Monday, June 19, 2006

Big Oil Profits

My wife and I recovered our dining room chairs recently. I bought the foam padding from a fabric store near the house. The price for the foam had risen in the week since I called and was given a price quote. I asked the saleswoman about the price increase. Apparently, the foam is made from some petroleum-based product, and petroleum prices affect foam prices. She then went on a two-minute rant about the "obscene profits" the oil companies are making. I smiled the entire time, and even nodded a bit. When she was done (or out of breath), I asked her a question.

"Do you have a retirement plan, like a 401-K or IRA?"

"401-K," she replied.

"Remember," I told her, still smiling, "that millions of people with retirement plans are invested in index funds, like the S&P 500. These funds invest in companies like Shell and Exxon, and high profits for those companies mean a better return for the investors. That's a good thing for people like you and me. Also, those profits fund the research and development of new, more cost-efficient ways to produce energy. And they allow for pay raises for middle and low-level employees of the companies. Those profits don't just go into the pockets of the CEO."

This woman looked at me like I had two heads. I don't know if she'd never thought about things that way, or if she couldn't believe I defended them. I thought she might begin to scream if I said anything else. I just smiled, took the foam, and told her to have a great day.

There's such a lack of knowledge among Americans about how the free market works. So many people see the word "profit" as something evil.

I saw part of NBC's Meet The Press yesterday, with the CEO's from three of the largest oil companies (ConocoPhillips, Chevron and Shell) explaining the reasons for current fuel prices and defending their apparently enormous profits. They explained that prices have risen (as any student of economics should know) because of increased demand and decreased supply. Refining capacity dropped because of Hurricane Katrina and its aftermath. There are tremendous amounts of oil waiting to be claimed in ANWAR and off-shore along the Pacific and Gulf coasts, but environmentalists and politicians are keeping that oil off limits.

So many Americans don't understand or appreciate how much better we have things than people in other parts of the world. Gas prices in Europe are more than double what we're paying here.

Extremely high profits have made the oil companies targets. How dare these companies rack up huge profits while charging such high prices at the pumps? Well, better they make profits than flirt with bankruptcy.