly increase the vacancy rate. Then you have more units competing for tenants.

    Wages aren’t determined by how many people are employed, they’re determined by how many jobs are unfilled (which could be a small fraction of the total) and how many people are out of work but seeking work. The filled jobs and employed people aren’t competing on the market. (Well, not directly. Yeah, there’s a need to keep them happy so they don’t enter the market, but that’s another matter.)

    0.7% might not be a big fraction of total output, but it’s probably a significant fraction of excess capacity, i.e. the stuff that could be quickly brought into production. (Not sure how it’s precisely defined by oil traders and whatnot.) If more marginal barrels are chasing more marginal dollars, that’s where the price will be affected.

  34. Good points, thoreau. That’s also why it’s dumb to say that it is pointless to drill in ANWR because there’s “only” a six-month supply of oil there.

  35. Fear the person that feels they have in hand the paradigm you need to shift to.

  36. There is probably some hubris in the idea that those not invested at all know better than those who have invested billions how much oil there is.

  37. Of course, the fact that things happen on the margin not only means that small reserves are significant, it also means that small conservation measures are significant. So what if hybrid performance isn’t quite as high as advertised? Dropping consumption a few percent means that small disruptions of supply (e.g. damage to a refinery) are less significant, and so it smoothes out price shocks.

    *None of this should be construed as support for coercive measures to bring about hybrid use. Blah blah blah.

  38. When hybrids make some kind of economic sense, I’ll buy one. The math doesn’t work out yet. If my primary motive for buying a car were the environment, I’d still get a TDI diesel, which does get the mileage advertised. If it breaks, anyone can fix a diesel.

  39. “I’d still get a TDI diesel”

    the jetta (five speed) and the A4 (also manual) give great performance!

  40. According to a recent press release from Exxpose Exxon (take it for what it’s worth), Exxon has not yet paid any

  41. According to a recent press release from Exxpose Exxon (take it for what it’s worth), Exxon has not yet paid any punitive damages for the oil spill. A March 7, 2007, AP story says more specifically that in late 2006 a federal appeals court affirmed to $2.5 billion punitive-damage award. That decision is apparently still in litigation (Exxon sought a rehearing and IMO will probably also appeal to the Supreme Court if the rehearing is unsuccessful, which it almost certainly will be). Once the award is final (i.e., subject to no further legal challenge), then Exxon will have to pay unless it wants a lien placed on its assets.

    As well they shouldn’t as long as they don’t care about PR. its cheaper in the long run to permanently employ lawyers to tie up those in court than to pay them. Its the best tactic as far as stockholders are concerned. Punitive damages are something that should be erased forever. If the company did something illegal and hurt somebody, it should of course pay compensatory damages, but beyond that its simply capricious. I know the famous Ford Pinto gas tank exploding incident was the reasoning behind punitive damages, making something so expensive that the company would not find it financially feasible to be so cold-hearted, but I just feel that punitive damages are just belligerent to industry. We have OSHA, EPA, etc. Either they are enforcing things or they are useless and we should go to a completely post accident punishment system.

  42. Jason-

    I look at hybrid purchases on a number of levels. The savings might not yet cover the difference, but there is the insurance factor: If there’s a nasty price shock (for reasons related to geopolitics, terrorism, natural disasters, geological limits, inefficient state-run firms, whatever), I’d rather drive a hybrid (or TDI diesel) during that period.

    And while there are a number of “save the world” arguments for conservation (not all of them environmental, some of them geopolitical), there’s also a desire to see cool new technologies progress. Every cool new technology needs a few early buyers who are enthused enough to shoulder a somewhat higher costs because they like the technology.

    Admittedly, every early adopter has his threshold, and I keep trying to find a way to cross that threshold on my next purchase. But circumstances may dictate a new purchase sooner rather than later (I’m probably moving back to SoCal soon), so my next purchase might just be the cheapest thing that I can get a few years out of, by which point I’ll be in a position to buy a better car.

    Of course, I realize that all of what I’m saying about hybrids applies to the TDI as well, to some extent. Now, if only they could combine hybrid technology with the TDI technology, and get the advantages of both…

  43. Dr. T wins the thread! Thanks for your great thoughts here today! (hooray for marginal analysis!!!)

  44. VM-

    Thanks.

    Also, when I said that there are “save the world” geopolitical arguments for conservation, I’m not advocating the strawman of total energy independence. In keeping with my “marginal” analysis earlier, if you can reduce consumption by, say, 5%, you can reduce your vulnerability to a disruption in any given place.

  45. I look at hybrid purchases on a number of levels. The savings might not yet cover the difference, but there is the insurance factor: If there’s a nasty price shock (for reasons related to geopolitics, terrorism, natural disasters, geological limits, inefficient state-run firms, whatever), I’d rather drive a hybrid (or TDI diesel) during that period.

    OTOH, I wouldn’t put my kids in Prius if you paid me and I won’t pay the excessive price premium for larger hybrids.

    Put all the airbags in a car you want. Eventually the laws of physics will win out in a collision with a vehicle of greater mass. (I’m sure T can show us the math….) This is true of any car, but we’re playing the percentages here. Subcompacts have the highest number of deaths per vehicle mile of any class of vehicle.

    I have a Ford Five Hundred (soon to be Taurus…), classified as a large car. If there is a price shock, the extra cost of gasoline is well worth it from my seat. FWIW, I get about 20 mpg city/30 highway in normal conditions.

    If someone asked you to pay an extra $20/tank if it (pulling numbers out of my ass now) doubled or tripled your kid’s chance of survival in an accident (or prevented a debilitating head injury) compared to a much smaller, but more environmentally correct vehicle, that’s a no-brainer.

    Add to this that hybrid technology is at best a stop-gap technology, at least as it is now, then hybrids come out on the bottom of any purchasing decision in the JW household.

  46. Now, if only they could combine hybrid technology with the TDI technology, and get the advantages of both…

    Diesel-electric. Now THAT’s worth crossing the threshold.

    I figure if it’s a powerful enough technology to move freight trains, that’s good enough for me. Zoom-zoom indeed.

  47. Lost in Translation said, I know the famous Ford Pinto gas tank exploding incident was the reasoning behind punitive damages….

    I think I understand what LiT meant, but just to be clear, the Ford Pinto case (jury verdict in 1978) was not the origin of punitive damage awards. Punitive damages had been available for centuries. In the U.S. in the ’60s, they began to be awarded more and more for products liability cases. The Pinto case stands out because the Pinto got so much bad publicity (from Mother Jones, Ralph Nader, 60 Minutes, et al.), and because to cooler heads it appeared that Ford had acted responsibly in its design of the Pinto.

    BTW, on the utility of punitive damages, Judge Posner has an excellent discussion in a fairly recent decision he wrote on a hotel with flea-infested rooms.

  48. This is first George Will column I’ve seen with hyperlinks.

  49. “In the 20 years from 1987 to 2006, Exxon Mobil invested more ($279 billion) than it earned ($266 billion).”

    So they didn’t actually earn a profit for twenty years? I find that figure really, really hard to swallow.

  50. They invested the profits, Funky. It’s the only thing a corporation *can* invest, aside from cash it obtains through financing activities. It’s still positive for the shareholders because now each share represents a larger total of reserves, wells, pipelines, etc.

  51. What is wrong with gas prices again? if anybody has control about it ? last year we had the same problem.
    Today , we , American people are feeling that record-high gas prices soon will have our wallets running on empty ! How high they can go?!

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