No such thing as obscene profits

By Michael Medved
Wednesday, May 16, 2007

That’s certainly the case with the words “obscene profits” --- regularly applied to the recent success of the big oil companies.

We’ve all heard the protestations by various poseurs and politicians, who want to investigate or restrain or regulate or apply punishing taxes to the “obscene profits” of big oil.

The best response to these demagogues and lunatics would be a flat-out declaration: profits are never obscene.

Losses, on the other hand, can be obscene – disastrous, damaging, deadly to employees, stockholders and, ultimately, the public.

Auto companies have suffered major losses --- obscene losses, if you will – so does that make them more virtuous than oil companies?

Profit isn’t a shameful accident for corporations --- it’s their very reason for being. Big profits help them do more of what they did to make the profit in the first place. In the case of oil companies, that means more exploration, development, drilling, pumping, refining, transporting and marketing of the oil that fuels every aspect of our economy. Their profitability indicates that they’ve done an excellent job of doing what the public needs and wants, just as the losses by American auto makers suggest that they’ve done a terrible job at giving the public cars we want to buy.

Why should commentators and politicos abuse companies that do an outstanding job, and call for more support for those corporate citizens that do a lousy job? If we punish success and reward incompetence, that constitutes a sure-fire formula for more incompetence and less success.

Of course, some leftist might say that the profitability of oil companies is no more praiseworthy than the success of drug dealers, tobacco companies, the makers of fattening junk food, and other enterprises that feed damaging addictions.

But sane citizens ought to laugh at the ridiculous idea that the organizations that produce fossil fuel to feed our cars and our industrial base deserve derision as “oil pushers.” Energy companies provide an essential service for the entire society, and for all its members who happen to enjoy the highest standard of living, with the greatest freedom of choice, in the whole history of humanity.

Of course, at the moment it’s frustrating to pay more at the pump, but oil profits aren’t the culprit, nor would punishment of the energy companies help to bring down the cost of fuel. When businesses pay a heavier burden in taxes, it doesn’t make prices go down; it generally forces prices to go up, whenever companies can pass on the cost to the consumer. The idea that “windfall profit taxes” would cause oil companies to charge less flies against every rule of economic reality. If you add to the cost of production with new levels of governmental taxation or regulation it means that either prices go up or else profits go down – meaning less incentive for production, less production and, inevitably, higher prices.

Moreover, any attempt to “cap” the price of gas at the pump in the US would prove massively counterproductive. If oil companies receive less money for their products from American consumers than they do from consumers in Europe, Asia and elsewhere, isn’t it obvious that they’ll divert most of their production to those economies where they receive the best prices? In other words, if energy companies couldn’t sell their products in the US for market prices, they’d send them to hungry, surging markets in the rest of the world for top dollar, creating a US gas shortage that would prove far more damaging than even $3.50 a gallon.

Despite the disruption of war and hurricanes and capricious government regulation, big oil companies have managed to insure the steady, uninterrupted supply of energy that fuels every aspect of our personal and business lives. The profits they’ve generated while answering these needs hardly count as “obscene.” The only real obscenity involves the inane liberal conviction that companies or individuals engaged in legal, constructive endeavors should ever feel ashamed or apologetic about their success.