This is now exactly a week old. I’ve been thinking of moving my political writing somewhere else so this site can focus more on techie stuff, and this was to be the first article at the new venue, but I haven’t heard back from the proprietor of that venue and I didn’t want this to wait forever.

To nobody’s surprise, Jeff Jacoby takes issue with the idea that the recent record oil-company profits are obscene. Equally unsurprising is the dishonest way in which he presents his case to the contrary. His columns are always a grab bag of cheap rhetorical tricks, devoid of substance, and this one is no exception. What follows is the fisking he so thoroughly deserves.

When [NH senator Judd Gregg's] $20 Powerball investment paid off to the tune of $853,492 last month, the wealthy Republican jovially pronounced himself ”truly deserving” and pocketed his winnings without a trace of embarrassment.

Just days after laying claim to his own windfall profit, Gregg issued a statement denouncing the oil industry for earning billions of dollars at a time when consumers are faced with high fuel prices. He called for an excess profit tax on oil companies, with the proceeds earmarked for low-income subsidies and deficit reduction. ”I cannot sit back in good conscience,” he intoned, ”while those in our society struggling to heat their homes are being left in the cold by oil companies.” Rarely is hypocrisy so blatant.

That’s a pretty nice job of what rhetoricians call poisoning the wells. Judd Gregg is (supposedly) a hypocrite, so anybody who agrees with him about oil-company profits must by a hypocrite too, therefore we can discount anything they say. Baloney. Don’t be fooled into thinking you need to defend Judd Gregg in order to make a point about Big Oil. They’re not really related, except in JJ’s attempt at guilt by association.

”Hey, no fair!” the senator’s defenders will protest. ”Powerball is a game of chance. Gregg took a gamble and won, but everybody knows he could have ended up with nothing.”

The oil industry is a game of chance, too. Sometimes the price of crude soars to $70 a barrel; sometimes it drops to $10. Sometimes huge sums are invested in wells that turn out to be dry.

Just because chance is involved doesn’t mean the two scenarios are equivalent, as JJ suggests. Casinos participate in exactly the same games of chance as their clientele, yet they consistently make a lot of money. Why? Because statistics are on their side. Sure, they could lose every hand of blackjack or spin of the roulette wheel, and they do lose a few, but over a large number of repetitions it’s practically certain they’ll come out ahead. Similarly, oil companies don’t roll the dice just once. They drill hundreds of wells, in places that are likely but not certain to be productive. The majority will be duds but, given the number of attempts, the number of successes is actually quite consistent and predictable. The old Texas wildcatters truly gambled, but for somebody like Exxon or Shell this really isn’t a game of chance in the same way that a lottery ticket is.

But profits can’t be judged by dollar amounts alone. What counts is the percentage of revenues those profits represent. ”Our numbers are huge because the scale of our industry is huge,” Exxon CEO Lee Raymond tried, probably in vain, to explain during last week’s big Senate hearing on oil company profits.

The oil industry is more profitable than some (automobiles, media, utilities), but it can only envy the profits earned by semiconductors (14.6 percent), pharmaceuticals (18.6 percent), or banks (19.6 percent).

It’s a valid point that oil-industry profits are large because the industry itself is large, but it doesn’t mean that profits as a percentage of revenue is the only thing that counts – a position that JJ doesn’t even try to justify but instead merely assumes. Here’s a question for you: would you rather earn 10% of a million dollars in revenue, or 15% of half that? If you went for the 15% you’re a fool, and oil-company execs are no fools. They’re in that business in part because the market is large, and therefore the profit potential is also large even if the margins are thin. It’s a conscious choice, and one for which those execs are richly rewarded. The fact that other industries have better margins is utterly irrelevant, especially when some of those industries (e.g. pharmaceuticals) are guilty of their own crimes against free enterprise. Also, if revenue should be accounted for when considering profits, why not also for taxes? Where is JJ’s comparison of the oil industry to others in terms of taxes as a percentage of revenue? Maybe it suits him better to make such comparisons only selectively.

Over the past 25 years, according to the Tax Foundation, oil companies paid state and federal taxes of more than $2.2 trillion (in inflation-adjusted dollars). During the same period, the companies’ profits totaled $630 billion — less than a third of the government’s take. Government revenue from gasoline taxes alone has exceeded oil industry profits in 22 of the past 25 years.

In every Jacoby column you can expect to find at least one outright lie, and this statement qualifies. What the Tax Foundation article really shows is that total taxes on oil have exceeded oil industry profits etc. – but the bulk of that is fuel taxes which are paid by consumers – not by the oil companies. If you take a look at what’s left, you’ll see that the relationship between oil industry profits and taxes is not out of line with that for other industries. It’s not all that surprising that you have to look at the tables carefully to notice that, though, considering that the Tax Foundation was founded (and quite likely funded) by oil- and auto-industry execs and is headed by an alumnus of the ultra-cronyist Heritage Foundation. Jacoby wouldn’t cite them otherwise.

What a company claims as profit isn’t necessarily what we would intuitively think of as profit anyway, since all manner of “investments” and depreciation and a hundred other line items are excluded. Every accountant and analyst knows this, as they also know that such shenanigans are even easier to pull off in capital-intensive industries like oil . It’s even easier for international companies, because they can just keep their profits overseas. What such companies actually declare as profit is mostly a matter of what they think they can get away with.

In conclusion, JJ just shouldn’t even try to tell other people what they should or shouldn’t feel guilty or outraged about. Not only does he lack the moral standing to do so, but he also lacks the intellect to construct an argument that will convince anyone not already in the cronyist camp. The oil-company profits are obscene, not because of their mere size, but because they come at a time when those same companies are complaining about costs and demanding subsidies and getting the US military to do their dirty work at taxpayer expense. As I found myself saying the day the Exxon profits were announced, nobody should have both hands in my pocket like that.