"Big Oil" Steering Profits to Investors

Today the AP had an article discussing how the largest oil companies are using most of their earnings to buyback shares and give cash dividends to investors. The article complains that these companies spend more on buybacks and dividends than they do on oil exploration. Uh... hello? There are only so many places these companies can legally explore for oil. World production of oil has most likely peaked or is relatively very close to doing so. How can you blame the company for rewarding its investors, the people who risk their money to invest in the businesses? Sure, gas prices are high. But oil companies only make 7%-9% on every dollar they bring in. Heck, the government makes twice as much money on gasoline than the oil companies. Oil companies do not have very high margins and are taxed and regulated a good amount by the government. I'm not saying that they deserve tax breaks or special treatment, but the costs of taxes and regulations are passed onto two primary people: the workers and the consumer.

This is what makes the idea of a "windfall profits" tax completely absurd and absolutely idiotic. The government has regulated and taxed to the point that it is extremely difficult to drill for oil here in the U.S. As a result, we rely on oil purchased from state-owned oil companies from around the world. We rely on unsteady organizations like OPEC, and countries with anti-American sentiment like Venezuela. Shutting down and reducing domestic oil production comes at a cost. All government intervention into the economy does have a side effect. Today we are dealing with the consequences of government intervention into the economy. Whether it be with monetary policy or regulations preventing the expansion of nuclear power and coal production, these interventions do come at a cost. The way I see it is that the domestic energy market in the U.S. has largely been shut down. Oil production is getting more difficult by the day, nuclear power can't expand, and the production of coal is pretty much getting out of the picture. So we have a federal government shutting down the most commonsense sources of energy, and instead throwing money at worthless and incredibly inefficient ideas like E85 ethanol. Yet somehow people blame our dependence on foreign oil on the big, evil oil companies. All of these bogus policies are accepted because of "global warming" and politically correct science.

The American people have spoken regarding drilling for oil here at home. The majority of Americans support lifting federal bans on drilling, the majority of Alaskans as well as the Alaskan governor want to open up ANWR, what else do you need? Alternative energy, as much as people love it, will not be a major player in the energy field for sometime. It has gotten special treatment for quite some time, and despite the U.S. energy economy being greatly limited and energy prices at record highs, alternative energy still isn't seen as an economically viable solution. I'm not saying it never will be, but people need to wake up and understand the situation.

While you may gather that I like the idea of the federal government lifting its ban on oil production in ANWR and offshore, it is still a relatively short-term solution. The same thing must happen with coal and nuclear power as well, in my opinion. Open up the U.S. energy economy, let the market decide what is economically viable and a clean, reliable source of energy. The other key thing to discuss is the effects inflation and a fiat monetary policy have on energy prices. The devaluation of the dollar has clearly played a part in higher gasoline prices, in my opinion. In terms of silver, the value of gas is no different than sixty years ago. However, the purchasing power of the dollar has greatly diminished and therefore does play a big part over time. In the long run, I see a stable currency as an essential part in creating a prosperous and sustainable economy. Very few politicians look at the long-term implications of policies. Federal regulations, intervention, and controls may look attractive in the short-term, but in the long-term I do not believe it is at all a wise policy to follow. Whether it be the federal ban on new nuclear energy plants (which is in fact a very clean and reliable energy source) or the ban on oil drilling, it makes no sense in the long run. At the very least, let the states decide.