Thursday, May 24, 2007

Are Americans too stupid to understand basic economics?

There seems to be a lot of evidence that the answer could be yes. And there seems to be no end to the politicians who would pander to that ignorance.

From Jeff at Jeff's Garage and Alehouse blog:

How About a Windfall Ignorance Tax?
[...] # As we continually remind people here at JG&AH, the oil companies profits average about 10 cents on the dollar. Other such industries average much more than that. When I worked in Automotive retail, a manager that I came up under would always say to me "Jeff, we need to make 20% profit on everything, just to turn the lights on." Profit is the necessity and motif of EVERYONE who is in business. As the above links demonstrate FTC investigation has already demonstrated that there is no corporate price gouging. The Gouging is from the government tax at all levels - more than twice the Big Oil Profit. Where's the outrage over that?

How many people have money in mutual funds or their 401Ks tied up in Oil Company Stock? Further, how many do and don't even realize it while they gripe about oil profits? Sad fact of the matter is, a windfall profits tax that the Populists and their leaching power whore buddies in office seem to threaten will do nothing but further hamper supply and damage many average citizen's investment portfolios. Way to stick it to yourself. [...]

(bold emphasis mine) Too many people don't understand the difference between "profit" and "profit margin". The profit is how much money you take in. The profit margin is how much money you have left to keep as income, AFTER you have paid all your related business expenses to keep the business running.

Time and time again it has been proven that the oil companies are not price gouging. But that doesn't sit well with people too ignorant to understand what a profit margin is, or to understand basic economics like supply and demand. What ARE they teaching in government schools these days? Nothing practical, apparently.

Pat at Born Again Redneck Yogi has more, with some great excerpts from Jon Markman:

What a gas!
[...] Higher prices at the pump today are a matter of simple economics. U.S. refiners have the ability to churn out 17 million barrels of gasoline per day. Demand is around 22 million barrels per day. To make up the difference, we bring in gasoline from foreign refiners, which means that, at the margins, pump prices are set by import prices.

Total U.S. demand for oil products is up 2.7% year to date, boosted in part by the surge in cold weather in February. But since we are far from the only country importing gasoline and other key refined products, we don't have a lot of say in what those prices are.

Gasoline, like crude oil, is auctioned worldwide to the highest bidder, and with the dollar weak and overseas economic growth strong because of our fantastic appetite for iPods made in China and T-shirts made in Costa Rica, we have to pay up to keep our supply coming in. And that's all there is to it. [...]

It's not hard to understand. Too many people are not paying attention, and are thus becoming part of the problem instead of the solution, which requires understanding what's actually happening. The links I've provided here discuss the realities involved, and what we realistically can do about it. Knowlege is Power.


Jeff said...

Thanks for the quote, Chas. Yes, you are correct about profit vs. profit margin. Thank you for expanding on that.

-- Jeff

Chas said...

Thank YOU Jeff. You presented your case well.