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Ben Stein Watch: In Defense of Exxon Mobil

by: Felix Salmon March 03, 2008 | about stocks: XOM    
Felix Salmon

Felix Salmon

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I have to admit I harbored some hope that Ben Stein wouldn't have a column in the NYT this week. After all, he had three columns in December, two in January, and only one in February - simple extrapolation would have denied him any columns in March at all. But it was not to be, and yesterday he decided to defend Exxon Mobil (XOM), in classic Stein fashion:

When Mr. Obama or his Democratic rival, my fellow Yale Law School graduate Hillary Rodham Clinton, go after the oil companies and want to take away their profits, they are basically seeking to lower the income of the ordinary American.

The whole concept here is wrong: ordinary Americans do not get income from Exxon Mobil. They certainly don't get dividend income, and they probably don't even have exposure to Exxon's stock price, either. (See Yves Smith for much more detail.) But at least there's a glimmer of sense in the idea that Exxon Mobil stock is widely held. What makes this a uniquely Steinian sentence is the random detour to Yale Law School. I think Stein knows, in his heart of hearts, that he's mostly talking nonsense, and so he needs to impress upon us occasional biographical factoids in order to justify his status as a NYT pundit.

But back to the column. Stein continues by telling us that Exxon's "employees are overwhelmingly not millionaires" - this by way of defending the company against charges that it's making excess profits. Ben, profits are what is left over after you've paid your employees. When someone like Barack Obama complains that Exxon Mobil's profits are too high, that's clearly not the same thing as complaining that its employees are overpaid.

I shan't go into Stein's slightly peculiar idea that having Exxon Mobil working overseas oil fields somehow makes OPEC less effective. But I shall leave as an exercise for the reader the task of finding counterexamples which disprove this statement of his:

Envy is simply not good economics. It has never led anywhere except to trouble.

I'll start things off: How about the French Revolution?

Yes, Ben, you're quite right to say that "we need the oil companies" - although I don't think that's "a scary fact". What we don't need is for those oil companies to make more than $40 billion a year in profits - that's money left over not only after paying employees, but also after reinvestment in exploration and R&D. Those profits don't help Exxon, they help Exxon's shareholders. You're one of those shareholders, I'm sure. But while America might need Exxon Mobil, it surely doesn't need Ben Stein.

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This article has 33 comments:

  •  
    Mar 03 05:38 AM
    I normally enjoy your thoughts and generally find myself in agreement with your conclusions, but I don't understand your concern with the profits of XOM. You seem to think that it is outrageous that a company earn this type of return, but you don't have any basis for saying so. Sure, $40 billion sounds like a big number. It is, though, just 11% of sales - not exactly off-the-charts! You ignore the $30 billion that they paid in taxes. Maybe this is the outrage! GE reported income of "only" $22 billion, but reported taxes of just $4 billion. Why aren't you clamoring against that "underpayment&quo... I am glad that you are not.

    If we were to cap the profits that a non-monopoly company can earn, we would discourage other companies from competing in that industry. In the long-run, this would be bad for every American, as our domestic supply of energy would not grow and we would be exposed to even higher energy costs. High profits is a signal as would be low profits.

    Hey, I have no gripes with you taking a few swings at an easy target like Ben Stein, but please come up with some justification for your own arguments besides throwing around a large number. You are a journalist, not a politician. We expect slightly better!
    Reply
  •  
    Mar 03 05:39 AM
    your stupid.
    Reply
  •  
    Mar 03 06:31 AM
    So, what exactly, are "excess profits?" In excess of what? Some number a politition picks? Some relation to revenue? OPEX? What? I don't see you writing that Microsoft is ripping off American consumers yet MS's profit margin is much, much higher than XOM's or any other oil company for that matter. C'mon - producing oil and gas is an extremely expensive and risky business. I don't recall any writing that we needed to help out the oil companies when oil prices were $10 a barrel...
    Reply
  •  
    Mar 03 07:32 AM
    Greed - A desire for the unearned. Now re-read your own statement and tell us again who is the greedy one... an XOM shareholder who has risked his own capital in return for a profit, or the person who points at another's wealth or property and publicly proclaims that it should be confiscated, simply because they are, in your eyes, too successful. Since when has looting become rightous?

    Your position represents nothing more than the greed you claim to despise directed toward shareholders (and often employees) that hope to make a profit by capital investment. You, and Mr. Obama, ought to both be ashamed.
    Reply
  •  
    Mar 03 08:39 AM
    Please take this a step further. How do your propose to "confiscate" XOM's profits? Through a tax? Do you think this will then cause XOM to lower its prices to avoid paying this extra tax? No- it is a new COST. They will pass this on to its consumers (higher prices), or redirect its capital resources to another area (less supply- i.e. higher prices). I struggle to see how adding taxes/costs to a business model will benefit the consumer. We may all feel better about ourselves that XOM is making less profit, but nobody will be helped. In fact, the opposite will be the case. Kind of an expensive way to make ourselves "feel" better, don't you think?
    Reply
  •  
    Mar 03 09:23 AM
    Big Oil like Big Healthcare is nothing more than a monopoly. When politicians work hand in hand with corporate lobbyists the eliminate competition it is not capitalism, but fascism. The role of government should be to stimulate the economy by promoting competition and investing our tax dollars in competitive sustainable sources such as solar, wind, wave, thermal and nuclear energy. This is how we got to the moon, and this is how we will solve our current energy and economic problems.
    Reply
  •  
    Mar 03 09:51 AM
    Yale Law School? Obviously you were a legacy.
    Reply
  •  
    Mar 03 09:58 AM
    I don't understand the concern folks have with how much money XOM makes. It doesn't affect me at all. Prices at the pump have nothing to do with XOM per se. If XOM went away overnight, prices wouldn't change. XOM only produces 3% of the world's oil. "We" got way bigger problems than XOM's profits.
    Reply
  •  
    Mar 03 10:03 AM
    OOooooohhh! It sounds more like somebody has their pantyhose in a wad because they don't have a column in the NYT like Ben Stein. In reply to your egalitarian smack-down, what about all the retirement funds and profit sharing funds that the "common people" are invested in? Doesn't it count that they are profiting from this windfall, as well? As one other responder wrote, where were you when their profits were in the tank?
    It says a lot about the character of a writer when they choose to take cheap shots. Seeking Alpha - take note. We don't need articles from small thinkers such as this writer.
    Reply
  •  
    Mar 03 10:10 AM
    Profit is but one metric. Compare XOM's return on equity with other industries. I think you will discover it is 'middle of the road' at best.
    Reply
  •  
    Mar 03 10:11 AM
    IF AUTHOR HAS AN INKLING OF ECONOMIC AND FINANCIAL ENLIGHTENMENT, RUN SOME COMPARATIVE MEASURES OF INDUSTRY PROFITS, RETURN ON EQUITY, RETURN ON ASSETS, RETURN ON TOTAL INVESTED CAPITAL, ETC,ETC, AND YOU WILL NOTE BIG OIL'S MEASURES OF PROFITABILITY AREN'T SPECTACULAR. AND EVEN IF YOU MANIPULATE NUMBERS TO ARRIVE A SELF-SUPPORTING CONCLUSION, THEN TAKE 5 AND 10 YEAR AVERAGE RETURN COMPARISONS AND BIG OIL'S MEASURES WILL PROVE WELL BELOW AVERAGE IN INDUSTRY PROFITABILITY RANKINGS. BUT, THIS VIRTUAL ANTI-CAPITALIST STARTS WITH THE DEMOCRATIC RULE NUMBER ONE FOR PUBLIC DECEPTION AND CLASS WARFARE -THROW OUT THAT "HUGE" $40 BILLION NUMBER, FOR THAT'S ALL THAT THE LITTLE PEOPLE WILL REMEMBER, IT MAKES THEM VICTIMS IN DESPARATE NEED OF A DEM POL SAVIOR, AND THIS IS HOW THE COMING ELECTION WILL BE WON - WITH DECEPTIVE APPEALS TO UNTHINKING PEOPLE WITH NO UNDERSTANDING WHATSOEVER FOR CAPITALISM AND FREE MARKETS. THERE'S BIG TROUBLE AHEAD ON ALL FRONTS FOR OUR BELO0VED U.S.A., BUT EXXON ISN'T THE CAUSE AND $16 BILLION IN NEW TAXES ON A CRITICAL INDUSTRY WITH SHORATGES AS FAR AS THE EYE CAN SEE IS SO ASININE, 180 DEGREES WRONG THAT THE MERE PROPOSAL OF SUCH AN ECONOMICALLY INSANE BILL FULLY DISQUALIFIES THE CANDIDATE AND THE PARTY FROM SERIOUS CONSIDERATION. AND NO REFINERIES BUILT IN USA IN LAST 30 YEARS - HMMMMM, NO DOUBT THIS, TOO, IS XON 'S AND BIG OIL'S CONSPIRACY , RIGHT??? " A NATION WHICH EXPECTS TO BE IGNORANT AND FREE EXPECTS WHAT NEVER WAS AND NEVER SHALL BE !" - JEFFERSON
    S
    Reply
  •  
    Mar 03 10:41 AM
    I'm a member and current president of an investment club. No high rollers just everyday middle income people. Our best investment has been Exxon Mobil with a annual return of 22.4% since 2003. We have chosen to invest in the future of ourselves and America. We could simple just spend all the money we earn but we don't. We take less expensive vacation, spend less on gadgets, and eat out less often. A federal grab of "excess" profits is a grab of our hard earned money and investments. Like Ronald Reagan once said the scariest words in the English langauge are "Hi, I'm from the government and I'm here to help. We don't need help from the federal government to protect us from Exxon.
    Reply
  •  
    Mar 03 11:41 AM
    All excellent comments about an article that seems to be the antithesis of capitalism--which is clearly what made this country the strongest in the world.

    A question and a point to the author and anyone who thinks like he does:

    1) QUESTION: Please supply me a list of all the other companies that are making "too much money" so that all investors know not to buy their stock (tongue fully in cheek).

    2) POINT: You want to reduce Exxon's profit? It's easy to do it consistent with the free enterprise system--you and anyone agreeing with you, stop using oil-derived products. Ride your bike, do not turn on the gas heat in your house, don't buy anything mader of plastic.

    THAT will teach those fat-cat oil companies a lesson, don't you think?

    Jack Yetiv
    Reply
  •  
    Mar 03 11:45 AM
    The capital employeed for Exxon to make this "excessively"... large profit is nearly $500 Billion. They make a lot of money because they are a big company. Their 10-11% return is about average for the S&P 500.

    Now take a look at Google. Google reported net income (after tax) of $4.2 Billion in the last year. That $4.2B was on revenue of $16.5B or a 25% after-tax margin. Compared to XOM's after-tax margin of 10.4%, it is Google who should be paying windfall profits tax.

    I also like the idea that government would do more good with the excess profits than XOM or shareholders. This is the same government that has a 200 person agency to do nothing more than watch FreddieMac and FannieMae and they are imploding.

    If people have trouble with the price of gas, get a horse. I think you will realize very quickly that gas is really cheap.
    Reply
  •  
    Mar 03 11:54 AM
    You don't approve of Exxon? Try drilling for your own oil. While you are at it, try pushing your car wherever you want to go.

    Ron BW
    Reply
  •  
    Mar 03 11:58 AM
    Exxon is probably one of the best run-best managed companies in the world. So when they follow the laws and regulations and make a big profit (primarily because they are very big) that is unacceptable to many and another tax is necessary.

    I wish most of the other companies I own were run as well as Exxon.

    Sounds like you may prefer the model where the state provides your oil.
    Reply
  •  
    Mar 03 12:01 PM
    NJ regulated ob/gyn-s right into neighboring states. It did it with insurance companies to such a point that to lure them back it had to agree to absurd rate-worthiness conditions. When people and job sources vote with their feet across the rivers (Good-Bye to warehouses off NJTpke exites 8/8a) then the morons try to pass legislation taxing food - not just restaurant food - but food "food".
    Reply
  •  
    Mar 03 12:07 PM
    XOM paid 97 Billion in taxes and government royalties is 2006 with profits of 36 Billion. That is almost 3:1. This is what disturbs me. Obama says he wants to raise taxes on XOM. Does he not realize that all corporate taxes are passed on to consumers. If Obama or any other politician cared about my pocket book they would cut taxes on XOM.....and Wal Mart and Sears and Costco and Walgreens so their lower costs could be passed on to me. Raising taxes on the "big bad greedy corporations" is popular to most Americans, but what they are really doing is taxing themselves.....not XOM. By the way XOM had 400 Billion in sales and I think a ten percent return is not bad. There are also "hidden stockholders" of XOM that are benefiting. These are all the state and government retirement systems that invest in the stock market. Is your 401-k up? If it is some of the thanks goes to XOM.
    Reply
  •  
    Mar 03 12:33 PM
    Stein is right, the overwhelming number of Exxon Mobil employees are not millionaires, nowhere near it. The profits that Exxon generates are at least in some significant part a result of the hard work of the blue collar Exxon employees like myself. Our retirement funds are largely based on the price of XOM stock which, of course is closely related to the company profits. I am in a conundrum here. I in general support the ideals of the democratic party but when I hear Obama and Clinton villainize a company that I and my fellow American workers have worked hard to build I get sick to my stomach. Please don't force me to vote for McCain.
    Reply
  •  
    Mar 03 12:46 PM
    The idea that a particular comapny or industry should be taxed differently than all others, or that the dollar amount of profits should somehow be limited to a certain level, goes against everything this country stands for. This is the politics of envy and yet another example as to why this "country may be headed in the wrong direction."
    Reply
  •  
    Mar 03 12:52 PM
    It's amazing how many people, including the author, are bedazzled by large numbers. It's too bad they failed basic economics and do not comprehend simple concepts like margin and ratios.
    Reply
  •  
    Mar 03 01:06 PM
    How many "common folk" have a 401k or pension plan? How many of those investments own a piece of Exxon Mobil in their portfolios? Exxon Mobil makes around .10 cents profit on each dollar of revenue? ... 10% is not outrageous. But let's not let the facts get in the way of hammering those greedy oil companies. Obama and Clinton are critical of the oil companies because they know the "common folk" BMW (bitch, moan and whine) about higher oil prices. Its all about trying to get votes. They will say anything to get elected.
    Reply
  •  
    Mar 03 02:38 PM
    I note that while the writer quotes Barack Obama as having a problem with the profits of Exxon, Mr.Obama apparently has no problem with the compensation of the trial lawyers; no doubt neither he nor Hillary would have any problem serving on the boards of major corporations.

    Incredibly, he uses the French Revolution as an illustration to counter Stein's statement that "envy...has never led anywhere except to trouble".

    Maybe he has not read Dickens "A Tale of Two Cities".
    For those of us who have, I would compare Hillary to Madame De Farge (knitting by the guillotine as she said "off with their heads")
    I guess Barack would be "Citizen Chavelin".

    These people trade in racial division and envy. It is how they achieve power. And their support of illegal immigration is to further increase the numbers of this "envy base" as they seek to dismantle the petroleum industry and simultaneously build a heavily subsidized "alternative energy" economy.

    Reply
  •  
    Mar 03 05:03 PM
    Felix, I guess you miss the point. If Hillary can TAKE a private company's property, what is stopping them from taking anyone else's property? That's right, absolutely nothing!

    Our whole free market economy is built upon basic rights. One of these is the right to one's own property without theft by others. If you want to be a part of Hugo Chavez's regime, you can always go join his cause.
    Reply
  •  
    Mar 03 06:36 PM
    Dear Happy Fish,

    If you can say that ExxonMobil makes profits that are 'too high', then you can and MUST say that columnists, analysts, nay, even the general public, has the right to tell each other they have too much wealth and demand that they hand it over.

    I don't know how much you make, but if this column represents value for your pay, I immediately insist you make entirely too much money and I demand you hand some over to me.

    See how great that works?

    Hillary says "I'd take that money"... it's Exxon now and then later it's McDonalds and Marlboro and... eventually it gets to you and me.

    That is tyranny. You are a future tyrant, or at least a happy slave of a tyrant. Because you don't understand property rights or freedom.

    Reply
  •  
    Mar 04 07:56 AM
    Truly a Corporation can't be taxed ;the corporation passes the tax as an expense down the line to end users. Collecting the tax here is easy.
    We create corporations to have a wealthy person that can afford leases, pipe lines ,ships,refineries and etc to provide us with fuel With out this wealthy person we would be just another Haiti !We need profitable companies ,they pay our salaries ,we all live off of the same dollar the same pot of money. A millionaire buys goods , cars ,plumbing, furniture ,boats and etc.;hundreds of families live on these same dollars and we all live well. The socialist just don't get the picture, they want us all equal with $0.50 in everybodies pocket and no one or nothing to afford an electric company or anything yes we would be a third world company.
    Exxon making profits is wonderful ; it means we are doing well.We pay the taxes ,Exxon does not
    It is tough to see the CEO have a Yacht while we only have a fish and ski.
    Barack and Hillary just don't get the message ,they will lead us to a life in a third world country like Haiti ! Taxes are only paid by end users ,collected elsewhere.
    Reply
  •  
    Mar 04 10:35 AM
    I think the economics profession can all agree that Yale Law has yet to trun out an economist of any strip. But, we wish you and Ben well. Will there be a dual with shotguns? One can only hope.
    Reply
  •  
    Mar 04 12:27 PM
    The last I looked the US was a capitilistic society which implies individuals and corporations are allowed to make as much money as they can. The fact is we need oil and will continue to need oil for a long time. The fact is finding oil is very expensive and getting more expensive and much of their profits go right back out the door to exploration. The fact is Exxon controls about 3% of the worlds oil, and it is getting increasingly difficult to find oil in areas not controled by governments unfriendly to the US. Would the author of this article prefer our money go to some middle eastern country or Venezuela? The idea that the US government would take the profits of a US corporation, which employs US workers, which pays US taxes, away from the corporation is nothing more than socialism. Congratulations to Ben Stein for having the guts to speak the truth, no matter how unpopular it may be.
    Reply
  •  
    Mar 04 09:59 PM
    it does not help the stockholders as much as you might think. Oil companies pay some of the lowest dividends there are, partly because of the volitifity of the market. Believe it or not, there are boom to bust cycles and exploration must go on even in lean years.
    Reply
  •  
    Mar 04 11:41 PM
    Salmon is also incorrect in saying that the $40 billion profits are what is left over after (among other things) reinvestment). New investment is not an operating expense that can be deducted from pretax income; it has to come from after-tax profit (i.e., the $40 billion), new equity capital investment by third parties, and/or funds borrowed from third parties.
    Reply
  •  
    Mar 06 08:50 PM
    Let me see if I have this straight - XOM should be taxed because they do NOT have control over the commodity price at which they sell their product, and that leads to higher profits. These prices are a function of geopolitical unrest (Venezuela/Nigeria/Ira... economics (dollar fall against other world currencies), NIMBY-ing (no new refineries built in the US in the last two generations), skyrocketing Far East demand for oil and refined products, nationalization of assets, etc., etc., etc.

    While we're at it, let's also tax the gold producers since gold (along with almost all other commodities) has seen a run-up in prices not unlike oil as investors seek a safe haven for their investment money. To paraphrase one of the other respondents, nobody offered me any assistance when I was selling some of my lower grade oil at $3/barrel in the early-mid 90's - why should I be punished for higher prices?
    Reply
  •  
    Mar 13 08:07 PM
    I cannot understand why everyone is objecting. After all, Hillary is so smart, and Obama is so charismatic. I'm SURE they know exactly what to do with all the ripped off profits and it has nothing to do with the "general welfare". It will be only to perpetuate their political power to the detriment of the rest of us.
    Reply
  •  
    Mar 23 12:51 AM
    Exxon Mobil, Saudi Arabia and your wallet - if you want to find out how they are related check my slde share posting below:

    www.slideshare.net/zaf.../
    Reply
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