Gas gouge?

William F. Buckley
Posted: Apr 25, 2006 8:05 PM
The gas problem was nicely framed in the past fortnight by two news items. The first was the report that Lee Raymond received $400 million in his retirement package as chairman of ExxonMobil. The second was the published sketch of the projected backboard for airline passengers willing to travel more or less standing up, helping out the airlines' need for extra revenues to pay for -- Lee Raymond's gas.

That is a populist formulation, invited by recent news. Concerning it, a few comments.

Mr. Raymond is correctly charged with, at the least, an extraordinary act of indecorum. Granted, the capitalist model does not (and should not) limit the size of a wage or a bonus. ExxonMobil paid $23 billion in taxes last year, which gives us some idea of the scale of an activity whose gross income exceeds the combined income of IBM, General Motors and AT&T.

That is why it is best to fault Raymond and the directors of ExxonMobil using the language of civility: a lack of decorum is what it was. One correctly declines to specify a limitation on figures that arise from the workings of the marketplace, which are not to be confused with machinations of the marketplace. If Mr. Raymond were guilty of a violation of antitrust laws, or of the anti-gouging laws, one could look at the towering figure of his retirement package as corresponding perfectly to the high reaches of avarice and contrivance.

But no such charges have been leveled. Which means observers are left to cope with the sheer vulgarity of the transaction, wondering how it happened. Why didn't the directors put on such brakes as decency required? Why didn't Mr. Raymond stop after, say, $100 million, and assign the rest to a fund to help standing-room-only airline passengers?

The public reaction tends to indignation and then to wondering about means of punishment.

But means of punishment are difficult to come up with. Ideally one would see stockholder action resulting in the ouster of every director of ExxonMobil who voted to authorize the gargantuan retirement package. The shareholders of ExxonMobil have direct means of expressing themselves: by voting against the current directors, or by selling their shares in the company, if they believe that the profligate sum paid to Mr. Raymond is an indication of company extravagance.

What about that general public? How can it punish directors who do not do the right thing?

The most direct way, of course, is to withhold economic support. If ExxonMobil manufactured a brand of peanut butter, the public could express itself on the subject by boycotting ExxonMobil peanut butter. This doesn't work, of course, when it is gasoline being sold at the pump. Gas is gas -- fungible stuff. Pausing at the pump we do not deliberate whether what we are paying for is gas that originated in Oklahoma or in Nigeria. And indignation at oil prices is not intelligently exercised by legislative action.

Factors here to be considered are varied:

  • In the past 20 years, profits from oil and gas investment have been lower than the profits from many alternative economic enterprises. Ten percent profit is normal (and normative). Oil and gas investments have tended to run two or three points lower than that 10 percent.

  • To effect an increase in supply requires a lot of investment and a lot of patience -- five to 10 years to significantly increase supply.

  • The stranglehold of OPEC is not easily dealt with by normal economic responses, given that it is a politically controlled oligopoly.

  • The causes of significant shortfalls in oil production are often political. Mexico is off on another nationalistic excess. Nigeria is in turmoil, reducing production. Iraq is almost 1 million barrels a day under what it used to produce. Iran is a day-by-day disrupter. The Saudis, who in the past have, with their huge reserves, acted as a kind of federal bank, are needing to do more development.

    There isn't anything the United States can do -- except keep its legislative fingers out of the stew. And open its blinded eyes to the possibilities of nuclear energy.