America - Where One CEO can Afford to Buy an Entire Senate

This week, alpha males squared off against each other: Oil company CEOs and US Senators. Given that nothing confers respect like money, it was no contest.

So far this year, the five oil companies represented (Shell, Chevron, Exxon, Conoco, and BP) have made profits of $36 billion. More interestingly, each American CEO made more than the entire American senate before which they appeared.

Combined, the 100 Senators made $17.4 million last year (each makes $174,000).

Chevron's CEO made $16.3 million, Conoco's CEO made $17.9 million and Exxon's made $29 million.

America is nothing if not predictable. It doesn't matter that the oil companies are so profitable when the the deficit is so large. Their $2 billion in tax breaks will continue.

Senator Schumer asked, did any one of these CEOs want to go on the record as saying that perhaps their tax cuts were less important than any other, single program or issue? This after reminding them that cuts to education, health care, and social security were likely.

Not a single CEO could see how any of those programs were more important than their tax breaks.

Let me make an obvious but important point. These CEOs are not paid to show an interest in the American economy or the American people. They made it clear that if the marginal cost of producing oil in Texas were higher than producing it in Indonesia, they would shift production overseas. Their loyalty is to company profits.

A tax break of $1 will benefit Exxon. That dollar may be used to create a job in Saudi Arabia or Houston. Or be paid in dividends to an investor in Japan or San Francisco. There is no guarantee that the money will benefit the American economy. In fact, there is a guarantee that the money will be dispersed globally.

That, it seems to me, is worth remembering.

Break Up the Banks

I supported giving money to the banks when the financial system was teetering on the cusp of disintegration. Most people still don't appreciate how devastating it would be to have our credit markets collapse. True, we lived without much in the way of credit decades ago: we also lived without running water, cars, telephones, education, and the years between age 47 and 77. (I'd already be dead if I'd lived no longer than the average life expectancy in 1900.)

But now the immediate threat of a depression - and perhaps even short term threat of recession - is beginning to fade. Leading indicators suggest a softening of the blow against the poor and our poor 401(k) accounts. It's now time for Obama to take his lead from Teddy Roosevelt and break up the banks.

Teddy Roosevelt remains one of my favorite presidents. Hes was unafraid of big business and one of his major acts was the break up of John Rockefeller's Standard Oil Company into about 30 smaller companies. (To give you some idea of the size of Standard Oil, just one of those 30 was Exxon - which recently set an all-time record for corporate profits. Imagine the size that Standard Oil's profits would have been last year.)

Obama ought to mimic Roosevelt and break up the "too big to fail" banks. The only thing we can afford less than propping up these huge banks is a collapse of credit markets, so the current banks have us hostage. If banks were smaller, we'd be able to let some fail without threatening the economy. (And yes you could insure depositors without insuring the banks themselves.)

If the failure of big banks didn't threaten the entire economy, we could take the advice of free market advocates and just let them fail. If the cost of propping up big banks didn't threaten the government's ability fund other initiatives (and make big banks even more comfortable with taking big risks), we could take the advice of Keynesians and prop them up with a sigh and a shake of the head. Given we can't let them fail and can't afford to fund them, it seems like the only real choice is to not let them exist.

As legacies go, this would do more for Obama than presiding over a depression or an era of government-owned banks.

A Private Sector Bailout for Detroit

Last year, GM lost $30.9 billion.

Exxon made $45.2 billion.

The solution to Detroit's woes seem obvious to me: Exxon buys GM and simply begins a give away program, getting the money back at the pumps. It's like giving away razors in order to sell the replacement blades. If people weren't driving cars, Exxon would have trouble making money. They need the auto industry. Why not simply buy it in order to keep it safe?

Besides, Exxon's profits were more than Google's and Microsoft's combined. If they can't make the auto industry profitable, maybe it's time we tried biking.

Odd Numbers in Defense of Oil

"In Vegas, I got into a long argument with the man at the roulette wheel over what I considered to be an odd number."
- Steven Wright

Congress has approved a new Pentagon spending bill. It's for $460 billion and does not include provision for Iraq.(Basically, including Iraq would make it about $550 billion.) Isn't that like paying tuition for your kid and learning that it does not include classes? Meanwhile, Iraq's GDP is about $40 billion. Add in Iran ($194 billion), North Korea ($40 billion), and Libya ($34 billion) and you have GDP totals of just over $300 billion. I say that we use our defense budget to simply buy our enemies instead, price equal to annual GDP. We save 44% and they no longer constitute a threat.

Today, General Motors announced that they LOST $39 billion in the third QUARTER of this year. Exxon also reported a drop in profits for the 3rd quarter - they made only $9.4 billion, down from the $10.5 billion they made in the third quarter of last year. Their revenue for the quarter was $102 billion.

So, put this in perspective. Exxon's annual profits are about equal to Iraq's total GDP. And as Greenspan said, we wouldn't be in Iraq if not for oil. So, wouldn't it be cheaper all around just to get out of Iraq and then give Exxon 10% of our defense budget? And then we'd have enough money left over to directly subsidize our auto industry as well.

Or, we could put some money into alternative energy, treating that like a urgent priority given how expensive it is to protect oil resources and to recover from climate change. Then we could .... nah. That would be too expensive. Better to just keep spending the half trillion a year.

Finally, a barrell of oil is soon to cost $100. I should be a little discomfited by this, but I'm not. Dick Cheney has promised that once oil hits $100 a barrel he's going to declare the day a new national holiday.