Oil pricing conspiracy theory

Oil company profits are in the news again, along with lower gas prices and elections, leading to all kinds of conspiracy theories. But once again the news merely says that “Big Oil reported record $10.8 billion profit” without putting that amount into context. If Big Oil had $900 billion in sales, then that profit amount would be only 1.2% of sales, which is by no means outrageous.

I am not one who believes that profit is bad. Profit is why business exists. I do believe that unregulated capitalism becomes predatory, and that society suffers when an industry is allowed to operate without responsible government oversight to prevent it from behaving in a monopolistic fashion.

Larger profits are good for those who own the companies – stockholders. Profits are “predatory” when they become large enough that they take advantage of and harm the people who use the services of or buy products from those companies. That happens only in a non-competitive environment where there is only one producer or where producers are allowed to collaborate, and where the product or service is one which the consumer cannot reasonably do without.

There is a form of tacit collaboration where one producer raises a price and simply waits to see if the others in that industry will follow suit. When they do, simply because they can, the fact that there was no actual verbal communication between them does not mean that this is not monopolistic behavior.

The law of supply and demand is not an actual law. An increase in demand, or a reduction in supply permits the seller to increase the price, it does not require him to do so.

So I decided to do a little study to find out just which industries are “friendly” to us consumers in their pricing policies. I am far from any kind of economic genius, I have no formal education in the subject at all, and this study was certainly not rigorous or scientific. I picked companies which are rather dominant in their industries and who therefor would seem to have some freedom in pricing, and whose names most people will recognize. I had no preconceived ideas.

I looked at each company’s profits from three viewpoints, and will examine each one as we get to it. The results were not all that surprising. They do reveal that oil companies are a bit greedy, but perhaps not nearly as bad as the blaring news headlines would lead us to believe.

Profit as a percentage of sales

The first thing that I see missing from the headlines is, “To make that many dollars of profit, how many dollars did oil companies have to sell?”

The profit on sales is generally speaking a reflection of how much competition you have. If I am selling widgets that cost me $10 to make and no one else is selling them I can set the price at pretty much whatever I want. If someone else starts selling them at $12, however, then I need to set my price accordingly and my profit as a percentage of sales is going to decrease.

There are other factors that have powerful effects, so one cannot accept that statement at face value. Banks, as we will see later, have a huge profit margin on sales but there are other factors that make that a lot less attractive than it might seem.

Each of us will have our own opinion of what constitutes a “reasonable profit.” For me, if it costs me $10.00 to make and I can only sell it for $10.10, I’m probably going to look for another business to be in. Somehow 1-2% just doesn’t get me excited as a businessman. Volume is, of course, an issue but when you have a zillion stockholders dividing the profit volume has somewhat less impact.

Company Name	Profit %
Microsoft	32.17
Bank of America	30.05
Oracle Software	18.66
General Electric	12.38
Union Pacific Railroad	10.54
BP Oil	10.24
General Dynamics	7.25
Toyota	5.75
Boeing Aircraft	4.70
Federated Department Stores	4.70
Wal-Mart Stores	3.60
Weyerhaeuser	3.47
Safeway Grocery	1.84
Chrysler	1.62

Looking at this table, the real predators would seem to be banks and computer software, with Microsoft leading the way. Microsoft, as most of us know, has little or no competition in most of its products, and banks are a special case as far as pricing goes.

Railroads, defense contractors and oil companies seem to be pretty much head and shoulders above the rest of the field in terms of profit margins. Other than railroads, does that surprise anybody?

But are those profit margins really usurious? On the face of it, I would have said not, but companies like grocery and department stores have far lower margins and are considered to be successful and to be good investments. They keep stores open and even upgrade their stores and open new ones.

So while I’m not really outraged by the oil company profits at this point in my investigation, they do merit a little more study.

Profit as a return on investment

A more important measure of profitability is “for every dollar I spend on equipment, how many dollars do I get back in profit?”

Profit is a lot more attractive if I can make it without risk and without having money tied up in equipment that costs money, but some industries are just naturally equipment-intensive. Spending money on equipment and infrastructure that may or may not provide profit is a risk, and the profitability of the investment should reflect that.

Company Name	Profit %
Microsoft	20.67
BP Oil	14.51
Oracle Software	9.29
Wal-Mart Stores	8.65
General Dynamics	7.91
Safeway Grocery	4.75
Union Pacific Railroad	4.66
Boeing Aircraft	4.50
Toyota	4.50
Federated Department Stores	3.51
General Electric	3.02
Weyerhaeuser	2.70
Bank of America	1.56
Chrysler	1.16

Remember how banks and software, mostly Microsoft, seemed to be the ones doing the predatory pricing in the first table? Now Microsoft is still prominent but look who else showed up – oil companies. Banks have disappeared, and the reasons for that are interesting but are not really germane to this discussion.

So there is the oil company, right behind Microsoft and trailed by another big software company.

The “bad guys” argument has gained some momentum. Oil companies are keeping company in this table only with software companies who have no significant competition.

Defense contractors, in the person of General Dynamics, gets a dishonorable mention in this table, along with Wal-Mart, but remember that the latter is selling at only 3.6% profit on sales. Nobody else is even in the “bad guys” ballpark.

Profit as a return on investment

This third factor is basically a factor of “how well is the company’s profit rewarding its shareholders?”

This is sort of a “bogus” number, really. It is affected by the number of shares outstanding and by the selling price of those shares, so it changes almost from minute-to-minute. Since the selling price of shares is actually artificial, being determined entirely by what buyers are willing to pay for it based on often emotional factors, this return on investment is really artificial as well, but it is a factor worth looking at.

Company Name	Profit %
Microsoft	36.60
BP Oil	35.00
Boeing Aircraft	26.00
Wal-Mart Stores	21.82
General Dynamics	19.00
General Electric	18.40
Oracle Software	17.97
Bank of America	17.00
Toyota	14.00
Safeway Grocery	13.70
Union Pacific Railroad	11.54
Federated Department Stores	8.35
Weyerhaeuser	7.93
Chrysler	5.90

Wow, Microsoft and the oil companies blow everybody else out of the water, but defense contractors take pretty good care of their stockholders as well.

The average consumer can get along very well without computer software, while oil products have a huge impact on the necessities of daily life. So there is good reason to not really care about Microsoft’s pricing policies, but when we see oil company profits that are in line with those of a software company that has no competition…

Maybe we should vote for a Democrat next week.

Politics of Confabulation

Some time ago, when George Bush was confronted with Colin Powell’s line about the “world beginning to doubt the moral basis of our war on terror” at a press conference, I watched him give an incoherent response that was so completely out of context and delivered in such a frenetic manner that I actually began to wonder if this nation is being led by a man who is mentally deranged.

Then I read a piece today by Justin Frank M.D., a doctor of clinical psychoanalysis, titled Never on Sunday about George Bush, talking about Bush’s conflicting positions on the war in Iraq. I urge you to read the whole thing, but in part he says,

“Untreated alcoholics confabulate. Confabulation is a form of amnesia in which the patient gives detailed descriptions of what he has, and has not, been recently doing. While convincing, these descriptions are totally fictitious, although the patient truly believes what he is saying at the time.

(…)

“The rest of the administration is caught the way the family of an alcoholic is caught - trying to make excuses for its ex-drinker. (…) They go along with his confabulation without attempting to confront it. In this dire case they (the administration and its media watchdogs) have actually embraced Bush's confabulation, trying desperately to rationalize it to themselves and the rest of us - including, I suppose, our presidentially blindsided American soldiers who continue to fight and die overseas.

“It is clear Bush's ability to use narrative thinking is permanently compromised by his desperate need to manage anxiety. We see smiles of relief whenever he gets back on track. But getting back on track and constructing a narrative story-line for the war are not possible for him. He cannot link cause to effect. Put simply, George W. Bush is too concerned with managing his own feelings to think about the implications of his words beyond their function of ameliorating his immediate anxieties.”

I have some experience from the other side than Dr. Frank’s on this issue, since I am a recovering alcoholic. The key part of that statement is the “recovering” part. I am a treated alcoholic, with more than twenty years of continuous sobriety behind me, so I have learned about the disease and how to live without doing the things that I used to do.

I know a little bit about the kind of mind that confabulates. I can tell you that it is by no means a sane mind, it is an incredibly egotistic mind, and it is an uncomfortable and unhappy place to live. That kind of mind is definitely not in full contact with reality. Recovering alcoholics have a saying, “Everybody builds dream castles. An alcoholic builds a dream castle and then tries to live in it.” His ego will never, ever let him admit that the castle is not real.

The egotistic part of that mind resonates with what I see in George Bush, as well. Joshua Bearman "adds meat to those bones" with this post. Again, I urge that you go there and read it, but in part,

“Ego traps us in costly, losing battles, study finds

“A gambler plunges deeper into debt when crushing losses should scream to him to quit. A banker keeps lending to someone who clearly won't pay back. A leader pours troops and money into a war that has become a quagmire. These scenarios have something in common: in each, someone is entangled in a costly, protracted and losing venture. It happens quite often.

“Now, researchers say they may have confirmed a key reason why people fall into what the scientists call "costly entrapment in losing endeavors."

“Their finding, based on a study of monetary choices, might be unsurprising to many observers of human nature: it comes down to ego.”

So, count this as the third blog you’ve read (assuming you read the two I referenced) that suggests that this nation is being led by a man who is making decisions for reasons that are not completely sane.

Think about it. Is this whole power grab that Bush has been pursuing for six years the pursuit of a sane person? Is the incessant drumming of the demand for the right to eavesdrop in violation of the law, to detain without accountability, to torture, to contravene international treaties… Is that a rational pattern?

The Legislature passed a law requiring that the person appointed to head the Department of Homeland Stupidity be qualified for the job. That seems a perfectly reasonable requirement, but in signing it into law Bush added one of his infamous “signing statements” that he didn’t feel that he would be obliged to comply. He reserved to right to appoint the person of his choice, including someone unqualified for the job. Is that sane?

Nancy Pelosi ruled out impeachment in the event that Democrats win control of the House. Her reasons for that make good sense, but for one small thing.

That may leave the highest office in this land being held by a madman for two more years.

Old Glory Today

Clint Eastwood’s new movie Flags of Our Fathers was released today. I have not seen it yet, but I plan to. I have read the book, and had studied the WW2 in the Pacific before that.

The Battle of Iwo Jima is perhaps the defining moment for the United States Marine Corps. What they accomplished there, and the price they paid for it, defies belief. That photograph meant much to America, but it means immeasurably more to the Marine Corps. It signifies who they are. They carry the flag in the face of overwhelming odds, they carry the flag in the face of death, and they raise it where the world can see it. They raise it where no one else can.

The Marines created, and one man took, that photograph in a war where winning a battle was a step forward. Once ground was taken it was held and each new battle was fought on new ground closer to victory. Now Marines are fighting and dying in battles where winning means nothing more than living to fight another battle, retaking the same ground over and over again.

No more can the Marine Corps proudly plant the flag and proclaim victory, because victory keeps being redefined. First it was defending America from a “grave threat,” then it was deposing a dictator, then it was creating a democracy, and now it appears to be creating some sort of entity that can “defend itself and be an ally.”

Nor is the Marine Corps even defending democracy any more. According to our President, our purpose is nothing more than defending ourselves against a physical threat. These are his own words,

“Over the past few months the debate over this bill has been heated, and the questions raised can seem complex. Yet, with the distance of history, the questions will be narrowed and few: Did this generation of Americans take the threat seriously, and did we do what it takes to defeat that threat? Every member of Congress who voted for this bill has helped our nation rise to the task that history has given us.”

I would expect this statement from a leader of the Bloods or the Crips. Street gangs defend turf because that’s all they have. They don’t have aspirations to noble purpose, or goals for their citizenry. They “own” a piece of turf, and they defend it aggressively against all intruders.

In WW2 this country fought for principles of humanity, for freedom and democracy and decency. Today, it seems, we fight only to defeat a threat.

No longer do we plant Old Glory atop a Mount Suribachi. George Bush has reduced the Stars and Stripes to a “do rag” wrapped around the heads of street thugs defending turf.

Politics of Secrecy

"We need fewer secrets," says Jimmy Carter. In his Washington Post column of July 3, 2006 he says, in part,

“Increasingly, developed and developing nations are recognizing that a free flow of information is fundamental for democracy. Whether it's government or private companies that provide public services, access to their records increases accountability and allows citizens to participate more fully in public life. It is a critical tool in fighting corruption, and people can use it to improve their own lives in the areas of health care, education, housing and other public services. Perhaps most important, access to information advances citizens' trust in their government, allowing people to understand policy decisions and monitor their implementation.”

It’s pretty clear from polls and public commentary that we do not trust any part of our government. There are hints of corruption, and little pieces of it that get “cleaned up” but we don’t really know how deep it goes.

There are tidbits about how those captured in the “war on terror” are treated, but we don’t really know because our government tells us the “national security” demands that we keep secret the details. Secrecy, they tell us, protects us from evildoers.

Secrecy also protects power.

“..access to information advances citizens' trust in their government.” We know that the a certain bill passed in congress, what we don’t know is why it passed. Was it in behalf of the public interest? Was it because moneyed interests paid to have it passed? Was it passed as a result of some secret “dealing” that occurred in the halls of government?

The Carter Center works in developing nations to establish access to information for those nation’s citizens. Formerly totalitarian nations such as South Africa are opening up their governments to inspection by their citizenry. These nations, where citizens are becoming better informed, are finding that their citizens become more participative in government and enjoy a greater degree of freedom of society.

The United States, on the other hand, has a government that is becoming more and more secretive. The claim is that this is being done in the name of national security, it is being done to keep us safe.

But it is also eroding our trust in our government. It is creating a cynical citizenry that, believing that its vote will not count, does not vote. It weakens democracy, and in so doing it makes us less safe.

Commander in Who?

An excerpt from Goerge Bush in his press conference yesterday. The quote is by no means precise, but I defy anyone to remember precisely for more than a few minutes anything that Bush says.

"Do I support a change in the number of troops? Heck yes, if General Casey asks for more troops he'll get more troops. Do I support a change of plan? Heck yes, if General Casey wants to change tactics I support anything he wants to do." etc.

He has been saying for a couple of years that the "Generals on the ground" receive as many troops as they ask for. There is some question as to whether or not that is true, but he has been making that claim.

So troop levels, strategy and tactics in Iraq are all determined by the "Generals on the ground" there. So what, precisely, is the meaning of the title Commander in Chief that he is so fond of applying to himself?

On Being American

I read this morning the following posted by a police officer. It is part of her response to an article about the unlawful imprisonment and treatment of Jose Padilla, a U.S. citizen, and I found it very moving.

To retort that this raw power is necessary to "protect Americans" is to assume that there is nothing in being a citizen of this nation for any of us beyond the mere fact of being alive. My own judgment is that this is not what the signers of the Declaration of Independence had in mind when they pledged their lives, their fortunes and their sacred honor to the task of creating the United States of America and it horrifies me that those who have taken oaths to defend the Constitution view their fellow citizens as having no greater aspirations as Americans than craven physical safety.

If they are right and I am wrong then being American is little more than being situated in a certain place on the globe with no claim to moral authority beyond what can be enforced through bullets and bombs. Then we are little more than a street gang with assertions of control over our turf. Then we are truly lost.

Diana Powe

I cannot add to that. She says if better than I can.

Ethics in Government? Nah.

A Greek philosopher named Diogenes is said to have once wandered through the streets of Athens with a lantern in daylight, searching for an honest man.

That pursuit would certainly have been fruitless in Washington, D.C. That is a city devoid of any trace of honesty or ethics.

Starting with the nation’s highest office, our president would not recognize the truth if he was a monkey and truth was bannanas. He would starve trying to eat picket fences. Keith Olbermann delivered a 'Special Comment' in his Thursday evening broadcast on the subject, well worth the time to listen.

Replay video | Share video | Watch more videos

Bypassing the next in line (Cheney seems to be sort of hiding in the weeds at the moment), the Speaker of the House apologised for the “Foley issue” by saying that he is "deeply sorry this has happened." Some apology.

And I’m deeply sorry that a comet hit Jupiter last year and disturbed its atmosphere. It was a long way away, I had nothing to do with causing it, it didn't really affect me, and I'm not even entirely sure when it happened (was it last year, or the year before), but I'm deeply sorry that it happened.

After saying that he took “full responsibility, ” he goes on to blame everybody but himself. "Could we have handled it better?” He asked, “Could the page board have handled it better? In retrospect, probably yes." Does that sound like taking full responsibility to you? Please note that I take full responsibility for the comet that hit Jupiter, too.

So who is going to investigate whether or not the Foley business was covered up by the GOP? The House Ethics Committee. Is that good, or what? That’s about as effective as having the investigation done by the Asheville, NC Grade School Glee Club.

How many members of Congress have been tried in the courts and found quilty of fraud, campaign law violations, graft, bribery and, in one case, actually thrown in jail? Well, the House Ethics Committee is unaware that any member has ever done anything wrong. Maybe we can have them investigate the comet that hit Jupiter.

But the best part is that they are promising speedy action with the phrase that it will take “weeks not months.” The elections are four weeks away, so if the investigation takes five weeks it will be published after the election and still be “weeks not months” as promised. But it will still have been stalled until after the election.

The really sad part is that the American people know that we are being lied to, and we don’t seem to care.

In Hungary a politician was caught on tape admitting that those in government had lied in order to be re-elected, and when that tape was made public there was massive rioting. The people of Hungary care about government, and they were angry that those they had elected would lie to them to “stay in power.” They took action, massive action in an effort to throw out those who had betrayed their trust.

In America we just re-elect the liars.

Real Values

This will be a short post, as the subject pretty much speaks for itself.

Do the Amish vote? Who do they vote for?

They don't say, do they? What they say is that they forgive the man who killed their children. They don't rant about their beliefs. They don't beat their chest about whose God is right, about what "values" are wrong, about want anyone else should or should not be doing. They don't have any pulpits and they don't point any fingers. They just quietly go about the business of living their faith among themselves.

And they forgive those who wrong them.

Politics of Power

A New York Times editorial today said it very well,

“History suggests that once a political party achieves sweeping power, it will only be a matter of time before the power becomes the entire point. Policy, ideology, ethics all gradually fall away, replaced by a political machine that exists to win elections and dispense the goodies that come as a result. The only surprise in Washington now is that the Congressional Republicans managed to reach that point of decayed purpose so thoroughly, so fast.”

The short form is “Power corrupts, absolute power corrupts absolutely.”

If you examine the record of the session of Congress just ended, it is readily apparent that the Congressional Republicans have no intention whatever of accomplishing anything for the good of their country. It is clear that they are directing their time, efforts and energy to only one thing, and that is the enhancement and preservation of their own party’s power.

Congressional Republicans are quite willing, in fact, to damage their country’s interests by inaction because the actions, institution of immigration policy reform and other items of national concern, would jeopardize their grip on the power they hold.

Congressional Republicans are quite willing to damage their country by passing bills that tighten their grip on power and weaken their country’s moral basis in the eyes of the community of nations.

Our founders framed our government as a system of checks and balances, and that system has worked throughout history even when the executive and the legislative branches were of the same party. It worked because those in government placed country above party. It worked because they placed governing above power.

It worked because absolute power had not yet corrupted absolutely.

But now it has. The purpose of those in power is no longer the service of one’s country, and they no longer even pretend that it is. They no longer even speak of “remaining in office” or “continuing to serve.”

They now openly speak of “maintaining control” of the House and Senate. Contribution to country, service to fellow man, honesty, integrity, ethics, decency and morality have all fallen to the corruption of power.

But the fault lies not only with those in office.

They are but men, no stronger or weaker than anyone else. We put them in office and leave them there for term after term by re-election. We give them the power that corrupts and so we share the blame when they fall to its siren call.

It is not the initial election to office that leads office holders to the sense of invincibility that corrupts. It is the endless re-election by the voters that leads them to believe that they have the power to act without accountability.

Asking those in power to change on their own is like a farmer deciding that his pigs are getting too fat and, while still pouring food into the trough, tells the pigs to stop eating so much. All that does is annoy the pigs and frustrate the farmer. He still has fat pigs, because pigs at a trough will not stop eating.

(Did I just imply that our legislators are like pigs? If so, I apologize to pigs.)

Voters re-elect incumbents because they are the “known quantity” and require no research, no judgement. The challenger is an unknown quantity and therefor a risky choice.

If our Congress is to change, it is the voters that must change it. It means that voters must work harder and in greater numbers. It means that voters must pay attention to what legislators are doing, and spend time and energy investigating “new blood” to infuse our into our legislative bodies.

Change, as it has been for more than 200 years, is up to us.