Promoting Ignorance

I seldom watch the evening news because everything it presents can be found in shorter, more productive (i.e., less sensational) formats on The Internets. Last night I stumbled on a segment on NBC where Brian Williams introduced the news that Exxon Mobil produced a record profit of $39.5 billion for 2006. Rather than taking the standard “windfall” profits route, Williams hit a different bit of stupidity. He set up the reporter to address this popular “outrage” by asking what incentive Exxon Mobil now has to find alternate energy sources. Ehhhhhhhhh.

I didn’t listen to the answer because, as he asked it, his implication lacked any notion of understanding or belief that Exxon Mobil might not drive its business into the ground seeking ever greater profits from oil. In the larger context of the economy, Exxon Mobil doesn’t have to perceive any incentive to find alternate energy. Perhaps Exxon Mobil doesn’t want to be in that business and believes that oil (and natural gas) will be around long enough that it can keep generating profits without alternate energy sources. I doubt its executives believe that, but it doesn’t owe anyone beyond its shareholders an obligation to adjust its business to market pressures. If alternate energy is potentially profitable, someone will pursue it. That someone will most likely include Exxon Mobil. This is not complicated.

Of course, the $20 billion or so that Exxon Mobil invested in exploration and research last year suggests that they’re at least working to find more oil, oil that we currently can’t reach or find. While not an alternate energy source, finding more oil delays the need for finding an alternate energy source. The scarcity and political ramifications that Williams probably thought he was asking about are a bit more complicated than one company generating a large┬╣ profit through its activities. If Williams wanted to make that point, he should’ve offered a monologue on how a $39.5 billion profit is socially irresponsible or some other pontification. He probably figured that Al Gore already has that covered, which left him free to continue his economically simple misunderstanding.

┬╣ I’ve made this point before, but it probably needs to be said again. In absolute dollars, $39.5 billion is impressive and mind-boggling. In the context of the expenses (and taxes) needed to create such a figure, a great deal of the luster wears off. As a percentage of total revenue, the net profit is only 10.45% (39,500/377,635). Many companies with a smaller absolute dollar profit have significantly higher profit ratios. To illustrate this point relative to Exxon Mobil, its revenue for the fourth quarter of 2006 decreased (pdf link) by more than $9 billion from the same quarter in 2005. Yet, it managed to keep net income mostly stable by lowering its costs. There’s obviously more thorough analysis needed to give that weight, but only politicians with a populist axe to grind would hammer its conservative results. Maybe I should hammer away at the “revenue” brought in by the U.S. government.

2 thoughts on “Promoting Ignorance”

  1. Also keep in mind that XOM has to split that huge profit among many many shareholders — 5.8 billion shares outstanding. That’s $6.61 per share — big whoop.
    Also, many many of those shares are owned by the government, in employee pension funds. There’s a word for that: collaborator.

  2. When the “record profits” outrage hit, last summer – I did a brief comparison with some big-gainers. Citibanks net profit (in %) was more than double XOMs, if I remember correctly.

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