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Archive for November 20, 2007

Old Letter to Editor

November 20, 2007 by Tom Armstrong.

I was reviewing my files and ran across this old letter to the editor I wrote two or three years ago in my mid twenties. It’s a pretty good rant. It received many responses, particularly for the last sentence. People really did not like that last line; I knew they wouldn’t, which is precisely why I wrote it.

Around the nation, there are calls for an “excess profits tax” on the earnings of large oil corporations, such as ExxonMobil. At first glance, many individuals have found this proposition acceptable, even favorable. However, given more consideration, an “excess profits tax” should be deemed unwise, as it undermines the essence of America: capitalism, free markets and democracy itself.

As an ordinary consumer of oil based goods, I am under financial stress at current price levels. However, I am not furious at Big Oil. I do not blame them for high prices at the pump, and I certainly do not demand we steal from them and arbitrarily redistribute the wealth via government bureaucrats. Although I’m not happy to see $2 and $3 gas prices, I am still thankful for oil producers.

Since the discovery of oil in Pennsylvania and Ohio in the 19^th Century, droves of entrepreneurs have risked life and fortune to explore for, extract and refine crude oil. Most have failed. Those who succeeded, however, become wealthy for their efforts. But it was not just themselves that they benefited. Their success was driven by consumers that demanded their product. In turn, producers competed for market share and drastically drove down the price of refined oil. For instance, the price of gas in the 1920s was higher than it is today, adjusted for inflation. As prices fell, not only did the producers and consumers benefit, other industries benefited. For example, cheaper gas prices benefited the automobile industry, manufacturing plants, airlines, just to name a few. Hence, the success of oil producers benefited society in general as it drove the industrial revolution.

Without the innovations of oil producers in the past century, this country and, in fact, the world, would be worse off. Consider for one brief moment where we would be if nobody had ever been willing to risk his fortune to explore for and refine crude oil. Our standard of living would certainly be lower without this relatively cheap source of fuel. Sure, even if oil had never been discovered, mankind would have eventually found an alternative source of fuel; in fact, we have many substitutes now. They are, however, prohibitively expensive. $2 and $3 gas is much more economical than $10 ethanol.

An “excess profits tax” must be discouraged because it punishes success and weakens the foundations of consumer democracy. Consumers have made oil producers what they are—successful. Consumers, as they have continued, until recently, to purchase large gas-guzzling automobiles, have signaled to oil companies that they are comfortable with gas prices. It was not the oil producer alone that determined his success; it also was the consumer. Consumers, voting with dollars, have elected to give oil producers large profits. Taxing these dollars away would be equivalent to overturning an election out of envy.

Often, when producers of any product develop goods that satisfy the wants and needs of consumers, the producer generates wealth for herself. However, she did not force the consumer to buy; the consumer purchased the good because it was beneficial to him. As Adam Smith stated in The Wealth of Nations, “it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our diner, but from their regard to their own self interest.” Therefore, those that do well for themselves often do so by satisfying and benefiting others. So tonight, as you say your prayers, remember to thank God for Big Oil.

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