Big Oil doesn't pay its own cost of business

February 18, 2007|by Robert Gary

We heard it first from Adam Smith, then from Milton Friedman, then from Ivan Boesky, and now finally from George Michael, so how could I disagree that "greed is good?" And I don't, for the most part. But, as they said in "My Fair Lady:" "I think you picked a poor example."

The oil companies are not where you want to make your Econ 101 "Greed is good" case. It's more like the examples offered by Adam Smith - the butcher, the baker, the candlestick-maker. In short, the craftsman/artisans can be as greedy as they like and never harm society - the more they sell the more good they do. Adam, Milt, Ivan, and George should be followed right down the line for this sort of economic actor.

However, Michaels' piece seems to me utterly specious when it comes to the big oil companies, which he praises as very well-run and thus deserving of the profits they get. They are so efficient, that's what makes the profit for them - and we should not envy or deny them that profit.


None of that is right. If Big Oil didn't get to externalize most of the costs of their operations while internalizing all of the profits, those companies would not be efficient at all. If they had to pay for the wars we fight to protect their business interests, (and don't forget the long-term costs of the retirements and the wounded), gasoline would cost $10 per gallon, at least. Keep in mind that Adam Smith (upon whom the whole Chicago School is based) talked about the butcher the baker and the candlestick maker. Who knows what he might have said if he saw Big Oil today.

Principles are almost always a bad idea, (except maybe half of the Ten Commandments). The problem is they over-simplify the world. Once you have principles, you can't judge things based on the facts in each case. Men of principles apply those principles as best they can to all cases. So the Chicago School economists put everything into their own Procrustean Bed no matter how well it fits or how badly it fails to fit.

To be fair, I should say that on some points I agree with Michael. I know that the far left disapproves of the idea of private property. Well, they agree that everyone should have their own toothbrush, but any actual wealth is just a form of elitism and it contravenes economic justice and the fraternal concept of social equality.

I do not approve of "pay for performance" for oil company execs if their personal pay is linked thereby to hundreds of billions of dollars of revenue processed by the oil company. I believe in pay for work. I think somebody should get pay for performance by the big oil companies - the shareholders, not the execs. They should get pay for work. If the board cannot figure out what the work of the top executives is worth, it should be replaced by people who can. Apart from that, though I stand with Michael and not with the far left.

The big oil companies need to have their efficiency placed on the same basis as other companies - the baker for example - the guy who makes the doughnuts. This means some sort of tax surcharge to cover the half-trillion dollars a year paid out of the U.S. Treasury so that Big Oil can do business safely in the Persian Gulf.

Once they pay that special tax surcharge, George Michael and you and I can better decide how wonderfully efficient they are and we can assess their merits as profit earners. Executive pay above $5 million per year should be characterized as a gift and subject to the gift tax. Big Oil is a highly subsidized business, using taxpayer money for the subsidy, and at present there is no way to gauge its efficiency as a form of enterprise, and we should wait until we gather all the facts before forming a view on this.

I've mentioned the military cost subsidy to Big Oil, but that's just a drop in the bucket. The real subsidy is the cost of global warming, such as Katrina and tornadoes in Florida. Denial is not just a river in Egypt.

Most of the world's scientists agree, according to their recent report. The Hannah Arendt view of the banality of evil comes to mind when one thinks of the "go along get along" guys who are wrecking the world by means of the Big Oil business. Who is charging them for the Earth?

If they were being charged, would their business still be efficient, well-managed, or even profitable? I think not. There's one good thing about being without principles - one can judge each case on its merits and one can see each thing clearly. Principles, I regret to report, are all too often tools of the Make-Believe School - not at all a problem in church, but a big problem in the classroom, or the Oval Office.

Robert Gary is a resident of Hagerstown.

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