The Maverick Conservative

I have mentioned my accountant friend (when he is not mad at me, as lamost everybody I know is from time to time). Tony, from time to time.  He lives in El Paso, as I do. Here is an eamil I got from Toney today:

"Michelle Malkin has a good piece on American Oil companies.  Average oil company profit on a gal of gas 4%, federal, state and local taxes on the same gallon of gas 15%."

Michelle Malkin, of course, has a popular, influential (in conservative circles) conserative blog--even if her articles are generally less insightful than mine.  In a way, this is a case in point.

Michelle Malkin has a point, but not a very useful point at a time when a barrel of oil is selling for $130.00 a barrel (up from $66 dollar a barrel oil a year ago, even though that is a somewhat misleading comparison, scince oil has spent quite a time near $100.00 a barrel, and this recent price SPIKE might--I emphasize MIGHT--be a speculative blow off in an oil price "bubble" which is about to BURST).

The 4% number is what I call a PHANTOM statistic.  It is not real (accountanats are attracted to numbers which are not real). 

The big oil companies are vertically integrated.  They make money PRODUCING, REFINING, AND MARKETING gasoline.  It is actually difficult to say what percentage they get out of the price of each gallon of gasoline.

Let me illustrate why what Michelle Malkin is saying is not useful from another direction.  It was not TOO long ago that gasoline was $2.00 a gallon, which iteslef was considerably higher than the "glory" days of CHEAP oil.   Have state and Federal taxes materially gone up since then?  Nope.  So how does Michelle Malkin explain that gasoline is now approaching $4.00 per gallon (above that in some places), and how does she explain that diesel prices have gone to a level that is almost driving trucking companies (like that of which my broter is a co-owner) out of business?  Clue:  It is NOT Federal and state taxes that are causing this INCREASE in fuel prices. 

Q.E.D.  You can rely on my analysis more than you can on that of Michelle Malkin.

What is true is that it makes no sense to worry about PROFITS of oil companies--especially when the astronomical profit numbers of the bigger integrated companies are so big because the companies are SO BIG.  In other words, numberous companies are MORE profitable, on a percentage basis, than oil companies.  In fact, by alomnst any realistic measure, GOOGLE is OBSCENELY more profitable than oil companies.   That does not change that the INCREASE in fuel prices has rebounded to the benefit of large oil companies and HAS vastly increased fule prices.

The point here that when Democrats attack oil company PROFITS, they are attacking the very concept of a "free market'.  They are exposing themselves as socialists/Marxists who want GOVERNMENT to "control" "profits", prices, and everyuthing else in our economy.  The whole concept of the "invisible hand" of Adam Smith is that PROFITS CREATE SUPPLY.  Here, of course, that is made difficult because leftists and environmentalists are RESTRICTING supply (probably more than OPEC).   PROFITS provide an incentive to both produce more oil and to find ECONOMIC sources of alternative energy.  When you start attacking "profits", you are attacking the very mechanism by which the free enterprise system WORKS.

What I have correctly told you is a DISASTER for conservatives is oil compnay MERGERS.  Those mergers VIOLATE free market theory, which requires market units small enough that the action of one (or a small number) does not materially affect the market.  The evil of BIG mergers is the same basic evil as the evil of government central planning.  You reduce the number of DECISION MAKERS, and distort the free market.  There was NO excuse, for example. for allowing EXXON and Mobil to merge (not to mention Exxon and Gulf; Exxon and several others; Chevron and Texaco; and Conoco and Phillips--amoung others).   These Congressional hearings on big oil compnaies have actually PROVEN this blog correct.  I TOLD YOU SO.  I told you that conservatives, and free markets, are put at major risk when our Big Government enemies are able to point to the very BIGNESS of companies to suggest that a Big Government solution is the only realistic response to such BIG corporations.

WHY (to use an oil compnay "defense" that makes my point) do oil companies make BILLIONS on profit margins that are no larger than most companies, and smaller than many?  WHY do oil companies make BILLIONS on profit margins less than 10%?  It is because the companies are SO BIG.  WHY are theyso big?  It is NOT because they found more oil.   It is because they BOUGHT more oil on the stock exchange by merger.  In other words, Big Oil is BIG because of MERGERS we should not have allowed.  The separte oil companies that merged would STILL be earning the same total amounts, without the mergers, but no ONE compnay would be earning these amounts that give leftists such easy targets.  Leftist Marxism aside, however, the merged SIE of these companies does matter.  There are FEWER companies making decisions on finding and prodcuing oil.  There are FEWER decision makers on trying to refine more fuel, even if it takes lobbying for building more frefineries.  There are FEWER decision makers deciding whether to look into alternative energy.   There are just fewer decision makers, period, and more potential for the free market to be DISTORTED by the sheer, MERGED size of these companies.  In short, PROFITS are the WRONG issue (the Marxist issue that these mergers have facilitated).  The real issue is how big mergers VIOLATE free market theory. 

Does Michelle Malkin convince anybody by trying to convince them that oil copanies are not making money out of increases in the price of oil, or trying to convince people that increases in the price of oil have nothing to do with the increase in the pice of fuel?  NOt a chance.  I alwalys favor pointing out taxes, but it is absurd to suggest that taxes have anything to do with the large INCREASES in the cost of fuel.  No one is dumb enough to buy that (including Michelle Malkin, who is not dumb at all. 

Conservaties need to stop making leftist type arguments that SOUND good, but really miss the point.  The point here is that central planning, "profit control" is VERY BAD, and history has PROVEN it very bad.  Free markets are good.  Conservatives need to be able to make that point without suggesting that the price of oil has nothing to do with the price of fuel, or suggesting that a higher price for oil does not mean higher profits for oil companies (albeit it may NOT mean higher profits for REFINERS without oil production assests, since those companies may be SQUEEZED by a higher oil price).

Intelligent people trying to follow this entry might wonder:  Do I really think that I am better at convincing people than Michelle Malkin?  Nope.  I admit that what I say often seems to go right over people's heads, or I may say it in such a way that it angonizes people.  I agree that we need conservatives that can RELATE to people.  I reject the idea that you can do that, in the long run, by DECEIVING people (or tryig to convince them with obviously fallacious arguments).

This time I don't think Tony, or Michelle Malkin, thought this through.  It is absolutely TRUE that government POLICY is a major factor in the prsent price of oil  However, government TAXES are NOT a MAJOR factor in the recent INCREASE in the price of fuel. 

I favor the McCain tax moratorium.  That does not change the fact that conservatives should be attacking government, and leftist, POLICY here, and not trying to make outdated arguments on fule taxes. 

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