On May 21, 2008 the Senate Judiciary Committee grilled executives from some of the world’s largest oil companies, including Exxon Mobile, ConocoPhillips, Shell, Chevron, and BP. The proceedings were an absolute sham and disgrace the dignity of our government. The businessmen were called before the committee to explain the rising costs of oil and gasoline. Since energy prices and corporate profit margins are a mounting concern for many Americans, let’s make a few things clear…

There is no global conspiracy, no devious group of gray-haired Texans, or single entity controlling energy prices. We live in a big (but shrinking) world with billions of energy consumers and many energy producers, many of whom hate each other. There is little chance Hugo Chavez (Venezuela), Vladimir Putin (yes, I know he’s not officially Russia’s President), George Bush, Gordon Brown (U.K.), Angela Merkel (Germany), and Hu Jintao (China) are working together to screw consumers. Sure, there are likely some not-so-Western-friendly Saudis, Nigerians, Sudanese, and Iranians who would love to gauge us to enrich themselves, but of the nearly 87 million barrells of oil produced a day from all areas of the world, conspiracy theories become absurd. Despite the fanatical faith of many anti-Bush cultists, oil prices will not magically fall when he leaves office!

To satiate public angst, there are several proposals floating the media and the sacred halls of Congress “Windfall profits” taxes are designed merely to appeal to ignorance, catering to class envy and mob mentality. Taxing something will not reduce its cost. Maybe in the fuzzy math world of politics it does, but in the real world when you tax something you make it more expensive. Not only that, but taxing oil profits leaves less capital for infrastructure expansion and new product acquisition, i.e. you’ll see fewer future supply and higher prices! The Wall Street Journal cites a 1990′s study by the Congressional Research Service that found 1980′s windfall profits taxes led to a reduction of domestic oil production of between 3% and 6%, while increasing OPEC imports by 8% to 16%. For those of you who don’t understand this, that means higher taxes on U.S. oil companies equates to decreased U.S. oil output and heavier reliance on foreign supplies.

Earning a profit is a virtue, not a mark of shame. Yet profit margins for the oil industry remain far lower than many others. For instance, compare average profit margins for four of the top oil companies (XOM, CVX, BP, and COP) which amount to 8.4% with that of Google (25%), Altria Group (tobacco ~ 25%), and Apple (15%). Why aren’t executives from other industries called to testify before Congress? For politicians, it’s great to find a scapegoat.

The reality of energy is that to reduce prices you must either increase supply or find alternatives. Alternative energy is already here in small doses and will gain popularity over time, but in the short term the only practical solution is to increase the supply of oil. Policies impeding exploration, drilling, and refining drive up costs, as do taxes, which amount to a little more than 16% of the price of gasoline at the pump. To get serious about alleviating the pain at the pump, politicans should stop wasting our time and insulting our intelligence with attacks on the people who toil in some of the world’s harshest environments to bring us the products we use everyday. To you noble lawmakers, I urge you to cut taxes, eliminate counter productive legislation, and do your absolute best to keep your dirty hands out of the market!

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