08/08/2012 11:15 am ET Updated Oct 08, 2012

Crude Awakening

This week's headscratcher from the WSJ op-ed pages came Friday, titled "Who Really Gets Rich off High Gas Prices?" Oil companies and countries that sit on oil deposits was my guess, but I was wrong; it's our federal, state and local governments via a combined 50 cents a gallon fuel tax. Never mind that the only OECD country with a lower gas tax is Mexico (where, crazy idea, fuel is subsidized by a government pandering to a poorly governed populace), or that our tax is 1/5th the OECD average and 1/8th that of Turkey (the best performing OECD economy in 2011). Fifty cents is too damn high.

The author of the piece, Drew Johnson, a senior fellow at the Taxpayers Protection Alliance (next week in the WSJ, Jimmy McMillan on exorbitant rent ) is as persuasive as he is unbiased. The Journal highlighted his factoid that Exxon (only) made 7 cents a gallon compared to the government's 50. How did the author get to that 7 cents number? I can't say, he doesn't elucidate, but if you divide Exxon's 2011 profit ($41bb) by global gas consumption of 538bb gallons (the U.S.consumed 134bb gallons of gas in 2011 is 25 percent of global consumption ) you get about 7 cents. The problem is that Exxon is only responsible for 3 percent of the world's oil production, so it would be more informative to say they make 256 cents on every gallon they produce, five times the government's take.

But my number is as meaningless as the Johnson's since comparing the take of an oil company and the U.S. government is apples and oranges. Exxon is in the business of finding, extracting, refining and selling petroleum products, the U.S. government doesn't refine or sell it (baddump!). But if the WSJ wants to eliminate the gas tax and let Exxon and the other oil companies buy what the government gives them for free -- namely highways, roads and a military force almost solely for their benefit in the Middle East, that's a good deal for those of us not in the oil business. I'd estimate the annual cost of those at $50bb for roads and $200bb for the aircraft carriers), far more than the $67bb a year gas tax.

The Journal's opinion aside, what of high oil prices? It's a subject on the lips of every politician and the pocket-protected pens of every economist. But why? Contrary to the headline of the WSJ piece, the higher the price of oil the more money that accrues to Exxon, not the government. After all the tax is a flat 50 cents, and (if anything) goes lower when oil prices rise. Exxon on the other hand does make more money the higher the price of oil since their cost to extracting it is relatively fixed. When oil went from $10 a bbl in 1998 to the $90 or so it is today, Exxon's net income went from $6.5bb in 1999 to the aforementioned $41bb in 2011.

And if the effect of high oil prices is to transfer wealth from the masses to Exxon, in effect a zero sum game, why would economists unanimously have issue with that? Shouldn't supply siders even consider this a positive outcome? But all economists know transfers of this sort where value is not created is not a zero sum game. In general when wealth becomes concentrated it has lower velocity and is less productive. To use the old adage, how many cars can one person drive? If that concentration is the result of say, the recipient of the transfer having given the rest of us the transistor instead of a commodity, the negative effects of concentration are offset by the positive effects of increased productivity.

Why have these past ten years been the worst economic decade in U.S. history in terms or real GDP growth, job creation, and most other meaningful measures despite the coming of age of the Internet, one of history's greatest boons to productivity? Perhaps because many of the big economic stories of the decade have been ones of wealth transfer and concentration for little of value in exchange. Those with the means to build factories in China to take advantage of the artificially cheap Yuan garnered large profits at the expense of real wages. Exploding health care costs enriched that sector while health outcomes did not improve. Unsustainable leverage in banking created Wall Street bonuses and lots of empty houses. All are ultimately stories of unproductive redistribution and concentration, the primary culprit in a despondent economic decade that could have been different.