Obscene oil profits: a post script
There were two questions I raised in this post that I should have answered:
Who gets the profits?
When a corporation makes a profit, the people who receive the profit are the shareholders of the corporation. But this only happens if the corporation’s board of directors declares a dividend, otherwise the profits are retained by the corporation. Note that this means that, in general, those obscene profits made by ExxonMobile didn’t actually line anyone’s pockets. Employees received their wages, salaries and bonuses, but the profits, unless ExxonMobile declared a dividend, were retained by the corporation itself. (To avoid a lengthy discussion of what corporations may do with profits, let’s just say that corporations put their profits in the bank, and leave it at that.)
One thing I don’t recall Democrats and other complainers telling us was whether ExxonMobile’s board of directors declared a dividend. Because if they didn’t then no one made $36.130 billion, which is the manner in which people were speaking of the matter. On the other hand, if ExxonMobile’s board did declare a dividend, then here is a partial list of some of the largest shareholders: Barclay’s Global; State Street Global Advisors; Vanguard Group; Wellington Management Company; Merril Lynch; TIAA-CREF; Mellon Financial Corporation, among others. Now, many people—little people like myself, perhaps even yourself—have various retirement accounts and the like (e.g., mutual funds, pension funds) and so forth with one or more of those organizations.
Mrs. Philologous, for example, has a TIAA-CREF account. TIAA-CREF has a 0.9 percent share in ExxonMobile, giving it that percentage of the $36.130 billion in profit that ExxonMobile made last year. So if Exxon’s board of directors declared a dividend and decided to pay out 100 percent of the profit as a dividend, then TIAA-CREF would have received $324 million. Now, I have no idea how much of that, if any, would have inured to my wife’s benefit. But the point is this: it’s a retirement account; it inured to some future retiree’s benefit. (My portfolio also includes some oil stocks. I can’t remember if any of it is ExxonMobile, but you can bet that I certainly hope so!)
Speaking of retirement, much of the furor over ExxonMobile’s profits was generated by the fact that it’s outgoing, retiring CEO received a $400,000,000 severance package. That’s awful isn’t it? Please, it amounts to 1.1 percent of that $36.130 billion dollar profit we’ve been talking about. Gosh, not paying that bonus would really have kept those fuel prices down wouldn’t it?
Why did the price on the gas already the station go up?
"Well," you say, "that has little to do with the fact that it can’t all be explained by the increase in the price per barrel set by the world oil market. When I fueled up on Monday, the price at the pump was $1.97 per gallon. On Tuesday, it went to $2.79! The gas that was already in their tanks didn’t go up in price; they had already paid for it!"
Sure. But look, the value of any commodity isn’t just a matter of how much it cost the seller. The seller may attach a value to a commodity which a buyer does not. For example, I received as a gift a 1970 Dodge Dart from my deceased Great-grandfather. At some point I considered selling that car. I had intended to "soup" it up, but I just couldn’t find the time. Now I can assure that I had no plans to sell that car for the price that I paid, which was $00.00, if you recall. Although that car cost my nothing, it was certainly worth—to me—far more than I paid. The question was: Would it be worth as much to a buyer, as it was to me?
When a fuel station owner buys petroleum products, the value he attaches to that product is much more than just what he paid for it. He may take into consideration a great many factors in determining for how much to sell the product. Two considerations are (1) total cost—to him—of the product; and (2) how much he can sell the product for and still stay in business.
A third consideration when it come to value is the future. The price our gas station owner charges is not just a cover of expenses; it is also a bet on the future. So when the price that he pays goes up, he may also raise the price of the product he already has on hand as a sort of bet on future supplies of the product. This is not gouging; it is done in many, if not all, businesses other than the oil business. And, what is more, anyone who doesn’t do this can expect not to remain in business for long. Sure, you can praise him as a civic minded hero, but you won’t do so for very long: he won’t be in business very long, with foolish practices like that.
Besides, like I said, this obscene profit amounts only to 9.7 percent.
9.7 percent.
Who gets the profits?
When a corporation makes a profit, the people who receive the profit are the shareholders of the corporation. But this only happens if the corporation’s board of directors declares a dividend, otherwise the profits are retained by the corporation. Note that this means that, in general, those obscene profits made by ExxonMobile didn’t actually line anyone’s pockets. Employees received their wages, salaries and bonuses, but the profits, unless ExxonMobile declared a dividend, were retained by the corporation itself. (To avoid a lengthy discussion of what corporations may do with profits, let’s just say that corporations put their profits in the bank, and leave it at that.)
One thing I don’t recall Democrats and other complainers telling us was whether ExxonMobile’s board of directors declared a dividend. Because if they didn’t then no one made $36.130 billion, which is the manner in which people were speaking of the matter. On the other hand, if ExxonMobile’s board did declare a dividend, then here is a partial list of some of the largest shareholders: Barclay’s Global; State Street Global Advisors; Vanguard Group; Wellington Management Company; Merril Lynch; TIAA-CREF; Mellon Financial Corporation, among others. Now, many people—little people like myself, perhaps even yourself—have various retirement accounts and the like (e.g., mutual funds, pension funds) and so forth with one or more of those organizations.
Mrs. Philologous, for example, has a TIAA-CREF account. TIAA-CREF has a 0.9 percent share in ExxonMobile, giving it that percentage of the $36.130 billion in profit that ExxonMobile made last year. So if Exxon’s board of directors declared a dividend and decided to pay out 100 percent of the profit as a dividend, then TIAA-CREF would have received $324 million. Now, I have no idea how much of that, if any, would have inured to my wife’s benefit. But the point is this: it’s a retirement account; it inured to some future retiree’s benefit. (My portfolio also includes some oil stocks. I can’t remember if any of it is ExxonMobile, but you can bet that I certainly hope so!)
Speaking of retirement, much of the furor over ExxonMobile’s profits was generated by the fact that it’s outgoing, retiring CEO received a $400,000,000 severance package. That’s awful isn’t it? Please, it amounts to 1.1 percent of that $36.130 billion dollar profit we’ve been talking about. Gosh, not paying that bonus would really have kept those fuel prices down wouldn’t it?
Why did the price on the gas already the station go up?
"Well," you say, "that has little to do with the fact that it can’t all be explained by the increase in the price per barrel set by the world oil market. When I fueled up on Monday, the price at the pump was $1.97 per gallon. On Tuesday, it went to $2.79! The gas that was already in their tanks didn’t go up in price; they had already paid for it!"
Sure. But look, the value of any commodity isn’t just a matter of how much it cost the seller. The seller may attach a value to a commodity which a buyer does not. For example, I received as a gift a 1970 Dodge Dart from my deceased Great-grandfather. At some point I considered selling that car. I had intended to "soup" it up, but I just couldn’t find the time. Now I can assure that I had no plans to sell that car for the price that I paid, which was $00.00, if you recall. Although that car cost my nothing, it was certainly worth—to me—far more than I paid. The question was: Would it be worth as much to a buyer, as it was to me?
When a fuel station owner buys petroleum products, the value he attaches to that product is much more than just what he paid for it. He may take into consideration a great many factors in determining for how much to sell the product. Two considerations are (1) total cost—to him—of the product; and (2) how much he can sell the product for and still stay in business.
A third consideration when it come to value is the future. The price our gas station owner charges is not just a cover of expenses; it is also a bet on the future. So when the price that he pays goes up, he may also raise the price of the product he already has on hand as a sort of bet on future supplies of the product. This is not gouging; it is done in many, if not all, businesses other than the oil business. And, what is more, anyone who doesn’t do this can expect not to remain in business for long. Sure, you can praise him as a civic minded hero, but you won’t do so for very long: he won’t be in business very long, with foolish practices like that.
Besides, like I said, this obscene profit amounts only to 9.7 percent.
9.7 percent.
posted by James Frank Solís
at 12:20
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