The Democrats "Big Oil" Dilemma

With gas prices currently hovering around $4 a gallon across the country, everybody is looking for someone to blame. If your an economist, you will probably blame the growing oil appetite of emerging middle classes in India and China, along with supply constraints in oil-producing nations and a weak dollar. If your looking for a domestic cause, you may blame the Strategic Petroleum Reserve or investor speculation in commodities markets. But one thing is for certain: if your a Democrat, you will blame oil companies, regardless of the fact that they have little to do with the painful prices at the pump.

Now, there is no dispute over the fact that oil companies are hauling in record profits. But just because oil companies are making more does not necessarily mean that they are the reason you are paying more for fuel. I think I would "put my lot in with economists" on this one, and I have yet to come across a legitimate economist who cites oil companies as the culprit behind higher prices. Actually, "culprit" is the wrong word to use, as the higher prices are a result of the natural forces of supply and demand, over which policy makers in Washington have little control.

Yet for some reason, despite the economic reality behind higher gas prices, Democrats have not ceased from placing the blame squarely on the shoulders on "Big Oil". It hasn't stopped Barack Obama from arguing for a windfall profits tax on the profits of oil companies, and it has failed to halt Congressional Democrats in their attempt at grandstanding by calling oil company executives before committee. The reason that it has not stopped them is because it is politically unpopular to tell the American people truth: there is not much that can be done.

As a result of their unwillingness to make this known, Sen. Obama and his colleagues in Congress have sought to make it seem as though they are doing something by punishing those who are supposedly benefiting most from the rising prices. Parading oil executives before a bloodthirsty committee must seem to be a win-win strategy : not only does it appeal to the Democrats image as a crusader for the little guy, but it also puts the Democrats in good standing among environmentalists.

This strategy of making villains out of profitable oil companies may very well help Democrats in an election year when economic issues are at the top of the list for most voters, but in reality the issue of oil profits is much more complex. Despite what many grandstanding Congressional Democrats, Barack Obama, and frustrated voters seem to believe, oil executives are not the only ones benefiting from the higher profits so frequently derided. These companies are all publicly-traded, with pension funds and 401k's heavily invested in them. As a result, when profits are soaring for a company like Exxon, it is not just those at the top who benefit. This is the dilemma for Democrats.

All individuals with pension funds invested in oil companies benefit from these rising profits, including many of the labor unions and "working class voters" that lie at the heart of the Democratic coalition. For instance, the National Fraternal Order of Police and its 342,000 members have pension funds heavily tied into oil companies such as Exxon and have seen the value of officers' pension funds soar in recent years. Now I don't know about you, but providing police officers with a comfortable retirement isn't a bad thing.

So when Congressional leaders call oil executives before committee to read them the riot act, they may want to consider the diverse group of shareholders gaining from higher profits by oil companies. They may also want to consider there own hypocrisy. After all, these same Democrats deriding the profitability of Big Oil and threatening incentive-killing taxes on profits, just passed a farm bill that provides direct taxpayer subsidies to farmers who are rolling in cash. Unlike the profits of oil companies, the subsidies and record profits of wealthy farmers aren't shared with anyone. To me, lambasting profitable oil executives on one day and providing direct taxpayer handouts to similarly profitable farmers on the next day is nonsensical, given the Democrats supposed commitment to the average taxpayer. But hey, it is an election year. Nothing makes sense.