The View From 1776
Saturday, August 02, 2008
Outrageous Reaction to Profits
ExxonMobil’s quarterly report, taken out of perspective, predictably evoked screams of outrage from liberal-progressives and from the general public.
Senator Obama and other members of Congress, egged on by the liberal media, bluster about imposing so-called windfall-profits taxes on oil companies.
Because gasoline prices are at all-time high levels, the news that ExxonMobil coincidentally reported an all-time high net income of $11.97 billion was immediately bruited by liberal-progressives as evidence that ExxonMobil is gouging the public, profiteering on the backs of ordinary citizens. Exxon, liberal-progressives tell us, must have been taking advantage of the world situation to squeeze the rest of us by unreasonably forcing up the price of gasoline.
That syllogism is untenable.
This same issue was covered in 2006, in Gasoline Price-Gouging? and in Windfall Profits Taxes, when ExxonMobil’s profits provoked a similar liberal-progressive eruption. Those assessments remain valid for the current case.
First, ExxonMobil, big as it is, accounts for only a tiny fraction of world oil production and sales. By those measures it is dwarfed by the state-controlled oil companies, from Latin America to the Middle East and Russia.
Second, for most of us who are not accustomed to dealing with the extraordinary size of modern global enterprises, profits of almost $12 billion appear to be excessive. Relating them to the size of ExxonMobil, however, gives a different perspective.
ExxonMobil’s net income was approximately 8% of its total revenues for the quarter.
Compare ExxonMobil’s performance to the results of CBS, a liberal-progressives media darling. For the same 2nd quarter of 2008, CBS reported a net income margin of 10.4% (net income of $408.4 million on sales of $3.930 billion). That net income margin was roughly 25% higher than the 8% net income margin reported by ExxonMobil.
By Senator Obama’s logic, our cable bills would be lower if Congress imposed excess-profits taxes on CBS.
Take another icon, Walt Disney Company, whose business spans movies, theme parks, ESPN, and the ABC TV net work. Disney revenues for the quarter ending 6/30/08 were $9.236 billion. Net income was $1.284 billion, which was a net income margin of 13.9%, nearly 74% higher than ExxonMobil’s.
Why doesn’t Senator Obama demand excess-profits taxes on Disney to aid strapped consumers who want to vacation in Disney World with their families?
The fact, which liberal-progressives duck, is that profits of oil companies like ExxonMobil are heavily influenced by world events beyond their control. The Arab oil embargo during President Nixon’s administration kicked world oil prices (in 2007 dollars) from around $18 per barrel to $63 dollars per barrel by 1980. At the time of Islamic jihad attacks on 9/11, oil averaged (in 2007 dollars) about $28 per barrel. We know what has happened since then, none of it controlled by ExxonMobil.