Bill O'Reilly's Misguided Proposal

O'Reilly is pushing for an export tax on fuel sold to China. His proposal reveals his ignorance on the subject and invites disaster.

On every evening broadcast during the week of February 20, Bill O’Reilly (on Fox New Channel’s The O’Reilly Factor) hammered away at American oil companies for exporting refined petroleum products (gasoline and diesel fuel) to China. O’Reilly argues that the oil companies are doing this just to make “even more money," when they should be “helpin’ the folks." Instead of exporting surplus fuel, says Mr. O’Reilly, the oil companies should lower domestic fuel prices, now headed “to $5 a gallon, and maybe even $8."

Several guests on Factor to discuss the increasing prices at the pump attempted to point out that there is a “world market” for oil and its refined products, not just a domestic market. O’Reilly would have none of that. He simply talked over and drowned out those who did not hew to his populist policy of slapping an export tax on shipments of “our fuel." That would “solve the problem and protect the folks," O’Reilly smugly predicted.

Of course, O’Reilly’s export tax would have the same outcome as nearly all populist measures taken without thought of the consequences: it would achieve the opposite result of what he intends. As one of many unintended consequences, the export tax on fuels sold to China would invite retaliation from China on the export to the United States of, among other critical items, its rare earth minerals (such as neodymium, lanthanum, yttrium and dysprosium). Rare earth elements (“REEs”) are essential components in flat-screen displays, smart phones and hybrid vehicles, just to name a few high-tech products still manufactured in the United States. REEs also are critical to the manufacture of the highest of high-tech defense products and guidance systems. Talk about shooting yourself in the foot—or perhaps allowing enemies to do even worse.

O’Reilly’s yammering about export taxes on fuel displays his failure to understand how trade benefits the “folks” he says he wants to protect. His declarations smack of protectionism, statism and even socialism. That’s a lot of “isms” for someone who calls himself a conservative. His solution for high fuel prices does not demonstrate the free-market principles that O’Reilly has embraced, in the abstract, during his more than a dozen years on Fox News Channel’s top-rated prime-time evening opinion show.

One of O’Reilly’s guests correctly pointed out that 84 percent of the pump price of fuel is the cost of crude oil and taxes to the federal and state governments. The rest is the cost of refining the crude into fuel, transporting the fuel to retail stations, purchasing liability and casualty insurance, among other expenses, and paying retail station land, building and equipment amortization. Less than three cents per gallon is profit to the oil company. In fact, according to Dr. Mark J. Perry, professor of economics and finance in the School of Management at the University of Michigan, the major integrated oil companies (e.g., Chevron, Shell, BP, ConocoPhillips and ExxonMobil ) annually earn just 6.2 cents per dollar of gross revenue across the entire spectrum of their integrated operations, including finding increasingly scarce and difficult-to-recover oil resources. Their 6.2 percent profit margin places the major integrated oil companies in 114th place out of 215 industries. Incidentally, broadcast television ranks 54th with a 10.5 percent profit margin (more than 60 percent larger than Big Oil’s). Perhaps Fox should reduce O’Reilly’s remuneration. That way the cost of cable news for “the folks” would decline.

Source: Mark J. Perry, Ph.D., MBA, Professor of Economics and Finance, School of Management, University of Michigan

Jay Zawatsky is the CEO of havePower, LLC (a natural gas infrastructure developer) and a professor of business in the dual degree MBA program of the University of Maryland University College.

Image:  Justin Hoch photographing for Hudson Union Society