Economic Simpletons: The O'Reilly X-Factor

Duane Freese's Tech Central Station article, 'The O'Reilly X-Factor', reinforces several arguments Porkopolis makes in 'Democratic Senator calls for Windfall Profit Tax'; primary of which is that Bill O'Reilly is an economic simpleton when it comes to his campaign against oil companies.

O'Reilly recently said:

Energy Secretary Samuel Bodman should inform American oil companies not to profiteer. In fact, I think their profits should be cut back by 20 percent to spare America's pain. Any oil company that does not voluntarily comply with that should be exposed.

To which Mr. Freese rightfully responds:

What O'Reilly is really claiming is that the "oil industry" is fixing prices. You can't gouge unless you can fix an uncompetitive price. And you can't set an uncompetitive price without colluding to fix the prices. And collusion is a violation of the antitrust laws....

...Which brings us to O'Reilly's suggestion that they cut their profits by 20 percent. What that would require is that they, well, collude. Otherwise the one firm cutting its profit 20 percent would quickly go out of business.

Think about it. Who owns oil companies? It isn't just the John D. Rockefellers or oil sheiks anymore. It's also investors with money in mutual funds and pension funds and retired people. Consider that CalPers, the giant public employee retirement system, had such a presence in energy giant Shell last year that it pressured the company for an independent audit of reserves.

So, when O'Reilly asks the companies to cut their profits, unless they act in unison, one company would see all those investors jump ship. Just the hint that a company was not out to maximize profits could lead its investors to shun its stocks.

That sound you hear going off in your mind is the ring of truth. Mr. Freese goes on to say:

As for profits, they signal investors whether to put more into an industry so as to increase supplies. Daniel Yergin of Cambridge Energy Research Associates and author of a major history of the oil industry, "The Prize," noted in a column in the Washington Post in July that investments drawn in by the higher oil prices of 2001-2003 (higher when compared to the 1990s) would increase oil production capacity by 20 percent by 2010.

Mr. O'Reilly sometimes points out to his viewers that he is a Harvard graduate. He betrays the 'Veritas' philosophy of his alma matta when he dawns the hat of the 'Who's Looking Out for You?' economic simpleton.