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How is this unethical? They’ve decided to run they view as a more efficient, profitable business. There is nothing stopping any company out there from switching back to the older model, keeping their prices lower, and thusly, getting more business than the other producers because they are able to keep prices lower. There also isn’t anything stopping other companies from getting into the oil refining business and running it on the “higher inventory” model – except for government regulation. That’s what’s kept any new refineries from being built in this country for over 20 years.

I hate to tell you this, but the “just-in-time” or “low inventory” model is used by many, many businesses now. How do you think grocery stores run now?

Businesses are run for profit. They’re not run as a public service. Realize that. I disagree with price collusion and the like, but let the market take care of it, not government regulation. Because government regulation has made this situation bad enough as it is.

So is everyone that profits from market instability unethical? The idea that if you see an opportunity, like instability in a market, and take the risk to capitalize on that, then you are unethical, is ludicrous. I suppose you think buying low and selling high is unethical as well, because you’ve taken advantage of all those poor people who sold you their stock when it was low and then you went a profited on it.

This is how investment works. It’s not unethical in the slightest.

Go after the actual unethical things that oil companies do, like paying off politicians to legislate tax breaks for them. But don’t start with the idea that taking a risk in an unstable market and making a profit off of that risk is unethical, because it’s most certainly not.

As for letting the oil companies cut their own throats by pricing themselves out of reach, I think you’re absolutely right, and that’s exactly what we should do, even if it hurts a bit in the interim. The only way to solve this problem is to reduce the usage of oil in this country, and that’s not going to happen as long as oil is cheap and plentiful, because it’s not profitable to develop, produce, and distribute alternate energy sources unless gasoline stays above a certain price point.

It could even be other oil companies that cut the throats of the current oil companies. If another oil company came along that used the “old oil model” and was able to offer consistently cheaper prices, it would near bankrupt the current oil companies. And the money that company would make would more than make up for the initial loss in profits by keeping a larger inventory of oil on hand.

My point is – we need to let the market take care of it. More government regulation will simply put a band-aid on a gaping wound, and not treating it will just make it far, far worse later.

I agree with you about the market aspects of oil pricing and profitability, Imp. But, fair is fair, and I say cut out all the oil industry’s corporate welfare. I hope you agree.

I most certainly agree.

How is investing different from what the oil companies are doing?

Let’s take the biggest example of investing and the most visible place of selling high and buying low: the stock market.

Let us say that I am an individual investor with an account. In that acount I have ABC, DEF, GHI, and JKL stocks.

I notice that ABC’s price is going through the roof, so I decide to put in an order to sell it either at market or whatever price I think it will get up to. On the other hand, JKL is looking kind of low. But, JKL, while not a blue chip, is usually a good company. I expect that the price will come up again, so I put in an order to buy shares while the price is low.

Lots of other investors are doing the same things that I am doing. ABC is going up, so people looking to make a profit on the investment are putting in sell orders. JKL is low but expected to go up again, so they are putting in orders to buy.

Eventually the market will become flooded with ABC and short of JKL and so ABC will start to go down and JKL will start to go up. This is because the share price, among other things, tends to go up when there is a higher demand to buy than to sell and down when there is a higher demand to sell than to buy.

Okay, let’s move out of example for a moment and into something tangible.

I use Google mail. Google mail is free. Woo hoo! Whatever.

Google closed at a whopping 427. Don’t get me started on this price, but… Tomorrow if Google closes at, say, 20, then my Google mail isn’t going to suddenly not be free because of this. A $400 dollar loss in the stock price doesn’t mean a $400 dollar loss in the company. Someone may have just wondered what in the hell they’re doing buy a share for that much. Who knows.

Investments in the open stock market are second hand. When you pay 427 for a share of Google stock, Google sees none of that money. The stock holder who just sold it does. The price of Google does reflect how Google is doing, but Google’s stock price doesn’t determine how Google is doing. If Google is doing well as a company, then it will continue to do well, no matter what the stock price. If my Google email is going to be free, it is going to be free because Google can afford that. When Google can no longer afford that, then it won’t be free, but that will never be because someone decided that they would only sell thier Google stock at a certain price or to certain people.

Now, you stated that the oil companies “taking a risk” on the instability of the world oil market is the same thing and I am sorry, but it isn’t. It is vastly different. It is different because the “risk” that the oil companies are taking, unlike an investor’s risk with Google stock, directly affects the price that I have to pay for gas and whether or not I can afford to put gas in my tank.

The oil companies decide that they want to take the risk of not having supplies by buying on demand instead of storing oil. As a result, they have to buy oil at higher and higher prices as they have to compete with other oil buyers.

Okay, let me pause a moment and go back to the stock market analogy.

Let’s say that I have 100 shares of JKL. When I notice that JKL is a bit low, I buy another 100 shares. Now let us say that the first 100 shares were bought at $50 a share and the second 100 were bought at $40.

A year later, JKL is through the roof. It is at $90 and I decide to sell some of it. Let us say that I decide to sell 100 shares. For tax purposes, I have to decide selling by one of three means: FIFO (that is on the books, I am selling the first 100 shares, which were bought at $50… a $40 profit), I can sell LIFO (that is on the books selling the $40 per share buy for a $50 per share profit) or I can decide to sell as though they were all mingled, I can’t remember the exact term now (so I am selling as though the price bought was $45 a share, making a $45 profit, this being the average price of all of them). It’s been a while, but I think I can do that after a certain amount of time holding the stock.

Let’s say that I decide I want to just sell all of them. Then I do have an average profit of $45 per share.

Okay. Back to the oil companies.

When the oil companies were stockpiling, their actual profit was an average profit of what was bought before and what was recently bought. Let’s say that over the year, to work with easy amounts, they had already a store of 2000 barrels that were bought at $20 a barrel. They purchase over the year another 1000 at $60 a barrel and make $100,000 selling oil (in forms of gas, plastics manufacturing, etc, etc, etc). Their profit isn’t just $40,000 (ignoring other operating expenses for a moment). It is actually larger because of the stock that they had already. In fact, because of the stock, they can, as Code said earlier, hold off buying when the price is too high so that prices at the pump can stay relatively low. Barring any huge disasters, etc, the consumer can afford gas.

Now, the oil companies don’t have the cushion of huge stockpiles. They decided not to do this because they saw they could make a bigger profit by not doing so. So the prices they charge are directly affected by the most recent prices they’ve paid for oil.

What makes the practice unethical is that they don’t HAVE to do this. They made a choice to move to a high-risk method of buying and selling. As any day-trader will tell you, while high risk can give you the most profit, it is also at the highest cost. But, unlike a day trader, the oil company is able to shift off the high cost. Instead of them paying the high cost, they just charge more for the gas and we pay the high cost of their high risk taking.

Unfortunately, you aren’t going to see the big oil companies willingly going back to the old way of doing things. As I said, high risk equals high profit. And since they can pass the cost along, why should they stop taking the high risk?

New oil companies aren’t going to come along doing things the old way. Think of the big oil companies like Walmart and the US like a small town. What does Walmart do to small businesses? When you have a huge Walmart in a town, how easy is it to start up a small mom and pop shop that isn’t an extremely specialized shop? It is very much the same thing.

Yes we as people can cause a change by seeking alternatives. But I am lucky if I can afford to eat. I can’t, as much as I would like to, afford to buy another car. And I can’t afford to have my car altered to run on corn fuel. When I can afford it, you damn well bet I will get myself as far away from buying gasoline as I can (I’ll raise freaking horses if I have to… I’d *hate* that, let me tell you). But until then, I can’t.

So what are we to do then? What makes it worse is that as gas prices skyrocket, our infrastructure becomes more and more threatened. The people who are hurt worst are people like me. Food prices increase because transporting foods from warehouses and production plants to stores increases. I’ve been watching the price on the cheap milk go steadily up over the last few years. In fact, I’ve been watching the price of all my food go up. And while it isn’t every week that I can afford to buy a little less food, my $100 – $150 every two weeks (just for me and Street) to buy food doesn’t go as far now as it did six months ago or a year ago.

This is the price I pay because the oil companies want to be more “profitable”?

Screw that!

Also, ethical in one place doesn’t mean ethical in another.

Example. I am having to write a report about a project that is being done by a company. This is a key project. Very big deal. I leave out the fact that while most projects have a 7% adminstrative cost, this one has a 10%.

Is this ethical?

It depends. If I am doing a detailed financial report about the project, then leaving this information out is highly unethical.

If I am writing a PR report about the project, unless I am highlighting costs for some reason, then leaving the information out is not unethical as it probably isn’t applicable to the purpose of the report.

I think the idea of “unethical” is very problematic. Corporations exist to make money for their shareholders – the owners of the company.

I don’t know that I believe that corporations owe much duty to non-shareholders. They must, of course, obey the laws and such…but to expect corporations to adhere to some debatable notion of the “public interest” is odd to me.

And, from a market perspective, I have to say that I *like* seeing $3 gas. Expensive gas provides a market incentive for people to act more responsibly, which is a good thing.

I live in southern MO, and almost all the people I hear complaining about our ($2.79) gas drive HUGE trucks with big wheels.

Screw ‘em!

Conserve. Buy a smaller vehicle. Drive less. Carpool.

And I’m not some hippie – I’m a very orthodox professional guy who drives a pretty new, quite reasonable sedan.

But I believe in market solutions, and $3 gas is a decent start to remedying our unsustainable petroleum lifestyles.

I’m absolutely with you on that comment, arr. Untampered-with markets tend to conserve scarce resources and encourage people to come up with alternatives, because the more scarce a product becomes, and the greater need for it, the higher price, and the greater the incentive to come up with a lower-priced alternative, as well as to reduce your consumption of that resource.

This is exactly what needs to happen with oil.

As for the practices of the oil companies being “unethical” – again, I call bullshit. As Arr has said, their responsibilities are to make money for their company and their shareholders, and to stay within the law. They are being ethical, and making money doing it. You don’t like it, pi, because you’re not making the money and it’s costing you more for gas. Boo hoo. Invest in oil companies, and use less gas.

Now, all that being said, Imp (and I appreciate the kudos), it’s worth mentioning that there is nothing resembling free competition in the energy industry.

In fact, I think it’s fair to throw the phrase “market failure” out there. Neoclassical economics (aka “supply and demand” a la Adam Smith) relies on 2 huge assumptions: buyers and sellers both possess perfect information about the good and its market, and the market is perfectly competitive – there are no barriers to entry or impediments to trade.

Market failure.

What we have is an energy market characterized by decades of rent seeking. “In economics, rent seeking is the process by which an individual or firm seeks to profit through manipulation of the economic environment rather than through trade and the production of added wealth. Rent seeking generally implies the extraction of uncompensated value from others without taking actions which improve productivity, such as by imposing regulations or other government decisions harming consumers.”

So-called “free market” advocates never seem to acknowledge what economists call the “Virginia school” of economics, which is largely tied up in the economics of lobbying. The basic principle is simple:

Firms lobby to capture gains from trade and extract rents.

Try to start your own oil company. Aside from the prohibitive cost (a legitimate economic problem – too bad for you), you’d face an insurmountable regulatory web designed NOT by those hippy democrat enviros, but largely by the energy industry itself. Why?

One of the best ways to extract rent is to get legislatures to enact barriers to entry, and thus curtail competition and throw most of the principles of neoclassical economics out the window.

So all that being said, I still don’t mind $3 per gallon gas.

But I guess the nutshell version of this post was to make the point that, at least regarding oil/energy, there is by no means an “untampered-with market.”

I agree. But I think that the largest reason behind that is government intervention. Like I mentioned in comment 3, with oil companies paying off politicians to legislate tax breaks (and many and varied other advantages) for them.

All this shows is that things would work better, especially in this case, if the government wasn’t allowed to be as involved with the market, and wasn’t allowed to tamper with it as much as they do currently. Because that’s always going to come down on the side of who can give the people running the government the greatest advantage as to who gets the governmentally-created advantage.

This is why I’m in favor of taxation systems which are simple, transparent, and don’t allow tax breaks or other tax advantages based on certain activities, because that is exactly how these things get started in the first place.

Boo hoo, huh?

Tells me all I need to know.

Thank you

Boo hoo, indeed. You’ve made choices that have put you exactly where you are at today, as we all have. Those choices could have included putting yourself in an economic position where you wouldn’t be bothered by increased gasoline prices, even one where you could be benefiting from them. You’ve chosen to do otherwise.

Instead, you complain and say that people or companies are unethical, because they’re not doing what benefits YOU, when that isn’t even within the bounds of ethical behavior on their part. Grow up.

First, no one is unaffected by the prices… even the rich are starting to get pissed about it. Second, maybe you should take your own advice and grow the fuck up. I may not agree with you about most things.. but I have not yet decided that I would shit on you personally because I disagree with you. You on the other hand can not seem to have that same curtesy.

That is fine. I am now going to cease saying anything else because I am certain that I am the one that is going to get yelled at for saying anything to you, whereas you being a dick in this forum (that which I have been yelled at for pleanty) will warrent nothing being said to you.

Let me also qualify my point of view:

I don’t work for a “company” as much as I work for myself. My father and I own a small chemical company, we are it’s only employees, currently. We don’t make tremendous amounts of money, enough to support ourselves but not a whole lot more. And sometimes less.

We both drive between 700 and 1500 miles a week for work. At this point, gasoline to run our vehicles is our single biggest expense, we usually pay more for that than we do for all the chemicals we sell during a month. As with many small businesses, if we don’t bring in enough to cover our expenses for the month, we don’t get paid.

For this reason, I’d say the price of gasoline impacts my life far more than most people.

Do you hear me bitching about it, claiming that the oil companies are unethical because they’re charging a certain price for their product, or that they’re deciding to run their businesses in a certain way, within the law, just because it impacts me personally? No.

What I’m doing is working on conserving as much as possible. I’m pulling my ‘65 VW Bug out of mothballs and using it as much as possible because it gets around 40 miles to the gallon. My dad is running many of his errands on his motorcycle, which gets around 50 miles to the gallon. Instead of complaining about things we cannot change, we are doing what is necessary to adjust to reality. I think we’d all be better off if more people did the same.

I’m now “shitting on people personally” because I think that they should take responsibility for themselves and the choices they’ve made? When I think that people shouldn’t falsely accuse others of acting “unethically” when they are doing exactly what they should be doing – running their business to make a profit for their shareholders, and following the law, simply because that activity may impact ME negatively? Especially when global supply and demand factors are much more at fault for high gasoline prices than anything that these people are doing?

That’s not being a “dick”, it’s being an adult. Adults realize the choices that they’ve made impact their lives negatively or positively, and buck up and deal with it, or make choices to improve their situation. They don’t falsely accuse others of acting unethically because it impacts their situation negatively.

Point of order, you did not refute anything that she said. You made a personal attack on her because “she needs to own up to her choices”. Making personal attacks on anyone does in fact make you appear to be a “dick”. Yes you drive a lot. That is fine. Do you feel the pain of having to get a loan to buy the gas you need in order to get to work? Maybe maybe not. Do you notice that everything is more expensive because of the increase in gas prices? I would hope so.

Oh, and I do not accept your theory of lets blame India and China or a war for gas prices. Since the companies only spent $50 per barrel 6 months ago (btw, that is thier supply a 6 month difference) I should not have my prices go up the same day as they are going to have to spend more because they had no foresight to stock pile more.

Oh yeah the world hasn’t been going like this for the last 4 years….

unethical

adj 1: not conforming to approved standards of social or professional behavior; “unethical business practices” [ant: ethical] 2: not adhering to ethical or moral principles; “base and unpatriotic motives”; “a base, degrading way of life”; “cheating is dishonorable”; “they considered colonialism immoral”; “unethical practices in handling public funds” [syn: base, dishonorable, dishonourable, immoral]

The first one is the only part that matters here. Approved standards of behavior in society is you don’t fuck your buddy. War-profiteering is also a no-no. They have ignored that one all the way.. therefore unethical business practice… but I guess since they sell gas they are not accountable to anything like ethical business practices.

She claimed that what the gasoline companies were doing was unethical, and then explained what they were doing. Not only me, but others said “sorry, that’s not unethical”. Companies exist to make a profit, that’s it. They are required to follow the law in doing so. As long as they are following the law, they’re only engaging in “approved business practices”, as that’s how our society defines what “approved business practices” are. Your personal definition doesn’t matter, because it’s at odds with the actual definition. You can say black is white all day long, that doesn’t make it so.

There was no need to refute what she was saying, as it is ridiculous on it’s face. I’m not the only one who saw that.

Yes, gasoline is more expensive. There are many goods that are more expensive because it costs more to move them. Trust me, I know this, I’ve had to absorb shipping increases in the products I sell due to increased fuel costs. But that doesn’t mean that the people making money off of the increased gas prices are acting in anything but an ethical manner.

Just because a market change that others are making money off of impacts you negatively, that doesn’t mean that they are acting in an unethical manner. You need to understand that concept.

If you can’t handle that change, then that’s not their fault, either. They have no responsibility to conduct themselves in a manner that benefits you, they have a responsibility to conduct themselves in a manner that benefits their shareholders, while following the law (which are the “accepted standards of social or professional behavior”). It’s your responsibility to be able to handle changes like that, and, if you can, turn them to your benefit.

Final point of order on this…

1st. That was the dictionary .. not me.

2nd. Your statement:

So is everyone that profits from market instability unethical? The idea that if you see an opportunity, like instability in a market, and take the risk to capitalize on that, then you are unethical, is ludicrous. I suppose you think buying low and selling high is unethical as well, because you’ve taken advantage of all those poor people who sold you their stock when it was low and then you went a profited on it.

This is how investment works. It’s not unethical in the slightest.

Her reponse told you that you were wrong. That is all. And she proved that you were wrong with that analogy. Your response to that:

You don’t like it, pi, because you’re not making the money and it’s costing you more for gas. Boo hoo. Invest in oil companies, and use less gas.

Not only did this have nothing to do with the point but, you also decided that you wished to insult someone that you know very well. How odd.

3rd. Arr says:

But I believe in market solutions, and $3 gas is a decent start to remedying our unsustainable petroleum lifestyles.

To this you agree. Thinking that he means that the market will sort itself out.

Then he says:

Now, all that being said, Imp (and I appreciate the kudos), it’s worth mentioning that there is nothing resembling free competition in the energy industry.

To which you respond with you agreeing. So what is it? Is the market going to fix itself when you agree that the market is broken? Or should I expect in the next installment of this to be attacked for pointing out that you have stated a solution that CANNOT happen?

Since you decided that you would attack Pi for stating that your analogy was wrong I would expect that I am about to be attacked as well.

However, I would like very much for you to do one thing for me. Cite some examples of how this market fixes itself (as you so readily agreed that it can) when you also agree that it is a broken market, therefore not capable of fixing itself?

Pi, nor you, really understand the issues surrounding why gasoline prices are where they are. Her explanation wasn’t even close to correct, and it didn’t refute what I had to say.

Yes, there are some governmental regulations that inhibit competition in the oil market. Many of these are based upon environmental regulations (despite arr’s claims to the contrary), and those environmental regulations are why no new refineries have been built in more than 20 years. To get into the oil refining business, you have to either buy an existing refinery, or you have to build one that has much greater environmental regulations on it (and thusly, a greatly increased cost of doing business). Because the profit margins of running a refinery right now are pretty thin, it’s not good business sense to build more refineries.

Thusly, supply of refined gasoline is negatively impacted when usage goes up, far moreso than it would be if we had more refineries. This is PRIMARY REASON gasoline costs go up much more quickly when the price of oil go up, and come down more slowly when the price of oil goes down. This has much more to do with the fluctuations of the price of gas than how much of an inventory oil companies are keeping on hand.

The market is working just fine. It isn’t “broken”. It’s simply responding to the lack of refining capacity in the U.S. at this time, and the vastly increased price of oil and other raw materials. If you’d actually studied the issue, you’d see that this same thing has happened in many European countries for longer than it has in the United States, because they have even stricter environmental regulations, and much more taxes, which means that their gas goes up more quickly than it does in the U.S.

What else does this mean? The oil companies can’t expand their refining operations in this country. They can’t make more profit by expanding their operations, so they redo their business models so that they can make more profit by having to keep less inventory on hand.

So, who is unethical? Those who have supported the environmental regulations that have prevented oil companies from building new refineries, and thus negatively impacting our refined gasoline supply, or the oil companies which have adapted to the new reality caused by these environmental regulations?

Would you support chucking the environmental regulations if it brought down the cost of gasoline to something you think is more “reasonable”?

My point with Pi is that her argument is based upon her idea that it is the responsibility of the oil companies to run their businesses with her benefit in mind, and doing otherwise being “unethical”. It’s not, if she (or ANYONE ELSE) didn’t want to be negatively impacted by gasoline prices, then they should have taken steps to avoid that impact.

The oil companies base what they charge for gasoline on a percentage of what they can sell it for. If gasoline is selling for $1.50 a gallon, and they’re making 7% of that, and then gasoline goes up to $3.00, and they’re still making 7% of that, then their profits have doubled. Many of their expenses have increased substantially as well. But they’re not being unethical, they’re still making the same percentage as they were before.

It’s not unethical, Code, it’s just a poor business decision. Poor business decisions aren’t unethical, pouring refinery tailings into the local creek and giving little Jimmy cancer is. There is a tremendous difference, and that needs to be recongnized.

It may not even be a poor business decision. Very large short term gains can be used to fund a great deal of new programs in a company that normally wouldn’t see the light of day, such as programs to turn previously unrecoverable oil into useable barrels of crude oil, research into other fuel sources, etc. These new programs can provide long-term income sources for the company and diversify the company’s income streams enough to greatly improve the company’s sustainability.

Interesting duelling headlines on cnn.com just now:

“House considered criminalizing gas price gouging”

“Oil tumbles on inventory ’surprize’”

Hmmmm.