A Question on Regulation

Posted by desimarie23 9 years, 9 months ago to The Gulch: General
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Yesterday, in a moment of aggravation, my husband angrily stated that oil companies shouldn't be 'allowed' to profit $35 billion in a quarter. He feels that the government should regulate and basically cap these companies from 'over-profiting.' I was obviously baffled at the statement and stated that the government should never, under any circumstances, have the right to impede or control a person's right to produce or trade and least of all keep anyone from making profit on their production. I asked him why one would go into business in the first place, if not to make profit? I don't believe he actually has any strong opinion on the matter, because he had no rebuttal. We've never really seen eye-to-eye on matters that are political or philosophical in nature. This statement, however, was so off-base to me that I am still in shock.

Anyone have any thoughts on the matter? Am I wrong for being a little disappointed?


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  • Posted by $ LibertyPhysics 9 years, 9 months ago
    Whenever I hear a company profit stated as a dollar amount rather than a percentage of sales or investment I know I'm being conned. Years ago the meda was fond of saying, "oil profits are up 100% this year." Yeah, they went from 3 or 4% of sales to 6 or 8% (I don't remember exactly). So we were being conned by the worst spin on the math.

    I would ask your husband what the profits were as a percentage of cost at the gas pump and what the taxes from the Federal and State governments were as a percentage of cost at the pump. The criminals, in this case, and as usual, are politicians.
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  • Posted by $ jbrenner 9 years, 9 months ago
    If the oil company is the one that I saw recently reported making $35 billion in a quarter, then that company made roughly 9% return on investment, and that was in a good quarter. Typical ROI's for oil companies is more like 6% over the long term. It was not that many years ago that people would have sneered negatively over having ONLY made 9%. Oil companies were out of favor for completely the opposite reason; they didn't make enough profit. Oil companies cannot win. I am teaching petroleum refining this summer for only the third time in 16 years. Why so infrequently you may ask? It is because oil refining just isn't that profitable compared to many endeavors that frankly require a lot more thought. The big picture problems in oil refining have been solved, and so most chemical engineers are on to more profitable endeavors.
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  • Posted by johnmahler 9 years, 9 months ago
    Yes, "opposites attract"! LOL I am driven out of my mind by my alter ego wife who, like your mate who goes to the first obvious indicated citation for the pump price shock at the gas station. Never do they realize how much a single source energy product puts them at disadvantage to the provider. This is the ONLY evil of Capitalism and it is called CARTELIZATION. When the consumer has no place to vote with his feet, he is victim. This is why Obama wants single payer health insurance, why we have a central bank, why we have only three major American automobile manufactures, why we have mogul agriculture factory farms, wheat, corn, hogs, turkey, chicken, beef, lamb, and why there are only three major American airlines and ONE supposedly deregulated telephone company and prefer to use only Apple computers, Microsoft operating systems, and cell phone providers. It is my chief irritation in life that we consumers always choose cartelized interests, whether it be Socialism in government where few elites rule in the name of equality or where we consumers choose ONLY POPULAR brands and hence drive competition out. I am not saying this well because I am only a retired working stiff without PROPER CREDENTIALS and am breaking the accepted law of thinking without permission and worse writing without a license. I love living on the edge! I'm Dirty Little Johnnie and I reside with "The Fringe Opinion in The Wall" Gang. I believe in being as independent as a hog on ice.
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  • Posted by dbhalling 9 years, 9 months ago
    What is discouraging to me is that the Government will make far higher profit than the oil companies ($0.40 per gallon), yet people complain about the profits of the oil companies, but not the outrageous greed of the government. I think you should ask your husband about that.
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  • Posted by strugatsky 9 years, 9 months ago
    Let's look at it philosophically. I presume that your husband has a job that pays him a salary, or that he gets paid for his work by some means. Surely, some of his salary is needed to pay the basic bills, like food and shelter. Some, goes for his savings or toys. So, from the point of view of those that don't have the savings or toys, his profits are excessive. Furthermore, since he makes ends meet, should he be offered a raise, you should point out to him that it is his moral duty to decline it since that would be an excessive profit. And if he really wants to be honest, perhaps that last steak that he had is an example of an excessive profit. It is all a matter of perspective and honesty.
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  • Posted by richrobinson 9 years, 9 months ago
    The problem with oil companies is that the government is already interfering. I agree with you that government interference is not the answer but profits as a result of crony capitalism are also wrong. Free market capitalism is the answer but I doubt we will see that in the oil industry.
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    • Posted by Robbie53024 9 years, 9 months ago
      Absolutely correct! Add to that the regulations that add costs, and the requirements to blend in ethanol and all the various different unique blends of formulations that each individual municipality requires.
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    • Posted by 9 years, 9 months ago
      I can't argue with you there. I don't see there being much change in the oil industry as it is more political than anything else; I just don't believe that the government having more control over any industry leaders and their profits is ever the answer.
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      • Posted by richrobinson 9 years, 9 months ago
        Agreed. I would like to see more competition. Fuel Cell vehicles were supposed to be available years ago but something is holding them back. If we get more vehicles running on something other than gas then competition will fix most of the problems.
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        • Posted by $ jbrenner 9 years, 9 months ago
          What is holding fuel cells back are a) their intolerance to sulfur in the feedstock fuel (which I and others improved on but didn't really solve back in the 2004-2007 era) and b) their ridiculously high capital costs of manufacturing (which no one has solved).
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        • Posted by Hiraghm 9 years, 9 months ago
          Hey, I keep checking the dealerships, but not a single one has a steam-powered car available.

          I'd pay real money for a modern remake of the Doble...
          https://www.youtube.com/watch?v=rUg_ukBw...

          (Man, is that car sexy or what?)

          (steam powered cars, logically, should be able to be fueled by other than gasoline... like... coal, sawdust, alcohol, progressive politicians...)

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  • Posted by $ jbrenner 9 years, 9 months ago
    The problem for the oil industry is government interference. People in the oil industry despise government and politics. They view lawyers other than patent lawyers with disdain, with politicians being the worst of the lawyers. People in the oil business tolerate lawyers who protect them from other lawyers. Patent lawyers, on the other hand, are definitely friends. When I lived in MI and IL in the early and mid 1990s, our professional society meeting dinner discussions often revolved about this compromise or that change that was required because of government interference.
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  • Posted by Hiraghm 9 years, 9 months ago
    First thought that springs to my mind is, why'd you marry him?

    My second thought was, order of magnitude. Oil companies deal in billions of barrels. Billions more go into production, refining, lawyers, transportation, and on and on. So, where they make $35 billion profit... on what gross is that profit based? $36 billion? Or $360 billion?

    Let's say $360 billion...

    So, say I have a small company, and I have an annual profit of $35 thousand. But my gross is $170 thousand. Out-of-context, $35 thousand doesn't seem like a very outrageous profit... even though it's twice the profit margin of the big oil company. It's just a matter of scale.

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  • Posted by dave42 9 years, 9 months ago
    A company earning $35B per quarter should be drawing competitors like flies. Increased competition will drive any excessive profit down towards what can be earned in other industries.

    The problem is that there are way too many ways to keep competitors out:
    - Government permissions required to operate
    - License/permit costs that make building new plants uneconomical
    - Overly-broad patents on things that aren't genuine inventions
    - Regulations that require you to build a gigantic plant when you only need (and can only afford) a small one.
    - Taxes on all producers in an industry that fund subsidies under various names to the large producers.
    - The large producer can sue you indefinitely over minor matters (such as specious patent infringements) that you may end up winning, but doing so costs you legal fees and time.

    So long as buying politicians is more profitable than investing in the stock market, this won't change.

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  • Posted by Robbie53024 9 years, 9 months ago
    When you see the amount of profit that these companies are getting, and that you are the one contributing to it, it can seem unfair to someone who doesn't have a firm foundation of capitalism and free-trade. However, to take that perspective and turn it to actions that would limit the free-trade capitalistic marketplace is the wrong reaction.

    In addition to what you responded you could add that those profits are almost always used in great measure to reinvest in the business. New exploration and new techniques to get even more out of old wells (fracking was such a development). Some is also returned to the shareholders as a payment back on their investment.

    If he really is upset about the profits, then suggest that you get in on the benefits by buying some oil company stocks. Then you, as part owners, will share in the profits. Just a thought.
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  • Posted by $ katrinam41 9 years, 9 months ago
    I agree that companies have the right to all the honest profits they can make. I also agree that you have every reason to be baffled, desimarie23. Husbands can do that to a gal, but it comes with the territory. Mine tends to hit me with things like that for the shock value. When you get back into the discussion with yours, you might mention that the oil company profits (after tax and expenses) also go to not just the "company", but to stockholders like my hubby's pension fund. For some odd reason, I just can't make myself believe that we are some of those fat cat over-profiteers...
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  • Posted by khalling 9 years, 9 months ago
    "We've never really seen eye-to-eye on matters that are political or philosophical in nature."
    desi, you have more to worry about than a discussion on reining in oil profits...;)
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    • Posted by 9 years, 9 months ago
      :) fair enough, and I agree. The issue at hand goes much deeper than an uneducated statement on oil profits.
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      • Posted by khalling 9 years, 9 months ago
        often, the disagreement is because there is a lack of knowledge. Emotions play a big role as well.
        straightlinelogic posted a piece on Hazlitt two days ago. someone, in a comment, posted a link to a pdf of Hazlitt's "Economics In One Lesson." It's short and explains alot of the root issues. You can ask that is your husband reads that, you'll read something he provides. Has he seen the movies yet? You can both be entertained and maybe something will stick with him or he'll recognize an inconsistency that will encourage him to check his premise
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  • Posted by $ blarman 9 years, 9 months ago
    Tell your husband to go look at the financial report for the company in question. All the major oil companies are publicly held and their quarterly financial statements are available to anyone via a quick search. Have him go through them and look at the P&L statement, which shows the amount they put away into future development, their R&D costs, production costs, salary costs, benefits costs, etc. Then look up the amount of taxes they pay and compute that as a percent of income. Compare that to what you pay as a percent of income.

    Most people who complain about the profits of others have no idea what they are talking about. They see only how someone else is getting ahead and not how they got there in the first place. It's nice to remind them every now and then ;)
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  • Posted by Herb7734 9 years, 9 months ago
    Fortunately for me, my wife and I are on the same page philosophically. However, I have several family and friends who are 3rd, and 4th generation libs. I love them dearly for many reasons but some of them have "given up" on me. Those that haven't at least provide me with lively discussion and keep my arguing skills well honed.
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    • Posted by 9 years, 9 months ago
      That seems like an ideal situation. His side of the family are the uneducated, highly opinionated liberals ...'quit your job and go on government assistance'--to give you an example. I've never tried to change anyone's views or opinions, I merely state mine and welcome a challenge. My husband knows that I make educated arguments so he'll rarely make a statement that he cannot back up. This was one statement that he didn't think through, and may have been one of the most aggravating ones to date. Moreso that he was unable to make any coherent argument when I asked him questions. I will admit that I have little to no patience for ignorant comments, so biting my tongue in this situation was a challenge.
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      • Posted by Herb7734 9 years, 9 months ago
        In arguing with my most prickly cousin, she often will make a statement similar to your husband's and she "Just knows it's right." It is a clear as day to her and she just can't understand why I don't see it no matter how acutely I take it apart. It boils down to what I call Hulkisms. War bad, Peace good. Hulk smash.
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  • Posted by rv6boxer 9 years, 9 months ago
    He's likely not thought it through, which is common.

    Tell him to stop buying their product(s). If that means walking or riding a bike, so be it. It'll be a good way for him to reassess the value of his car. If he uses home heating oil, stop buying it, too.

    If enough like "thinkers" would follow his lead, sales would decrease and profits would likely suffer. And that would make him happy?

    I find a gallon of gasoline one of the greatest values on earth. Imagine what all has to occur to deliver a gallon to the pump! (Locating it, Drilling, Pumping/Transport, Refining, Delivery to the Merchant, etc.) I think it's remarkable. That gallon of gas then allows me to drive my truck 20 miles to work in air conditioned comfort (or warm and toasty) while carrying up to 1700 lbs of supplies/tools! I make the drive in 25 minutes. It would take me 7-8 hours to walk and I could carry very little.


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  • Posted by Technocracy 9 years, 9 months ago
    I find it sickly ironic that the people that get worked up that the energy companies are raking in unreasonable profits have no problem with the government(s) taxing that same product at a many times higher level than the producer's actual profit.

    Meanwhile the government takes all of that capital while providing absolutely NOTHING of positive value.
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  • Posted by $ TomB666 9 years, 9 months ago
    While your free market approach is one that I share, I can see how in this messed up country where lobbyists own most of congress and the administration bows to the highest bidder, your husband might arrive at that conclusion. (Not that I'm cynical or anything.) Does anyone really think there is a free market for oil in the US? Oil companies work to maximize profits within the framework government establishes, not in the market place.

    We have corn in our gas because the corporate farm lobby wants it so. Which leads to a whole set of 'unintended consequences'.
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  • Posted by NealS 9 years, 9 months ago
    It sounds like you need a new husband. Please post a picture of yourself. (Just kidding [maybe}) If I don't make some stupid comments once in a while I'll go crazy with some of the nonsensical speech we hear today. Ask him, how many dollars (not percentage or some other fact that might put it in perspective) does the government make per quarter on the same amount of production? What does the government do to earn that money, or do with that money, the dollars they make from this industry? They sure aren't fixing the potholes out here where I live in the Seattle area. You actually take your life in your hands when you drive on the streets here. (my last statement is actually meant to be rhetorical [or is it?]. It really has nothing to do with potholes [or does it?] but the implication might be there)...
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    • Posted by 9 years, 9 months ago
      Do you think it's possible to explain something logically to a person who obviously isn't using reason to make arguments (no rhetoric)? That's been the question on my mind after reading all of the comments in this discussion. You and I know that the government is taking money that they did not earn, from industries that they should have nothing to do with; what they do with the money is another matter entirely...since they obviously aren't fixing these life-threatening potholes ;)

      Thank you for your response, very entertaining, you hooked me with the first statement lol.
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      • Posted by NealS 9 years, 9 months ago
        Yours has to be a difficult situation. I still cannot comprehend how Mary Matalin can get along with her husband, James Carville. They are so politically opposite I'd think just being arond each other would cause an explosion, or at least a fire. My wife and I are completely politically compatible. We both swear at the same nonsense stories (like when Carville talks) on TV News (and we only watch one news channel anymore). Perhaps most of the extereme political nonesense and arguing will go away when we get a real administration running things, one that listens to the people (I can only hope). Take care, and best wishes....
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  • Posted by seascape 9 years, 9 months ago
    Gross profit means nothing. How much was risked and what percentage was returned to the company. Would your economically challenged husband return money from the government in years when losses were incurred? The more they make the more goes to investors and reinvestment in New technology keeping prices steady and assuring future products. It is how we have gotten to be the best place on earth to live.
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  • Posted by wiggys 9 years, 9 months ago
    interesting to me the number of comments and no one addressed the obvious; I will reframe from publically expressing what I think and it has nothing to do with profit.
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    • Posted by khalling 9 years, 9 months ago
      a couple of things. 1. taxes. For the consumer the gallon of gas boasts .50 per for state and federal at the pump tax. There are lots of hidden taxes all along the distribution chain. Assume another .50. So at least a $1.00 at the pump is due to taxes.
      2.government controlled scarcity. We do not enjoy free markets in oil and gas production
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  • Posted by salta 9 years, 9 months ago
    Your husband has fallen prey to a typical media slant on this subject. If that news was on one of the mainstream media outlets, imagine that same channel reporting the company had a mediocre quarter because a larger number of its projects had returned a loss. That would not get reported!
    Media likes reporting stories that get people angry, and they use wording for that effect. Viewers getting angry keeps them watching through the commercial breaks! You only have to look at the way fracking is reported... could mean the "end of clean drinking water!!!"
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