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Friday, August 01, 2008

Corporate Commies

This is how bad the economy is. Once again, Exxon sets the record for profit this quarter -- $11.7 billion. More than any company has ever earned in history. This is bad news for the oil giant, since they didn't do as well as predicted. So, despite making just giant wheelbarrows full of cash, Exxon closed 3% down on the news. Boy, talk about an undervalued stock -- no one's losing money here.

One reason that Exxon didn't do as well as expected is a decrease in production. And that's why we've got to drill, drill, drill. Got to pump up that production. We need oil... Dear Sweet Jesus, we need oil!

But that urgency isn't really reflected in oil companies' spending practices. While we're told that corporations like Exxon are desperate for oil, they sure as hell aren't acting like it.

Associated Press:

The companies insist they’re trying to find new oil that might help bring down gas prices, but the money they spend on exploration is nothing compared with what they spend on stock buybacks and dividends.

It’s good news for shareholders, including mutual funds and retirement plans for millions of Americans, but no help to drivers already making drastic cutbacks to offset the high cost of fuel.

The five biggest international oil companies plowed about 55 percent of the cash they made from their businesses into stock buybacks and dividends last year, up from 30 percent in 2000 and just 1 percent in 1993, according to Rice University’s James A. Baker III Institute for Public Policy.

The percentage they spend to find new deposits of fossil fuels has remained flat for years, in the mid-single digits.


It strikes me that spending less than 10% on oil exploration doesn't do a lot to increase production.

But that's OK. Oil companies don't need to find oil, they know where some is -- where they're not allowed to drill. The reason they can't find oil anywhere other than offshore and in the Arctic National Wildlife Refuge is because they haven't actually been looking.



So production's down, they aren't exploring -- what the hell are they doing? They're slowly becoming socialized, that's what. But this is a very special form of socialism, a form that's becoming widespread in the US; it's the socialization of risk, loss, and overhead, not profit. When corporations make money, they keep it. But when they lose money, you pay -- with tax dollars. And even the markets that corporations operate in are artificial. To stay with our example of big oil, we pay to make it easier for them to sell. The real price of oil isn't paid at the pump, but at every point along the way from extraction to your tank.

Institute for the Analysis of Global Security (IAGS):

The federal government subsidizes the oil industry with numerous tax breaks and government protection programs worth billions of dollars annually. These benefits are designed to ensure that domestic oil companies can compete with international producers and that gasoline remains cheap for American consumers.

Our dependency on oil from countries that are either politically unstable or at odds with the U.S. subjects the American economy to occasional supply disruptions, price hikes, and loss of wealth, which, according to a study [PDF] commissioned by the U.S. Department of Energy, have cost us more than $7 trillion present value dollars over the last 30 years. That is more than the cumulative cost of all of the wars fought by the U.S. since the Revolutionary War. The transfer of wealth to oil-producing countries -- $1.16 trillion over the past thirty years -- significantly increased our trade deficit. The Department of Energy estimates that each $1 billion of trade deficit costs America 27,000 jobs. Oil imports account for almost one-third of the total U.S. deficit and, hence, are a major contributor to unemployment.


In 2007, the US paid $10 billion in energy-related subsidies through tax credits and deductions. Include that in the price of gas, too. What you pay for gas and what you think you pay for gas are probably two very different numbers. These reverse socialists like to talk about the free market, but they really want protection from it. And they get exactly that.

Some in Washington would continue this reverse socialism.

Center for American Progress:

In 2007, [current presidential candidate John] McCain was the only senator who failed to vote on a motion to invoke cloture (thus limiting debate) on the Energy Independence and Security Act. This vote was about whether to close $13 billion in tax breaks for major oil and gas companies to invest in new clean energy technologies such as wind and solar, and efficiency. Sixty votes were required for passage. The motion was rejected 59-40.


In fact, McCain's tax plan includes more tax subsidies for big oil. "Sen. McCain recently proposed to cut the corporate tax rate from 35 percent to 25 percent," we're told. "This would have reduced ExxonMobil and ConocoPhillips taxes by $1.2 billion each in 2007. It would have saved Chevron $480 million in 2007."

And oil's not the only industry that benefits from this socialization of cost and loss. "...the potential for profit encourages people to take risks. But without the potential for loss, you have reckless risk-taking. You have risk-taking without prudence. Without the potential for loss, irresponsibility goes unpunished," NPR's Russel Roberts reported in March.

"The Federal Reserve and the Treasury Department have orchestrated the rescue of Bear Stearns. The defenders of that maneuver argue that if Bear Stearns had failed it would have created a lot of collateral damage, so much collateral damage, that you and I, normal folk who don't know anything about high-falutin' financial instruments like 'collateralized debt obligations' would have been engulfed as well. If Bear Stearns had gone bankrupt, Lehman Brothers might have been next."

So they take the risk, we pay the loss. When Bear Stearns was bailed out by the taxpayers and rival JP Morgan, the Federal Reserve was forced to print new money just to cover it. As it always seems it is in the US these days, corporations profits' are private, while their losses are public. They win, they collect. They lose, you pay.

And the things that actually benefit you directly go ignored. Our infrastructure isn't so much collapsing, as it is rusting away. Associated Press reports that a "review of repairs on each state's 20 most-traveled bridges with structural deficiencies found just 12 percent have been fixed. In most states, the most common approach was to plan for repairs later rather than fix problems now." This was one year after the bridge collapse in Minnesota -- supposedly the wake up call on the state of our infrastructure.

So we're spending money hand over fist (as well as behind the back) to subsidize oil, while we allow the nation's roads to go to hell. It's hard to think of a more screwed up set of priorities.

When some right wing moron calls a lefty "socialist," remember the bass-ackward socialism that's corporate America -- privatize government, but socialize loss. This is what passes for capitalism and free markets these days -- Karl Marx standing on his head.

-Wisco

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