Tuesday, August 05, 2008

Innumeracy and the Cost of Gas

I heard someone complaining today on a talk show about the high profits of the oil companies, and the host, of course, pointed out that the oil companies make less than 10% in profit (right at 10% for Exxon), and that they pay more in taxes than they make in profit. The called kept going on and on about the amount of money, ignoring -- or ignorant -- of the difference between amount and percentage. Let me demonstrate.

If Exxon brought in $400 billion, but only 10% of that is profit, they would have a $40 billion profit. People seem to be focused on the last number, the mere amount. But let's look at it this way:

If we assume that all the money brought in is from gasoline sales (which it's not), and Exxon eliminated its profit entirely, then gas at $4 a gallon would only go down by $0.40, meaning gas would still be $3.60. Let's be honest, that's not a big difference. A far, far higher percentage of our gas price is in fact from both gas and corporate taxes (since Exxon and every other oil company passes down the cost of taxes to the consumer). Further, why would Exxon continue to be in business if it couldn't bring in a profit? They are providing a vital service to people, and only reap a small percentage profit from it. How much better off is your life because you have cars rather than horses as transportation. Do you consider that a mere 10% improvement in life?
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