Pete Kelley – 4/7/08

This page was last updated on April 7, 2008.

Industries control government; Pete Kelley; Beaver County Times; April 7, 2008.

Below is a detailed critique of the subject letter.

“The April 2 article about oil company profits should have been published on April Fools Day.”

[RWC] I didn’t read the article to which Mr. Kelley refers and it doesn’t appear to be on the Times website.

“It was a joke, albeit a cruel one. No, not a joke even. A farce?

“I wonder why Congress didn’t ask what portion of the $123.29 billion is attributed to the sale of gasoline. Same question for heating oil and diesel fuel and jet engine fuel.”

[RWC] I know this will come as a shock to Mr. Kelley, but refining and marketing is a low-margin business because most of the products are commodities and fungible.

“When I worked in the steel industry — remember when there was one in America? — we established profit margins on everything that we made and sold.”

[RWC] That’s nice for Mr. Kelley, but oil companies don’t have the luxury of establishing profit margins and then setting prices accordingly. If they could, you wouldn’t see gas stations all change their prices as soon as one competitor changed his price. Regardless of profit margin, an oil company is toast if it doesn’t adjust pricing to the market. That’s why oil companies have such an emphasis on efficiency and strong cost controls.

“The government had a thing called excess profits tax. I wonder why the congressmen were not interested in knowing what the profits on the fuels were. I would have asked, ‘How much does the oil industry make on a gallon of gasoline?’”

[RWC] The Carter administration and Congress levied a so-called “windfall profits” tax on the oil industry beginning in 1980. Unfortunately, an effect of the tax was to reduce domestic oil production because the tax made some oil fields unprofitable. The tax wasn’t eliminated until 1988.

I believe you’ll find the “excess profits tax” to which Mr. Kelley referred was only during wartime (WWII and Korean War) and covered everyone, not just a specific industry.

“When I was a kid back in the ’40s and ’50s, the owners of most service (gas) stations claimed they made virtually no money on pumping gas. They said they didn’t make enough to pay us 15-25 cents an hour to pump the gas. They kept the pumps as a convenience to the customers.

“They made their money on the services they provided — repairs, oil changes, tires, etc.”

[RWC] That’s actually still true today, except instead of “repairs, oil changes, tires, etc.,” gas stations have convenience stores. That’s why we so rarely see a gas station that sells only gasoline.

“A sidebar article (‘In line with other industries’) compared the three most price gouging industries: oil, pharmaceuticals and defense.”

[RWC] What is the obsession with bashing businesses that make our lives better? Folks like Mr. Kelley appear to believe all this stuff comes cheap. For example, Shell is currently building an oil platform in 8,000 ft. of water in the Gulf of Mexico. In addition to the 8,000 ft. of water, Shell will need to drill another 24,000 ft. to reach the oil field.

“Wow, they sure are lined up with each other.

“The sad thing about it is nothing will be done about it. Those powerful industries control the country. Those industries control the government from the president down to the newest members of Congress and those running for those offices soon to be vacated.”

[RWC] What exactly does Mr. Kelley want government to do?