IT'S NOT NECESSARILY TRUE that Exxon Mobil is richer than God, but in 2005 the company accomplished something nearly as impressive: It made more money than Wal-Mart.
Exxon's earnings announcement Monday makes it the most profitable company in
U.S. history and the biggest company in the country by sales. And Exxon isn't alone in capitalizing on soaring crude oil prices -- most of its brethren among the world's oil giants are reporting record profits as well. You'd expect oil executives to be flipping their Stetsons over their good fortune; instead, they're nervously dialing their lobbyists and taking out ads explaining that they're really not making all that much money after all.
They have good reason to be anxious. After oil companies reported gargantuan third-quarter profits last fall, there was an immediate backlash in Washington and Sacramento. Congressional Democrats proposed hitting the industry with a windfall-profit tax, and consumer advocates called for a law forcing oil companies to invest a share of their earnings into research on alternative energy sources. In California, an Assembly committee approved a bill that would have imposed a state tax on "excess" gas profits (it was rejected Monday by the full Assembly).
Most of these proposals were simply hot gas from politicians who have seen polls showing that most Americans are fed up with high prices and amenable to government controls. And the latest profit figures are sure to fuel more such nonsense. But even though high gas prices are indeed depressing the economy and making life difficult for many Americans, going after oil-company profits isn't the answer. Those who think differently have a very short memory.
The windfall profit tax of 1980, which followed the messy and failed attempts of the 1970s to control gas prices, was an utter failure. Because the tax only applied to U.S. companies, its effect was essentially to single them out for punishment while rewarding overseas competitors. It increased oil imports by up to 16% and reduced domestic production, thus boosting the power of OPEC and worsening the nation's reliance on foreign oil.
The free market may be messy, but it's better at correcting things such as overheated prices than government intervention. High gas prices will encourage new, alternative technologies and push consumers to buy gas-stingier vehicles, making the whole economy more energy efficient (while having the added benefit of cleaning the air). The prospect of hefty profits also encourages investment in oil exploration. Together, this will decrease demand and increase supply -- meaning prices eventually will go back down.