Vice President Hubert Humphrey said, “To err is human, to blame it on someone else is politics.” As predictable as the sunrise, when gasoline prices increase, politicians wax indignant, cast blame and threaten U.S. oil companies with increased taxes and investigations into market manipulation.
Gasoline prices have accelerated past $4 per gallon, so denouncing and punishing oil companies for the 35 percent annual increase may feel cathartic. It's instantly gratifying to blame high prices on those who charge them, rather than on those who cause them, especially since higher gas prices disproportionately hurt the poor, dampen consumer spending and weaken the U.S. economy.
However, I urge you to Think Again. The truth is that U.S. oil companies are no more to blame for high gas prices than Zale's is to blame for high gold prices. Americans have the right to know the truth, and our elected leaders must speak the truth — that a weak dollar and supply-and-demand disequilibrium in the global oil markets are principally responsible for increasing gasoline prices.
Instead, lawmakers explain economic misfortune as the consequence not of bad policies, but of evildoers gaming the system, while they identify a group rich and unpopular enough to look the part. Politicians are like magician David Copperfield. They expertly distract with one hand so we don't notice what the other is doing. They've scored political points by accusing “Big Oil” of “price gouging,” reaping “windfall profits,” and not paying their “fair share” of taxes.
However popular, this narrative has no basis in fact or economic logic. With an effective income-tax rate of 43 percent (from 2006-2010), U.S. oil companies were actually the most heavily taxed of all Fortune 500 companies (whose effective tax rates averaged 27 percent). Compare that to the rates paid by GE (9 percent), Pfizer (15 percent), and both Verizon and Coca Cola (21 percent), and the argument that major oil companies are under-taxed evaporates.
If Big Oil's profits were exorbitant, they'd earn more than other U.S. companies, right? In fact, 2010 U.S. oil industry profits per dollar of sales were six cents compared to nine cents for manufacturing companies, 17 cents for computers and 22 cents for beverage and tobacco. Furthermore, U.S. oil majors can't set prices because they only hold a combined 3 percent of the world's reserves. Not surprisingly, the oil industry's return on investment has often lagged the average return for the S&P since 1982.
If policy-makers were responsible, they would stop hunting for villains and focus instead on securing America's fiscal and debt situation to strengthen the dollar. When each dollar buys more oil, gas prices will decline. They would also acknowledge that even as our energy sector necessarily diversifies, oil will continue to be a key element of our national energy portfolio for many decades.
Why spend billions on foreign oil when we could invest those dollars domestically? With the oil-rich Mideast in turmoil and the U.S. importing 63 percent of our oil, lawmakers must re-examine policies that severely restrict access to American oil bounties along the Atlantic coastline, the Gulf of Mexico and the Alaskan tundra.
Yes, there are real though localized risks inherent in drilling. However, just as the tragic loss of Apollo 1 served as a valuable lesson to NASA for subsequent space missions, so too must last-year's Gulf oil spill aid us in the safe and productive development of our energy resources. Tapping reserves kept off-limits by Congress would mean significant economic growth, potentially trillions in tax revenue, a million new energy-related jobs, increased energy security and lower U.S. energy prices.
These benefits are magnified with new discoveries of shale gas, and breakthroughs in extraction technology, which have massively increased natural gas reserves while lowering the cost of production. Pulitzer-prize winning energy expert Daniel Yergin believes these cheap and vast natural gas reserves have the potential to make the U.S. a net exporter of natural gas while fueling our vehicles and powering our utilities.
Michael Lind (no global-warming denier) wrote a surprising essay in the liberal journal Salon titled, “Everything You've Heard About Fossil Fuels May Be Wrong.” He credits the natural gas boom in saying, “It appears that there may be enough accessible hydrocarbons to power industrial civilization for centuries, if not millennia.” Lind argues that “without massive, permanent government subsidies ... wind and solar power may never be able to compete. For that reason, some Greens hope to shut down shale gas.”
Clearly the demonizing of Big Oil (and probably gas) will linger. With the economic and security stakes so high, next time a politician claims we'd feel less pain at the pump if Big Oil felt more pain on April 15, advise him to Think Again. Otherwise, he'll feel pain on another important date — in November 2012!
That's how to end the political blame-game.