Some Thoughts On Oil Profits

By far, my favorite radio talk show is the Neal Boortz Show, based in Atlanta. He has been in talk radio long before it was the huge entity, it is now. He is an attorney by profession (not all are bad, just most of them) and has a pretty good grasp on things.

Yesterday, I was in the car when his show aired in my city and I heard him talk about the numerous complaints (most of which are driven by the opportunist Democrats and the MSM that loves them so much) on the record oil profits. You can read the transcripts of this portion of the show, here on his blog.

I recommend reading the whole piece, but here are some things worth noting:

As of September of last year the total take for local, state and federal governments for each gallon of gas sold was 46 cents. In New York that figure is 63 cents. At the same time gasoline retailers were making about 12 cents on the sale of a gallon of gas. Right now the government take is approaching an average of 50 cents a gallon. Retailers are making about 14 cents. so ...who is making the obscene profit? The local gasoline retailer invests in the community, buys a plot of ground, builds a gas station, hires the employees, pays the local taxes, deals with the local regulatory agencies, and makes a big screaming 14 cents on each gallon sold. Meanwhile, the government steps in without having invested one dime in that facility and takes about 50 cents per gallon. Some obscene profits, right?

The gas companies put up the capital, take the necessary risks involved, and the government gets more benefit than those that do the work. How fair is that?

But wait a minute. We all expect to hear this kind of demagoguery from the Democrats, but they aren't the only opportunists jumping on this election-year bandwagon. If you don't believe me, just read this.

But for now, back to Boortz.

As for profit margins ... the amount of money earned for each dollar of sales ... oil companies are nowhere near the top of the list. In 2005 pharmaceutical companies made about 17.6 cents for every dollar of revenue. That, for those of you educated in government schools, that works out to a 17.6% profit margin for the drug makers. How about your local bank? They made about 19.1 cents for every dollar of revenue. Almost a 20% profit! Not too shabby. And what about your household goods and cosmetics? Those companies earned 11 cents on the dollar. A lot of competition there. Now, the oil companies. What did they make? In 2005 the average was 8.5 cents per dollar of revenue. That works out to an 8.5% profit margin.

This is a pretty sound argument, in my estimation. But it does not address the larger issue. We have to ask ourselves, do we want to set a dangerous precedent by allowing government to tamper with the free market system, each and every time they believe legally earned profits are too much?

If you do, just do some research on the old Soviet economy. Come back and we will discuss it.