Wednesday, May 18, 2011

A Leftist View of Oil Subsidies

Warning: Long Post
Over at the Huffington Post Erich Pica has posted a column titled “People or Polluters: Ending Oil Subsidies” which is a must read if you are interested in the how the left views the oil industry in general and the oil subsidies in particular. Throughout his article he uses the same well-worn progressive strategies of false comparisons, omitting salient and relevant points, and attempting to tug at your emotions.

NOTE: For a more partical look at what exactly is an oil subsidy take a look here.

False Comparisons:
He hits this one right from the start. He compares the four bucks a gallon we are now paying at the pump to the profits made last quarter by the oil companies.

The numbers on every driver’s mind right now is $4.

Gas prices are hovering around $4, and well above that in some areas. However, there are other, much bigger numbers that also merit attention.

$10.7 billion. $7.2 billion. $6.3 billion. $6.2 billion. $3 billion.

See how that is done? Compare us little people to the big, bad oil companies. This is done not to make a point, but is done to misdirect and get you mad. Once you are mad, then getting you to agree with the rest of the article is easy as pie. “Man, I am torqued-off right now.  Let’s see what else he has to say about those lousy oil companies.”

Omitting Salient Points:
There are several examples of this throughout his column but I am only going to cover one.

And where there are winners, there are losers. Far from making these companies pay their fair share, the budget proposed by House Budget Committee Chair Paul Ryan (R-Wisc.) would actually lower corporate tax rates while slashing support for those who need it most: the poor, the middle class and the elderly. (PACNW Righty adds: be careful when you read the last three links, these are all progressive websites where the truth goes to die)

He forgets to mention that EVERY time tax rates were lowered, the economy boomed.  And every time the tax rates were raised, the economy worsened.  The Great Depression is a classic example. The nation was on the road to recovery when FDR raised personal and corporate tax rates to above 70% for the wealthy. The slowly improving economy plunged into what we now know as the Great Depression. If you want a more recent example, look at what happened when the first George Bush raised taxes. The economy slumped and Bush lost the election to Clinton.

If the author was truly concerned about companies paying “their fair share” while boosting the economy, which helps “the poor, the middle class and the elderly”, then maybe he needs to take a look at this site.

Another point the author neglected to mention was the profit margins. While he really didn’t cover this point, he did dance around it a little. Oil company profit margins sit around 8% and don’t really change all that much whether gas and crude prices are high or low. What does change is the actual profit numbers. When oil and gas prices are low, profits are low. When the prices go up, so do the profits. Here is a quick tutorial: if a barrel of oil is $50 then the oil company profit is $4. If a barrel of oil is $100 then the profit is $8 bucks (actually, oil companies don’t make their profits off barrels of oil, but off the wholesale price of gas, but the concept remains the same). And while demand during a price run up (like ever since Obama (un)necessarily skyrocketed to the Presidency) might slip some, it is not enough to completely kill off the profits caused by increased oil prices. I make the point about profit margins because many companies like Apple and Microsoft have profit margins that much higher, but we don’t see Jobs or Gates called to DC unless it is to sleep in the Lincoln Bedroom.

Tugging at the Heartstrings:
This has been a tactic of progressives since the dawn of time.  When logic and reason fail, as it invariably does for the left, go in for the emotional kill.

The whole debate boils down to a series of simple questions: what is the government’s role? Who should the government support, people of polluters? Does the government exist to provide a safety net for the disadvantaged or to pad corporate profits?

Wow, after typing that I had tears in my eyes. Well not really, but I did get some sawdust in my eye early today while working on a new set of (shameless plug) Adirondack chairs and I have had watery eyes ever since. But I will have to admit this guy is good. He hits it all. Do we save the downtrodden helpless souls or do we sell ourselves to corporate greed? Does Bambi have to die just because someone wants to make a few bucks?

I want you to do one thing here.  Compare the following sentences:
“When logic and reason fail, as it invariably does for the left, go in for the emotional kill.”
“The whole debate boils down to a series of questions:”
See what I mean? I wonder if after reading the first draft of his article the author said to himself “The whole stats and reason thing just isn’t floating my boat. Hey I’ve got it, let’s work the emotions a little bit.”

So, after reading his column and doing a little digging around I decided to post a comment. I wasn’t able to post the all of what is written below because they have a limit, but this is what I began with. Some of the information in the comment was covered above, but I also added some concerns about subsidies given to the green technology companies.

My Comments:
I am curious if you are also opposed to tax breaks and subsidies given to the green technology firms. Some of these tax breaks given to companies involved with green technology can result in 25% to nearly 100% coverage of the cost to generate the energy. Green firms don’t have to cover the costs of actually generating the energy. But when you look closely at the subsidies for oil companies it works out to be about $0.60 per barrel of oil. At today’s $100 a barrel that figures out to be sixth-tenths of 1%. Big difference between oil company subsidies and green technology subsidies. Maybe the actual dollar amounts are not the same but you do point out that oil company subsidies started way back when. The same thing will happen with the green technology subsidies (How often do government programs actually end?). As we expand green technology generated energy, the cost of subsidies for this green energy will skyrocket. At the current rate, the subsidies for green technology will, in the not too distant future, dwarf the oil company levels.

I will have to say I am not a big fan of subsidies for anyone, oil companies, farmers, or green technology companies. Let them make it on their own without the government support. That is what a free-market economy is supposed to act like. I think the oil companies would survive a cut in the level of government subsides they receive and the cuts would not likely impact the cost at the pump very much. On the other hand, green technology could not survive without the subsidies they now receive.

I would also like to point out that while the oil companies are getting slammed for their supposed “huge profits” you fail to mention their profits are based on margin, which sits at about 8%. Anytime the price of an item increases, profits increases as well, as long as the product continues to sell. While you are hitting the oil companies for make money on their 8% margin, no one ever talks about the nearly 40% profit margin Apple has on many of their products.

If you are going to base your article on ending the oil companies (and traditional energy producers) as a way to fund the social safety net, you should also look a little closer at the green technology subsides as a way to also continue funding the social safety net. You point out that the oil companies received $4 billion in government subsidies, but fail to mention that ethanol received $5.4 billion. This is for a green program that really isn’t green as many studies are pointing out that it actually is more harmful to the environment to produce ethanol rather than just keep gas ethanol free. As mentioned above, get rid of all subsidies. Just cutting off the oil and ethanol would keep $9.4 billion in the government coffers.

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