No Profits, No Oil

John Lott tries to explain to thick-headed Democrats that without profits there is no incentive to produce any product, and that includes oil:

If a product is in short supply and if you really wanted more to be produced quickly, would you want companies to think that they could earn a lot of money making it?

You would think that the answer is pretty obvious: No profits, no oil. To encourage more production, companies need to think that there are more profits to be made. With all the anger over high oil prices, more production to lower prices would seem to be a high priority.

But outside of most congressional Republicans, particularly those in the Senate who successfully filibustered a new wind-fall profits tax on oil companies, no one wants to admit what profits do.

Unfortunately, both the Democrat and Republican presidential candidates are both attacking oil company profits. Barack Obama promises, "We've got to go after the oil companies and look at their price-gouging. We've got to go after windfall profits." John McCain says, "I am very angry, frankly, at the oil companies. Not only because of the obscene profits they've made, but their failure to invest in alternative energy to help us eliminate our dependence on foreign oil."

Not to be outdone, congressional Democrats are just as upset. New York’s Senator Chuck Schumer claimed: "Oil companies are racking up obscene profits left and right while American families are stretched to the limit by skyrocketing gas prices. It's time for Big Oil to pay its fair share . . . ."

The defense of oil companies has been much to, well, defensive. Some pundits and those in the industry point out that energy companies aren't really making that much money. While the energy companies during the first quarter of this year had an average profit margin of 7,4 percent, the average Dow Jones Industrial Average company earned 8.5 percent. For example, ExxonMobil, which Obama has singled out for particular criticism, made an “obscene” $40 billion in profit, but that is on $404 billion in sales.

Much of the discussion concerning record high profits is misleading as it focuses on the dollar amount of the profits not the profit rate. As sales have also gone up over time, of course total profits have gone up, too. Nor are looking at just a couple of years particularly useful.

Others point out federal, state, and local governments have made more from gasoline taxes than the large U.S. oil companies have earned in total U.S. profits.

Read the rest of it here.