It’s not often that Karl Rove, former adviser to President Bush, has something negative to say. JUST KIDDING! But even Karl Rove outdid himself in an op-ed in today’s Wall Street Journal, in which he criticizes aspects of both Senator Obama and Senator McCain’s economic plans by calling the candidates “economically illiterate and irresponsibly populist.”
McCain is economically illiterate… and has conceded as much. But Rove’s critique of Obama, however, focuses on one central element: The senator’s support of a windfall tax profit on American oil companies. In Rove’s view:
Why should we stop with oil companies? They make about 8.3 cents in gross profit per dollar of sales. Why doesn’t Mr. Obama slap a windfall profits tax on sectors of the economy that have fatter margins? Electronics make 14.5 cents per dollar and computer equipment makers take in 13.7 cents per dollar, according to the Census Bureau. Microsoft’s margin is 27.5 cents per dollar of sales. Call out Mr. Obama’s Windfall Profits Police!
There are a couple things wrong with Rove’s logic here. First is his misunderstanding of the phrase ‘windfall profit.’ According to the dictionary definition, a windfall profit is a “profit that occurs unexpectedly as a consequence of some event not controlled by those who profit from it.” So something like, let’s say, a huge and unexpected increase in the cost of oil over the course of six years, might fall into those parameters. And these price increases occurred due to factors that big oil had no control over — the plunging value of the dollar, speculators gone wild, and growing demand from the developing world. They do have control over one factor linked to skyrocketing oil prices: stagnant demand. Despite record profits, oil companies are only investing $10 billion annually into new exploration — or about 10 cents for every dollar of profit.
Something like profits made on increased computer sales or cell phones, does not.
To back this up with numbers, the five largest American oil companies have seen their average profits increase from $37 billion in 2001, to $81 billion in 2004, to $123 billion in 2007 — a total annual increase of $86 billion in six years. Since Bush became president, the big five companies made mroe than $600 billion. As a point of reference, between 1977 and 1983, oil company profits increased by $3.6 billion. Between 1990 and 1996, profits increased $.3 billion. A $86 billion increase in six years, coupled with a quadrupling in price for a barrel of oil is the epitome of a windfall profit — and is not the same as a Best Buy making money on flat screen televisions.
Secondly, if Rove really wants to compare profits between industries, then let’s actually compare profits between industries. According to US News and World Report
Exxon Mobil’s profits are 80 percent higher than those of General Electric, which used to be the largest U.S. company by market capitalization before Exxon left it in the dust in 2005. The new economy? Microsoft earns about a third as much money. And next to Exxon, the world’s largest retailer, Wal-Mart, looks like a quaint boutique, with annual profits of about $11 billion.
So if Rove wants to know “why isn’t [Obama] targeting other industries?” the answer is simple: none of these other industries are suddenly reaping the largest profits claimed in corporate history, and benefiting from record prices while American families suffer.