The Road to Oblivion

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Stalled on I-40

          It was August of 2003, and my family and I were on a trip to Phoenix, driving across northern Arizona on I-40.  We had met Skip and Liz in Holbrook for lunch, and were back on the road.  No more than ten minutes later, however, we rolled up to the end of a long line of stalled traffic.  This was a huge line, with thousands of cars and trucks lined up ahead of us for more than ten miles to the blockage point.  All of us were sitting there motionless in the desert, engines idling under the early afternoon sun, for almost an hour, with traffic piling up behind us as well, apparently all the way back to Holbrook and east. 

          Eventually traffic began to move, slowly, and by the time we got to the blockage point over an hour later, the source of the delay had been removed.  I remember the family discussion as we drove by Winslow: We wondered how something like that could have been allowed to happen, and we also marveled at all the wasted resources.  Tens of thousands of gallons of fuel had been idled away out there in the desert, and as Winslow, Arizona faded away behind us we wondered how much time and money had been lost to all  the travelers who had become ensnared in it.  And we wondered how many traffic jams of various sizes and duration occur every day in America.   

          What didn’t occur to me then, but looms with great significance today, is this: A relatively small group of people, investors who make money whenever internal combustion engines run, profited from that traffic jam. 

Transportation Generates Huge Profits and Transfers of Wealth  

          Mobility is a major, expensive feature of American life.  Almost everywhere you go, day and night, there are busy thoroughfares and highways, full of cars.  “Rush hour” traffic in all metropolitan cities routinely features bumper-to-bumper traffic, often moving haltingly slowly and forced at times to a dead stop.  It has been an overt symbol of American prosperity and, yes, middle class wealth. 

           Sometimes we get to our destination smoothly, sometimes we don’t.  Sometimes we are alone in our cars and trucks, and sometimes we have passengers.  There is one thing, however, that all of our journeys have in common:  The vast amounts of money we repeatedly spend on all of our trips generates a great deal of wealth for the rich corporations and people who provide for our transportation needs.  And each time we travel, some of our wealth “transfers” to these providers, people who are at the top of the income and wealth hierarchy. 

          How much wealth are we talking about?  Many trillions of gasoline-fueled miles are traveled every year.  Project America provides this graph of total vehicle miles traveled (VMT) in the U.S., which shows that total miles approximately doubled over the last 30 years:

There was a steady annual increase in VMT until the recession hit.  “According to the Department of Transportation and the American Public Transportation Association,” Project America reports, “the number of miles traveled by vehicles in the United States fell by 3.6% in 2008, the number of trips taken on public transit increased by 4.0%. The total estimated number of miles driven in 2008 is 2.922 trillion, down from 3.030 trillion in 2007.” [1]  Still, the roughly 3 trillion average annual VMT in 2007 and 2008 is an impressively large number.  That’s about 10,000 miles per capita.  

          According to Answers.com, automobile use in the U.S. maintains an average of about 20 miles per gallon, and using that as a mileage estimate for all VMT gives us a back-of-the-envelope estimate for the amount fuel burned in a year (VMT includes truck traffic as well, so the average mileage rate for VMT is actually lower than 20 mpg):

 3 trillion miles / 20 mpg = 150 billion gallons

To burn 150 billion gallons of gasoline annually in automobile traffic, at today’s approximate $4.00/gallon gasoline price, would cost Americans in the vicinity of $600 billion.  [2]

          The big 5 oil companies end up with more than $100 billion of profits annually.  As reported today (5/17/11) by Daniel K. Weiss and Kate Gordon for The Center for American Progress

          “Each time Americans’ gas bills go up, so do Big Oil’s profits. In the first quarter of 2011 alone, Persian Gulf unrest combined with speculators bidding up prices led to oil prices rising by more than one-third. Higher oil prices on the world market led to higher gasoline prices across our nation, and the big five oil companies made $32 billion in profits. Profits of this size are quite common. Between 2001 and 2011, a period marked by gas price volatility, these five companies collectively made more than $900 billion in profits. In 2010, Exxon Mobil finished first in the Fortune 500 list of company profits for the eighth year in a row, with Chevron coming in third and ConocoPhilips 16th.”

          Weiss and Gordon’s point that oil company profits closely follow the price of gasoline is an important one.  The following graph is provided by Phil Villarreal  (4/29/11) for Consumerist

          What this means is that the more consumers’ wealth is depleted paying for fuel, the more oil company profits grow.  And in a report for Think Progress (4/30/11), Pat Garofalo points out that the vast majority of Big Oil profits in recent years have increasingly ended up simply enriching oil company executives and investors: 

          “Among the largest five oil companies, less than 10 percent of after-tax profits went to exploration for new oil fields during the 2005-2009 period.  Meanwhile, the percentage of net profits used to pay dividends and buy back stock was 58 percent in 2005, 73 percent in 2006, 72 percent in 2007, 71 percent in 2008 and 89 percent in 2009. These figures are high in comparison to other industries.”  In other words, the percentage of Big Oil (the top 5 oil companies) profits that goes to increasing shareholder wealth is high, and increasing every year. 

          With nearly 50% of all financial wealth held by the top 1%, and 0nly about 15% held by the bottom 90%, this wealth is predominantly being transferred to the top of the income and wealth ladder.  To put it bluntly, the wealth of the top 1% has increased by more than $500 billion over the last ten years, solely from profits made by the top 5 oil companies.  

Oil Company Subsidies

          Oil company “profits,” of course, are the excess  revenues above and beyond costs incurred to provide the fuel they sell.  In order to make $32 billion in profits in just the first three months of this year, Big Oil obviously has to have a lot of market power.  A hot debate right now is whether these very profitable oil companies should be allowed to continue receiving tax subsidies from ordinary Americans ($4 billion this year) in these circumstances.  

           Virtually everyone agrees at this point that such “corporate welfare” for Big Oil is unjustifiable and unfair. [3]  As New York Senator Chuck Shumer told the Big Oil executives who recently testified before Congress, “they’d have an easier time convincing the American people that a unicorn flew into the hearing room than that these big oil companies need taxpayer subsidies.”

All Corporate Profits Generate Wealth Transfers

          To merely focus on the absurdity of continuing to provide tax “incentives” to the most profitable corporations on the planet (which, by the way, the Senate has just voted to do) [4] misses the bigger, fundamentally more important point:  The capitalist market system continuously provides enormous profits for the investors who control the provision of all goods and services, and the huge profits of the big five oil companies merely serve as an example of how wealth is inexorably transferred to the top. 

                  The biggest five oil companies are not the only corporations making profits on gasoline and transportation fuel, nor is gasoline all that Americans buy.  Big Oil is just the tip of the iceberg.  Expenditures for automobiles, cable and wireless communications, clothing, computers, food and shelter, health insurance, and for everything else we buy, provide continuous  monopolistic and oligopolistic profits which are largely distributed to executives and shareholders.  These are massive transfers of wealth, mostly to the top 1%, from everybody else in America.  As discussed elsewhere on this site, over $10 trillion of wealth has been transferred to the top 1% over the last 30 years, significantly increasing the percentage of all wealth held by these wealthiest Americans.

          This has happened because tax cuts for wealthy people have prevented the downward redistribution of wealth required for stable wealth inequality.  The top tax rate when inequality was stable (1965-1980) was 70%. 

These are the two most important points:

          (1) Wealth continues to transfer to the top at a rapid rate. It’s a continuous process, inherent in the operation of the capital marketplace (as shown in the oil company example). This fact makes wealth and income inequality the core economic problem for America today.  It’s no surprise that tax increases for the wealthy have been taken “off the table” by Congressional Republicans;

          (2)  As discussed on this site, if the top personal income tax rate remains anywhere near as low as the current level of 35%, and the capital gains rate for wealthy people is not substantially increased from its bargain-basement level of 15%, the proportion of wealth held by the wealthy few at the top will continue to increase rapidly,  the American middle class will continue to shrink and disappear, incomes will continue to decline, education will continue to falter, and unemployment and poverty will continue to grow until the American economy sinks into a depression, and life as we have known it starts grinding to a halt.

         It’s something we can’t see and feel every day, at least not yet; we just have to know that it’s true and act accordingly.  Tonight, on the way home from a movie at 10:00 pm, Betty and I encountered a fair amount of traffic on I-90.  “I can’t believe there’s this much traffic on a Tuesday evening,” she remarked.  It seemed a bit like the good old days. 

          The more things change, the more they seem to stay the same.   

JMH – 5/17/11

_______________

[1] “VMT” is “the total number of miles driven by all vehicles within a given time period and geographic area.” Streetswiki.com 

[2] This estimate of the amount spent incorrectly assumes that all VMT involve only automobiles (no trucks) and only gasoline (no diesel fuel).  One computation appearing on answers.com  asserts that the amount spent on “gasoline” back in 2006 in the U.S. was over $1 trillion.  We may not have a precise number for each year, but we do have an order of magnitude.

[3] Last Thursday (5/12/11) Ed Schultz asked viewers of MSNBC’s “The Ed Show” to vote on this question: “Should Republicans continue to give big oil tax breaks while cutting Medicare?”  At the end of the show, he reported that 2% had texted “yes” votes while 98% had voted “no.”  On his MSNBC website on Saturday 2.6% voted “yes” and 97.4% voted “no.”  Blog comments reflected a sense of disbelief that anyone could have voted “yes.”  This is a “double-dip” question, and answers probably also reflected rejection of the idea that elderly people with their higher medical costs should be abandoned to the mercy of private health insurance companies.  Regardless, viewers regarded this question as a virtual no-brainer. 

[4]  Today in a ceremonial vote the Senate rejected ending the Big Oil tax subsidies 52-48, mostly along party lines.

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