Economics education should be mandatory

The Senate gets it wrong investigating recent oil profits, and the press exacerbates the problem. Consider:

The chiefs of five major oil companies defended the industry’s huge profits Wednesday at a Senate hearing where lawmakers said they should explain prices and assure people they’re not being gouged.

There is a “growing suspicion that oil companies are taking unfair advantage,” Sen. Pete Domenici, R-N.M., said as the hearing opened in a packed Senate committee room.

“The oil companies owe the country an explanation,” he said.

Lee Raymond, retiring CEO of ExxonMobil (XOM), said he recognizes that high gasoline prices “have put a strain on Americans’ household budgets” but he defended his companies huge profits, saying petroleum earnings “go up and down” from year to year.

“Huge profits” is also in the article’s title. “Huge” is a relative term; saying profits are huge doesn’t make it so. There are other places to get detailed numerical analysis of the fallacy of “huge” profits, but near the end, the article cites James Mulla, chairman of ConocoPhillips, in pointing out that the company’s $3.8 billion profit is a 7.7% profit margin. How is that “huge”? Just like price, volume factors into the final equation. The article should not say “huge”.

I’m not surprised, though, because even our senators seem oblivious to basic business knowledge. If Sen. Domenici really wants an explanation, he can read the financial statements for every public oil company, just like investors do. Here’s a quick test for the Senators: Is ExxonMobil priced correctly at $57.84 per share? How about ConocoPhillips at $66.90 per share? Like profits, one piece of information is all you need to know the answer, right?

2 thoughts on “Economics education should be mandatory”

  1. I’m okay with that. I was thinking as a requirement for high school graduation, but since not all voters will graduate high school, I could accept voting as the requirement. Of course, thinking should be a prerequisite for voting, too.

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