Oil companies are making record profits

Oil companies are making record profits. ExxonMobil made $9.92 billion in the last quarter, which is 75 percent higher than the same period last year and more than any company has ever made during a quarter. Naturally, politicians are upset. Democrats are urging a windfall-profits tax, and Republican majority leader Bill Frist wants the Senate to investigate.

Frist says, "If there are those who abuse the free-enterprise system to advantage themselves and their businesses at the expense of all Americans, they ought to be exposed, and they ought to be ashamed." An investigation is an excellent idea. Perhaps the senators can subpoena some high-school economics teachers who will explain supply and demand to the senators. The companies' profits, and prices, have not risen because their executives have suddenly decided that they would like to make a lot of money. Presumably they generally strive to maximize their profits. Other figures put their success in this endeavor in context: ExxonMobil makes 9.8 cents for every dollar in sales, compared with 13.8 cents for McDonald's and 21.2 cents for Coca-Cola. High profits increase the incentive for oil companies to invest in production, and high prices increase the incentive for other businesses to cut back on their energy use. Both of these things will do more to restrain prices than senatorial grandstanding will.

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