Monday, March 19, 2012


Economics, Like Math, Is Hard

Here is a transcript of the President's most recent Weekly Address. It was about rising gasoline prices and what the 'smartest president ever' wants to do about them.

Money quote:

What’s more, at a time when big oil companies are making more money than ever before, we’re still giving them $4 billion of your tax dollars in subsidies every year. Your member of Congress should be fighting for you. Not for big financial firms. Not for big oil companies.
All successful companies make money. That's what capitalism is all about. The profitable companies which deal in a huge volume of sales will make a huge amount of money, but that's not the best way to look at it--the proper way is to look at profit margins in percentages. What's Big Oil's profit margin? 3%, below sporting goods stores but above electronic stores. In any event it's near the bottom of the list for business profit margins.

What are these subsidies anyway?

They are tax deductions regarding the production of the oil and gas. The President implies that the government is handing money it has from taxing other people and businesses over to the Big Oil companies, like the money it hands out to failed green energy companies, like Solyndra. Not true. The federal government is merely not collecting tax money. These tax breaks are very similar to the tax breaks every company can take off its corporate tax bill for net rather than gross income (but they are not precisely the same as the operable tax codes are in part unique to the exploration and extraction Big Oil does to provide oil and gas.

But let's take the President at his word and think what will happen if the oil and gas businesses are unable to take the deductions every other business can take and have to pay higher taxes. Will Big Oil react by raising prices to cover these new expenses, higher taxes?


So this is the brilliant plan to lower gasoline prices, treat these businesses differently to raise their expenses which they will pass on to consumers in higher prices.

Oh, and the President repeated the lie that we only have 2% of World Oil and Gas. Not true. Proven reserves is an economic term of art which only covers a tiny percentage of the oil and gas we can develop. Here's the truth:


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