My local newspaper is Foster's Daily Democrat, based in Dover, New Hampshire. Yesterday, I made the mistake of reading one of their editorials (free registration required, suggest you not bother) entitled "First AT&T, now 'Big Oil'." It is just so shoddy and stupid… I feel the need to share the pain. It begins:
"There are three kinds of lies: lies, damned lies, and statistics."
— Mark Twain
There are certainly more than three insufferably pretentious ways to lead off a short editorial. The writer picks one: this well-known Twain quote, which might have have conceivably been appropriate if the editorial went on to accuse someone of lying or citing fraudulent statistics. As we'll see, that doesn't actually happen.
After weeks of a sustained frontal assault on their record-breaking profits, the oil industry came out swinging last week. Leading the pack was ExxonMobile [sic] which reported $36.1 billion in profits for 2005, an increase of over 40 percent. For the first quarter of this year, profits topped $8 billion with the company's estimated intake at $1 million a day.
The extensive research the writer did for this editorial did not include nailing down the correct spelling for "ExxonMobil". Nor did the writer do a simple sanity check on the "estimated intake" of $1 million per day; that would result in a quarterly/yearly totals about a factor of a hundred lower than the profit numbers quoted. Is this a lie, a damned lie, or a statistic?
Citing only an 8 percent margin, oil executives and talking heads justified the profits as "reasonable."
But reasonable by whose standards?
Let me guess the implied answer: not my standards, buddy boy. I'm doubtful whether the writer actually bothered to read, let alone understand, any serious discussion of profit margins. Let's see:
The average mom and pop business works on a margin of 2-4 percent, if they have one at all. Grocery stores, which depend on volume as do the oil companies, work on a 2 percent spread.
I'm not even close to being a business expert, but even I can notice a fallacious comparison of apples and … um, gasoline.
An honest writer would ask: are ExxonMobil's margins out of whack with comparable companies? And the answer isn't that hard to find: no. For example, here's a WaPo article that ranks ExxonMobil's gross profit margin at 127th within the Fortune 500. And at USA Today, they say:
… Exxon's profit margins are below-average compared with others that have triggered no outcry. Exxon's first-quarter profit margin was 9.4%, meaning it kept 9.4 cents of every $1 in revenue. Microsoft kept 27.3 cents of every $1 in revenue in its most recent quarter; General Electric, 11.4 cents and McDonald's, 12.3 cents. In fact, Exxon is below the 11-cent average of Standard & Poor's 500 companies, says analyst Howard Silverblatt.
So, back to the Foster's editorial, which is fast approaching incoherence:
"Big Oil" benefits from its size. Were it smaller, 8 percent might be reasonable. Given that oil has replaced AT&T as the country's largest monopoly, 8 percent is gluttony.
It is nonsensical to lump a bunch of companies together as "Big Oil" and call the agglomeration a "monopoly"; this just shows the editorial writer doesn't know what a monopoly is.
A windfall profits tax currently being discussed in Congress will do little to help the average driver, nor will peeling back the federal tax for a couple of months. Ditto a $100 rebate. On the other hand, threatening to breaking up Big Oil's monopoly might get its attention.… getting "attention" is, of course, the goal of every petulant child going off on a tantrum. Other than that, the writer provides no justification for any of these judgments as to what will "help the average driver". (How much of your $2.90 per gallon goes to those nasty profits? How much goes to taxes? Did the editorial writer even try to find out?)
It would be entirely appropriate for the editorial writer to read Arnold Kling's article "Energy Policy for Idiots":
Let's go s-l-o-w-l-y. Start by asking yourselves these questions:
- Should the goal of U.S. energy policy be to raise long-term domestic energy production, or to reduce long-term domestic energy production?
- Should the goal of U.S. energy policy be to increase profits earned by Iran and other foreign producers, or to reduce their profits?
- Should the goal of U.S. energy policy be to increase consumer demand for gasoline, to leave consumer demand alone, or to reduce consumer demand?
Neither questions nor answers are too tough. Even for a Foster's editorial writer.