This week's congressional investigation into big oil's "obscene profits" is sure to provide yet another opportunity for our legislators to preen and posture before the TV cameras, while serving no purpose more vital than filling up dead air on C-SPAN. While the term "obscene" may be fitting in a discussion of pornography, it serves no useful purpose in economic matters, other than to inflame emotion. Profit plays a vital social function in our market economy by encouraging entrepreneurs to correct imbalances between demand and supply. The only issue that should concern our congressional gumshoes this week is to what extent oil companies' profits are being committed to further exploration and production. If the bulk of profits is being used for this purpose, then the companies are being good corporate citizens. If not, then we should identify the reasons why, because oil companies, like all companies, only make money if they sell a product.
The oil companies' recent profits rose because of an imbalance between demand and supply. True, the numbers are huge, but so is the market. Exxon got big headlines for earning $9.92 billion in the third quarter, yet no one told us that this amounted to only 9.8 cents per dollar of sales ' well below that of many other companies. Citigroup and Microsoft each made 33.2 percent profit. In percentage terms, Bank of America, Merck, Google, Eli Lilly, Coca-Cola, Intel and Yahoo all made at least twice as much as Exxon.
Clearly, Congress is playing politics. Rather than confront the issues of excess demand or deficient supply, it talks instead about redistributing the companies' gains. If this were to come to pass, the result would be even more demand and even less supply, making the problem worse.
It is hypocritical for a body of people to pass legislation that continually raises the cost of producing oil ' or fails to reduce the ever-growing demand for it ' yet whines and moans when prices rise. My sainted mother used to tell me repeatedly: "You can't have your cake and eat it, too." Our legislators just don't get it. Or maybe they do but figure we don't.