Since gas prices are in the news again, everyone is starting with the usual "blame exxon" response as they have record profits. So, now is a good time to explain profits vs profit margins.

Say ABC Widgets builds 100 widgets, and sells them for $1 each. First they have to buy the materials for about 60c, then assemble and market, for about 15c. Then they sell for $1 and give the govt 18c in taxes per widget. That means each widget costs 93c to make, leaving ABC with a 7c profit margin per widget. If they sell all 100, they make $7 in profit.

Next year, material and assembly costs a little more, so they raise the price of the widgets to $1.50. Costs end up at $1.43, which leaves a profit margin of 7c again. But widgets are popular this year, so they sell 200!

ABC Posts Record Profits of $14! Congress to investigate!

Get the point?

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http://www.fairtax.org

Elminate all taxes on income and replace with a national sales tax.

US oil companies traditionally have middle of the road after-tax margins and that hasn't changed. Thanks to US disruption in the ME including statements that all options are open on Iran including military intervention, crude oil prices have escalated to about where they were in 1980s USD. Thanks to ever increasing consumption demand continues to rise. Oil companies are still at the same margin positions but their sales volume has exploded.

Does the US general public ever look at US inflation being under control with food and energy costs excluded? Is the US public even aware that their currency has lost 30% of value in a few short years due to government fiscal irresponsibility and negative personal savings? How about long-term declining real wages without even considering inflation impact on those wages? That public is going to wake up holding an empty bag, looking for someone else to blame for their own stupidity regardless of profits.

Ummm...real wages already factor in inflation...thats what makes them "real" wages instead of simply nominal wages. And I would like you you to how me the evidence of declining real wages. I know real wages are not rocketing but I have not seen or heard about them declining on a real basis.

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"Liberty is not a means to a higher political end. It is itself the highest political end - Liberty is the only object which benefits all alike, and provokes no sincere opposition - The danger is not that a particular class is unfit to govern. Every class is unfit to govern. - Power tends to corrupt, and absolute power corrupts absolutely." - Lord Action

macroblog: Are Workers Losing Ground?

This might also be of interest regarding food and energy CPI increases in Q1 2007:

Consumer Price Index Summary

Did you read all of that article?
It says that real wages are going down but that real compensation (the combination of wages and things like health care benefits, employers' share of social security contribution..etc) is going UP. In other words, the value of what you receive in exchange for labor is increasing even if the percentage of it that's liquid capital is falling.

Here's the final paragraph:

Yes and because it is a blog I used the labor department numbers in the graph for only the real wage issue. I disagree with benefits increasing in view of 3M manufacturing jobs being replaced by service industry jobs over the past few years and unlike the government don't consider increased employer SS contributions a benefit when the government sweeps any surplus into the general fund creating additional internal debt. I view that as a negative to the employee, more smoke and mirrors.

What the hell are you talking about here? You are using anecdotal evidence of 3m to form your macro opinion? And what do benefits have to do with increased employer SS contributions? that is not a "benefit", the only way employers contribute more to SS is if they increase wages or salary.

And here is post that has several different metrics of real wages and compensation.

Angry Bear

And I am still not clear on what your points were on inflation in the past couple of posts. This one in particular.

__________________
"Liberty is not a means to a higher political end. It is itself the highest political end - Liberty is the only object which benefits all alike, and provokes no sincere opposition - The danger is not that a particular class is unfit to govern. Every class is unfit to govern. - Power tends to corrupt, and absolute power corrupts absolutely." - Lord Action

No.
Where is it written that you are entitled to make the same profit margin?
Oil companies are extracting monopoly profits because they have acted in concert to reduce the United States refining capacity. The US currently has 10% less refining capacity than it had in 1980.
In 1981 there were 324 refineries operating in the US, today there are 153, not a single US refinery has been built in that time.
Back then the oil companies whined about low refining margins, and then they did something about it, even though demand for refined products increased every year, oil companies closed refineries, and reduced capacity until now it takes almost every refinery operating at near capacity to satisfy demand. Any time there is an outage refining margins soar.

That's why gasoline prices are setting records, even though crude oil is $10/barrel less than it was a year ago.
This is classic oligopoly pricing practices, extracting monopoly profits from consumers.
There is no free market in oil, 90% of the supply is government controlled, and governments do no behave like firms in a free market.
A handful of companies control the refining and the distribution, barriers to entry are enormous.
This is exactly the type of situation where the government should intervene, and in most of the world that's exactly what happens. Most petroleum consuming countries have a gas tax of around 4 or 5 dollars a gallon, this reduces demand and drops the refining margins and the oil company profits.

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“ The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.”

Adam Smith , The Wealth of Nations 1776

"We have always known that heedless self-interest was bad morals; we know now that it is bad economics"
FDR's second Inaugural Address

Three million manufacturing jobs, not the company 3M.

The blog lists them as benefits as do many total compensation calculations. I stated I disagree with that inclusion.

Which also shows declining real wages, the point you disagreed with in an earlier post.

Angry Bear

My comment was disagreement with the common practice, including government reporting, of excluding food and energy costs from published inflation numbers. CPI of energy increased 25.3% SAAR in the first four months of 2007 over the same 2006 period, food 6.7%, versus an overall published SAAR of 4.8%, which excludes energy and food.

Anyone considering those numbers as inflation being under control in relation to economic growth probably works for the Fed.

US refinining output isn't that much lower than it was at the peak around 1980. And while there was a considerable dip in the early 80's so did US demand for oil products. In fact it was only recently - past 3-5 years - that US demand for oil products caught back up to the 1980 level.

U.S. Refining Capacity, Crude Runs, and Utilization Rate

So it seems to me you have oil companies acting in concert to -- demand - surprise surprise.

Oil companies havn't been too keen on investing in refining capacity because of alot of uncertainty about oil demand. They do not want to spend billions to expand refining capacity for demand that will not be there - per this article:

Oil Industry Says Biofuel Push May Hurt at Pump | StarNewsOnline.com | Star-News | Wilmington, NC

__________________
"Liberty is not a means to a higher political end. It is itself the highest political end - Liberty is the only object which benefits all alike, and provokes no sincere opposition - The danger is not that a particular class is unfit to govern. Every class is unfit to govern. - Power tends to corrupt, and absolute power corrupts absolutely." - Lord Action

Im not aware of any entitlement by consumers to pay a price that they or the govt thinks is reasonable, for any product. Businesses should have a right to charge as much as they want, and consumers should have a right to not purchase. The market, as it has always done will set the price everyone is willing to accept.

__________________
http://www.fairtax.org

Elminate all taxes on income and replace with a national sales tax.

The climb in food prices due to agribusiness concentrating on producing ethanol products with their generous tax breaks has already began. If you think oil companies have a monopoly, you're in for some real sticker shock on food prices.

That includes food?

Yes, it is a product like anything else. The only thing the federal govt should ensure for its citizens is protection from violence and liberty. If you want food, you work for it and someone sells or trades it to you at whatever price you agree upon.

__________________
http://www.fairtax.org

Elminate all taxes on income and replace with a national sales tax.

What sophistry, it is simply not true that the dollar has lost 30% of its value in a few short years, if it had, there would have been a near across the board 30% increase in prices for all goods and services, but there hasn't been. What you are refering to is a 30% depreciation in the EXCHANGE rate against serveral other currencies, but these are all relative and not absolute changes in valuation.

Furthermore, the ignorant rhetoric about "declining real wages" is just that, ignorant of reality. By nearly every material measure, the well being of the American people has skyrocketed over the last 30 years. People today are healthier, and wealthier, and can afford more goods and services than ever before in our history. So, that tells me one of two things, either the price-deflator used to calculate inflation and the "real" part of "declining real wages", or the measure of "wages" is so utterly unreflective of purchasing power and real INCOME as to be a meaningless number to use in any objective sense.

The truth is BOTH are the case. Inflation has been steadily over estimated for years, and "wages" is an increasingly wrong-headed benchmark. An ever increasing number of people are getting increasing amounts of their total compensation and income from non-"wage" sources. Independent Contractors (a steadily increasing portion of the labor force) are not paid "wages", nor are any fringe benefits paid to waged workers.

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