Oil Executives and Their Encore Problem

People have asked me why I think the oil company executives are acting in a way that seems contrary to America's national interests. If prices of fuel continue to climb, it will have a very negative effect on economic growth, job creation, and consumer purchasing power. I believe the answer is fairly simple and really has little to do with conspiracies or other potentially illegal acts. This is a more fundamental business problem that most CEOs of mega sized companies eventually face. It is called the Encore Problem. All publically owned businesses are measured by Wall Street analysts and investment companies on the growth of their business from quarter to quarter and year to year. Annual comparisons of revenue growth are often considered among the most important and one of the reasons people buy or sell a stock. For businesses, it is grow or die. If you are a company that already vacuums in several hundred billion dollars from the market, those year to year growth comparisons become a real problem. This is especially true in a commodity market like oil in which there is virtual market saturation of your product. There is only so much gasoline that the public can consume and the amount is very consistent from year. The only real growth factor in the consumption numbers is for population growth. The more people we have, the more we consume so that figure is basically tied to the growth of the population. When it comes to investing, people expect to see better growth than just keeping pace with the population growth. How then do these companies grow? They only have a couple of options. One is to raise prices and the other is to buy more market share. These huge oil giants are doing just that. They are certainly not going to compete on price and drive the revenue down. They are going to do everything they can to get the public willing to pay higher prices. Second, they are spending huge sums of money acquiring additional deposits of oil, natural gas, other competitors, and various other sources of energy to help prop up those revenue numbers. Those enormous expenditures also serve another purpose in that they disguise what might otherwise be obvious exaggerated profit earnings that would not be good for their own narrative. They are able to raise revenue, increase asset value, increase market share, marginalize excessive profits, and most favorably they increase stock prices and the value of their own stock options.

The resources available to these companies are staggering. Their budgets are greater than many countries. The money available to influence political opinion is greater than all the other industries. A million dollars to them is not even lunch money. They are not going to change without a considerable fight and unless the public begins to understand what is happening to them, these oil giants will simply buy up what they want and charge as much as they want. I don't ask anyone to accept these things based on my word for it. They should go out and verify it for themselves. Ask questions. Demand answers and if the answers don't quite fit, then you know there is more going on. It isn't usually what they say that is wrong; it is the part they omit.

What these companies know though is that public will do very little about it. Like most national problems, most people are too busy with their own lives to be bothered. They will whine and complain about it at home and among themselves, but they will simply accept it and say, "Well what can one person do? Nothing I can do." Obviously they can, but most won't. Unless you do, then we have no chance of stopping this price gouging at the pump and the further destruction to the economy. Pass this information on to someone. Make a difference. Have them read my other articles on this blog site. If people differ, then share those thoughts. We can all learn.

A scam coming to a gas station near you?

Normally, when I am writing about scams I read on the internet, it is to warn people that the information they have been sent is either a hoax or some kind of scam to get information or money. This time I am warning people about one that I see that is all around us. It isn't exactly a scam though. It is more like cooperative pricing while taking advantage of the public's ignorance about how their industry works. They also do nothing to correct misinformation. I am speaking here about the major oil companies who dominate the gasoline and fuel markets. It is surprising to me that so many people in the media today simply take whatever information is fed to them and then repeat it over and over. Pretty soon the public believes it. What we hear from the media and many politicians is that we have world oil shortages, not enough supply for the US, and that is why we have rising gasoline prices. Nothing could be further from the truth. I don't want others simply to believe me. They should verify what I tell them, because all of it is publically available information from the government and the industry itself. It just isn't very well known.

We are told that we are dependent on Middle Eastern countries like Saudi Arabia for our oil and that all of our money is going to Islamic sheiks. Let's discuss this for moment. Where does our oil come from? More than half is produced right in the United States. Canada, Mexico, and Venezuela account for another 20% with the Caribbean and other South American countries making up most of the imports. Did you know that Saudi Arabia accounts for only about 5% and the entire Persian Gulf region is only 8.8%. Do you think that the United States refineries use all the oil that those companies produce here and import are for consumption in the US? The total amount of oil used by oil companies is about 18.7 million barrels per day. They import from Canada alone about 2.5 million barrels per day. They export to other countries about 2.5 million barrels a day of crude and refined oil products such as gasoline, liquefied gas, jet fuel, diesel, and so on. That means they export for the consumption of other countries about the same amount of refined product as they import from our largest oil trade partner. If these energy products were kept in the US, we wouldn't even need the Persian Gulf or Venezuela oil. Yet aren't you told we must drill more wells? Aren't we told we are shipping all of our money to the Arabs?

Who owns all this oil? Most is owned directly by 5 major oil companies who dominate the markets in the US and Western Europe. Most of the brands you see are all owned by these companies and those who aren't must often buy their gasoline from them. These same companies own many of their own wells, just like BP in the Gulf of Mexico and Exxon in Alaska. They simply pay extraction fees for oil pumped from leased proprieties. They drill, pump the oil, and refine. Most of these wells were drilled years ago, paid for, and fully depreciated. They aren't paying those enormous prices you see on TV for spot market oil. In fact the price you hear on TV isn't really even spot market prices, but are the price of the "front-month" oil futures contracts traded by investment companies and speculators. Those contracts have very little to do with any oil that these oil companies are using. It certainly isn't what oil companies are paying for oil. Those who do buy on the spot market are those who don't have their own. Oil companies might supplement their supplies on the spot market, but when you own your wells to feed your own refineries, you are paying very little per barrel.

So why are you and I paying so much at the pump? The answer is simple. Because they can charge it and you are willing to pay it. If all competitors charge the same prices, what choice do you have? It isn't as if every one of these companies has identical cost structures. They don't and all are different, but they learned decades ago that there is no advantage to any company to start a price war. They just cooperatively price so as not to drive prices down, but drive them up. All win that way, with no losers, and since most of the small guys have already been driven out, there is no need to scramble for market share. They just let the oil speculators on the financial exchanges play with the open spot market and that prepares the consuming public for the supply and demand argument. Most Americans are now well trained on that message.

The problem here is not conspiracy among businesses. They are simply maximizing profits for their investors as all business does. The problem here is that Congress has done nothing since the early 1900s to control monopoly formation. Oil companies have merged over and over and now form virtual oligopolies. Unless competition is reestablished, this will get even worse, driving up inflation to even higher levels. The answer may be to break up these companies as they did in the past to force competition back into this industry that is now draining the economy of enormous amounts of economic resource.

What's Wrong With Higher Education?

When I first asked that question, it was in the mid 1970s. My company was spending tens of millions of dollars each year on tuition refunds while at the same time we were pouring millions more into training programs for our managers. I was a very young and somewhat naive young manager charged with administering our management development programs and assumed my vice president would just keep the money flowing. When I submitted my annual budget I was surprised when he called me into his office and demanded to know what the business payback was for all those millions we were spending. I had no answer. For many months after that, I researched the problem and finally provided an answer. We weren't getting very much. From that point on, I went a crusade to try to improve the return on our business investment by challenging presidents of major universities to improve their curriculums and prove to us too why people should invest so much in them. That is a long saga, which I will not reiterate here. I only use the story to explain my interest and early involvement in the problem of rising tuition and the value of education.

Many assume that you cannot place a dollar amount on education, citing all kinds of esoteric and intangible reasons that education is for education sakes. There are arguments for that, but it is untrue that you can't measure it and place a financial number to it. You can determine how much of a return you are getting for the investment. It is just expensive to measure behavior modification and that is what most education is about. With college tuitions exploding, it is unlikely that the majority of people send their kids to college purely for the sake of education itself. There are few liberal arts degrees awarded these days.

When I've directly asked university board members and administrators to show the value of the investment that they are asking millions of parents and students, few if any are able to answer the question. Many can't even give a coherent answer to the question about what their mission is. That is especially true among board members of state owned universities. State Universities do not have the same mission as private schools, yet their boards often believe they do. They think they are competing for the same students. They are not. In universities that are owned by the states, that is the taxpayers; their obligation is first and foremost to the residents of that state, not outsiders. While it is good to have a diverse cultural experience in college, that is not their primary mission. Normally these publically owned schools are charged with providing a high quality education at as low a cost as possible to the citizens of the state. There are lots of other things you might want to include in that mission, but that is usually the very first and most important reason for their existence and continued public support. It is also the one that is most often forgotten by board members in their decisions to raise tuition costs while continuing to build new brick and mortar facilities, buy new uniforms for the football teams, and pay exorbitant salaries to professors who contribute less, not more each year. These same people justify why it is more important to accept out of state students to utilize these facilities yet they cannot show you where that is in their mission. Some board members claim to agonize over raising costs, but never suggest cutting costs. It is as though everyone is entitled to a raise. They claim to agonize, but I sincerely doubt that they agonize anywhere near as much as those who must pay back these monstrous student loans. If everyone would go back to asking the schools to justify the investment payback and to demand to know what they are doing to meet the first objective of their mission, then tuition might actually go down. No business operates the way universities do and whether the schools believe it or not, they are in business to educate the students and prove they have value. The citizens of the states must take back ownership of their schools and demand that they be run as they would their own businesses and start to see a return on their investment.

Explaining Communism and Socialism

Even though I was a political science major in my college days, it has taken me many years to really understand the various political philosophies of the world. I came to realize in my research over several decades that a great many people in both politics and the media are quite misinformed about the fundamentals of various world philosophies. Lately, I've been involved in numerous discussions trying to explain the differences in the various labels that are applied to individuals. Because some people have found these explanations helpful, and at their request, I am adding this information to my blog site. I hope it will help others to better understand how these terms apply in our current political environment. It should be kept in mind that these are philosophies and as such are always open to debate. That is the nature of philosophy. However, where it comes to describing a specific philosophy such as Communism, that philosophy is defined by its creator. In order to understand its meaning, people must go to the source and not rely on individual interpretations and claims of academic pundits of some particular political position. Claiming to believe a personal version of a philosophy does not make it a correct interpretation. You don't need to rely on my explanations or those of any other writer to get the correct version. You can read it for yourself in the source documents of their creators. That statement will also likely spark some debate, but I would encourage all to do their own research and I don't mean by reading some book that analyzes these things and offers their own opinions.

Lately, we've been hearing lots of liberal politicians calling themselves progressives or political moderates or various other terms that in my view simply obscure what they really believe. Even Glenn Beck who I believe has done an excellent job in trying to educate the public on the political issues, seems to have missed some key points where it comes to understanding political philosophy. He has made some distinctions about progressives that I view as a bit artificial and unnecessary. It took Marx an entire book to describe the principles of Socialism and Communism and no one that I know can boil that down in a few paragraphs, so I will try to confine my explanations to the most basic points I can. The first is to try to explain why Socialism and Communism are part of the same thing and cannot be separated. We have a great many politicians in Washington doing their best to avoid being called Socialist or Communists when they seem to not even understand the terms. Those who do are intentionally distorting their positions to avoid the negative connotation of those terms in America. Americans often associate communism with brutal totalitarians, like Mao in China, Stalin in the Soviet Union, and Castro in Cuba. However, many of our own members of Congress and the executive branch appear to hold very socialist communist ideologies. It isn't who they say they are or want to call themselves that matters. What matters is what they believe and do, and lately that has been very much a socialist communist behavior and legislation. I'll try to explain why that is true.

Many people try to avoid the label communist, while admitting to holding socialist values. They often believe there is a difference between communists and socialists and even talk about them as though they were different philosophies. They don't understand that socialism and communism are just different parts of the same philosophy. You cannot claim to believe in one without the other. Communism is simply the economic system and the ultimate goal in which all socialist systems seek to achieve. Socialism is the governmental system for administering policies and programs to achieve the communist objective. Nearly all socio political systems require two or more components to operate. There is the economic system like communism and capitalism and there are governmental administrative systems such as socialism and republicanism, as just two examples. Communism, like most philosophies is an idealistic governmental objective that has not been achieved by any nation. It is the economic system of in which a government operates. The polar opposite of communism is capitalism. Both are economic systems. There are no communist governments in any Western European country, nor socialist governments. All are capitalist parliamentarian systems who have adopted various socialist programs. None operates as socialist nations and it is a complete misunderstanding to call them socialist. They are not. Use of these labels becomes dangerous because people really do not understand what they mean. They tend to assume they know because they heard someone say it on television or heard a politician say it. Most politicians I've talked to don't seem to understand the differences either.

Republicanism relies on very little central control by a government unit and decentralizes authority down to the lowest levels of government, usually at a local level. Capitalism can only survive in such a government structure because it depends on the freedom of individual initiative and invention to grow. The more direct government control over capitalism, the less individuals can decide for themselves and the less they can achieve through individual initiative.

Socialism requires complete central control in order to operate, because it is government that makes all decisions for the economic system. It decides what will be produced and how much. It decides who receives the benefits of the output. It makes all decisions for the citizens. Communism must have such control in order to operate. However, the reason it has and will always fail is that government does not produce wealth and can only operate by extracting the money it needs from industry that it controls. As it pulls more and more resource from the system to support the bureaucracy, there is a constant draining of the wealth and unless production can outpace that extraction, people become poorer. Since there is never enough wealth to make everyone equally wealthy, people become equally poor, thereby creating a new society of discontented citizens ready for the next revolution. That is what has happened repeatedly in such countries.

When people refer to themselves as progressives or liberal democrats, often they mean they favor a strong central government that makes the economic decisions for the individual. Many believe that government knows best what is good for the majority. The problems with that belief are many, but the one that has happened throughout mankind's history is that the growth of central control is never satisfied. The power to control always leads to more control and the power is usually held by the elite's within the government. Governments are almost never static. In nearly every populous revolution, the goal was to take back power from the elites and give it back to the people. However, human social evolution seems to lead to individuals who believe they know what is best and begin again to seize power and control from the masses. Progressives might believe they are creating a benevolent central powerful government, but it has never turned out that way. Once control is acceded to the government it is seldom ever returned to the people until the next revolution occurs. Such governments have always ended in totalitarianism and that is why it is such a danger for the public to give away their freedom. What they get in return is never what they expected or wanted.

What we tend to have in most countries is a mixture of different political and economic philosophies in which the society has adopted various levels of the principles of one philosophy or the other. None are pure forms of anything, but tend to be in transition from one type of government to another. There are entire books devoted to these subjects and I cannot begin to get into the details in an article such as this. I am simply trying to explain here the most fundamental differences in these terms. For more information, readers need to buy a few books on the subject. Happy reading.

Taking Over the Tea Party Movement

This morning, I heard a radio political advertisement for one of our local candidates who claimed he was endorsed by the Tea Party. When I heard that, I wondered who he was talking about. The advertisement included a gentleman that stated that he was the President of a Local Tea Party. That surprised me even more, but at the same time I thought it was also predictable.

When Americans first came out in force across the country to express their frustration with politicians in general, you can be sure that some politicians are going to want to jump on that bandwagon. The Tea Party movement was never a political party, but rather an outpouring of expression from citizens of many persuasions. They were simply trying to be heard in Washington and make a tone deaf Congress and Administration sit up and take notice. This was a rebellion against government intrusion and self serving politicians. This was the people's movement, not the politicians.

Now we see individuals gathering to take advantage of that public emotion and frustration. They are meeting together, forming small groups that call themselves the Tea Party, electing leaders, and now endorsing candidates as though they represented the sentiments of all of those that came out to the Tea Party movement gatherings. It is almost the same thing that many citizens were rebelling against in the first place.

In my view, the last thing we need in this country is another political party with a new agenda of their own. We have difficulty trying to sort out the politics of a two party system. The greatest problem with multiple parties is the same one with which Europe constantly struggles. Multi party systems split the vote of the citizens so that a majority is seldom ever achieved. Because of that, the majority never feels that they are represented and thet don't' agree on most policies.

While it is possible that the Tea Party movement could evolve into a political party, it is highly doubtful that it would ever become a major party. As soon as it becomes a party, much of its support will disappear from those who were protesting that very idea of it. However, strange things happen in the world of politics. Creating a new party would only undermine the ability to unseat the power structure that they are fighting against. There is not enough support in the nation to elect a majority of 3rd Party candidates that would be required in order to control the committees and chair positions. It would only take some seats from both Democrats and Republicans, but the control would remain where it is today. That is to the advantage of the Democrats and they are not oblivious to that fact. I suggest that those who support the Tea Party movement should focus on changing control of Congress and the Administration first, before deciding whether we need additional political parties.

Incompetence Reigns in Washington

While I have pointed out many times over the last couple of years the importance of credentials, experience, and competence in the people we elect, the importance of those qualities has never been clearer than the last 18 months. I have run out of adjectives to properly describe the moronic level of incompetence we have sunk to in this country. This lack of professional ability has resulted in the appointment of even lower levels of incompetence in every key position in the federal government. Repeatedly, we see people whose primary purpose in life is to promote the transformation of America into a socialist government. They have no personal executive skills, no functional expertise in the positions they have been asked to manage, no seeming knowledge of the facts as they exist in the world. Most of these bureaucrats seem oblivious and uncaring about the Constitution and the limits it places on their power and are far more interested in advancing their own personal agendas and control over our thinking and personal choices.

Just in the last few days, we hear Eric Holder, the US Attorney General criticize severely the immigration control law passed in Arizona and then admit before the entire country that he had never even read it. Even more unbelievably, the Secretary of Homeland Security, Janet Napolitano did not take a lesson from that enormous flub and told reporters the exact same thing. She was highly critical of the law and days after Holder is mocked by the media, she tells reporters she has not read it either. She had to know this would be asked, yet she still couldn't take a few minutes to read a 10 page bill. This is followed again yesterday by Assistant Secretary of State, Michael Posner's comments that he agreed with China's criticism of US for human rights violations and cited the Arizona law. It is simply crazy to listen to China of all countries criticizing us, and over a law none have read. As it happens, I have read the Arizona bill and see none of the points contained in it that are being charged by these members of the Obama administration. The President himself has criticized the bill for things that are not in the law and has intentionally distorted the truth, that in fact it is the same as current federal law, only giving direct authority to local police to enforce it. That authority is also available under federal statute, but has not been enforced or requested by our federal government. It was because federal authorities have ignored enforcement that state authorities felt compelled to protect themselves. That is the right and responsibility of every government.

When will this stop? It stops only when the American have had enough of this outrageous out of control government who like Cass Sunstein, the White House's Administrator of the Office of Information and Regulatory Affairs, says government often knows best and should act to correct the behaviors of citizens when they don't believe what the bureaucrats believe. That is why he wants to control internet content and ensure that you and I view what he wants us to see. He would require us to place links to opposing views on everything we write. That is insane nonsense and tyrannical thinking. However, that is captured on video and I have seen him say it in that exact context. This is the same Cass Sunstein, who was a constitutional law professor at the University of Chicago and Harvard, that the next candidate for the Supreme Court, Elena Kagan calls the preeminent constitutional law expert of our time. This is truly frightening. America must wake up to this onslaught on the Constitution and our freedoms. It is encouraging to see the results of recent elections but we must inform all Americans of the truth of what is happening. Only through the truth and all of the facts can people make the right choice.

The Liberal Media Spins the National Debt

For those of you who might happen to get Parade Magazine as an insert in your Sunday newspaper, you might have come across an article written by Rebecca Webber and Dr. Ranit Mishori in the section called Intelligence Report. This is an excellent example of taking the best set of numbers you can find to fit your personal world narrative. Parade Magazine has always been a very liberal piece of Sunday entertainment, but in the last few years it has become blatantly biased toward the Socialist agenda. So, what was wrong with their report?

In their article they try to show that other countries are in worse shape than the US and conclude that we are not so bad off. The title of their article was "Does America Owe Too Much?" They start out by saying that "the US public debt was $7.5 trillion - about 53% of the country's gross domestic product (GDP). Technically, that is factual, but what is wrong is that they are including only part of the debt, the public debt, not the gross national debt. The Gross National Debt, which includes the total of our obligations is actually around $13 trillion and is estimated to be over $14 trillion at the end of this year and that is nearly equal to the entire (GDP). These kinds of distortions are not just wrong, they are dangerous. They intentionally mislead the public into a false sense of security. They go on in the article to site other numbers used by the Congressional Budget Office (CBO) as though these were official numbers that we should all use. The CBO is not an official source for any economic numbers. They use the numbers supplied by others to estimate outcomes based on various scenarios. The source for most the official government numbers comes from the Department of Commerce and the Treasury Department. Do not be mislead by these spinners of political narratives. The truth lies with the facts and we should let the numbers speak for themselves.

It is also important for citizens to understand that there is no bottomless pit of investment money around the world waiting to absorb our debt. Nearly all money that is available for investment is already invested in something. In order for markets to be willing to buy our debt through treasury notes, they have to be more attractive than what the money is already earning in other investment instruments.
At the moment, Congress and this Administration are on a very dangerous path and something will eventually have to give. There is simply not enough money in the system to be able to support these massive numbers that are being spent. Americans must wake up because only they can stop this drunken spending spree.