As most of us know, the oil industry recently enjoyed fiscal quarters of record revenue and profits thanks to strong global demand, short supplies and high prices for oil and natural gas. Predictably, however, politicians like Rep. Dennis Kucinich, D-Ohio, Sen. Chuck Schumer, D-N.Y, and others were fast on the case, seeking but thankfully not getting new windfall tax legislation to tax "only excess profits," leaving "reasonable profits" unaffected and arguing that anything more than "reasonable profits" should be returned to society. They contend that the oil companies' recent quarter of higher profits is mostly an unearned "windfall" ostensibly due more to luck than anything else and they (the oil companies) really didn't do anything to earn it. It reminds me a bit of Massachusetts Rep. Barney Frank's comments on the estate ("death") tax some time ago to the effect: "...why should the kids get it it; they didn't earn it."

The politicians, concerned about their low approval ratings, go on to stress that the oil companies' profits this quarter are partially due to uncontrollable factors that they did not anticipate such as the tremendous increase in demand for oil from China and India. But that coin has two sides since just about every business venture involves factors that cannot be anticipated or controlled, and these factors can affect it both positively or negatively. That's part of the risk businesses must take on. Heck, just ask any restaurant owner — just ask any businessperson. .

Now then, to earn a profit requires the capability to create a product or service. It requires the capability to create value. Oil companies, like any other business, must invest time, money, and sweat equity, and—most particularly—must assume the risk that others will value its product or service, and that they will not be driven out of business by superior competitors, or better service, or a better dining establishment, or better hardware stores, et cetera. It only follows that since they assume the risk, they also deserve any rewards or losses that result from taking the risk. In the last decade, oil companies had no right to be bailed out by the government when oil prices unexpectedly fell below $10 a barrel (only seven years ago). As a result, what became known as the Texas oil depression of the 1990s ensued. But likewise, the government has no right to seize their profits when oil unexpectedly rose to almost $70 a barrel (it has since settled around $ 60 a barrel). Manifestly, it cannot and should not work one way and not the other.

After all, did the many computer geniuses who made millions at Lotus, Microsoft, Digital, IBM, Intel, Wang and elsewhere not deserve their money? Should they have been forced to "return it to society" because they did not anticipate their computer and programming skills would be so profitable? I think not! They developed and bet their livelihoods on those skills and assumed the related risks . They are entitled to their high compensation. It belongs to them, not the government. As author and philosopher Ayn Rand once stated, "If you ask me to name the proudest distinction of Americans, I would choose—because it contains all the others—the fact that they were the people who created the phrase 'to make money.' No other language or nation had ever used these words before; men had always thought of wealth as a static quantity- to be seized, begged, inherited, shared, looted or obtained as a favor. Americans were the first to understand that wealth has to be created."

Perhaps lost in all the opportunistic maneuvering and socio-political criticism is the simple fact that the oil industry should be commended for succeeding. America's oil companies have achieved their profits these past few quarters the old-fashioned American way—they earned them by creating value through great effort (working both hard and smart), and taking tremendous risks.

These companies plow back billions on new exploration and production (e.g., ConocoPhillips and Exxon) even though domestic investment is difficult due to restrictions on drilling on public lands and on the continental shelf. They construct giant rigs to extract oil from the ocean floor (e.g.,Transocean Inc). They develop new technologies like 3-D seismic surveys which plays a vital role in extending the limits of a field or finding new pockets of reserves in and around producing properties (e.g., ConocoPhillips.) They develop new extraction methods to get hundreds of billions of barrels of oil from the potentially rich sand deposits in Western Canada (e.g., Suncore Energy, Canadian Sands Trust). They increase production and reduce overall drilling and completion costs through horizontal, multilateral and other innovative drilling techniques (e.g., Baker Hughes and Dawson Geophysical). They achieve mergers, consolidations and acquisitions to combat depletion and increase their reserves and efficiencies (e.g., Cimarex Energy and Encore Acquisition, Inc.). And in so doing, they assume those risks inherent in oil exploration and development. Moreover, they must deal with unstable foreign governments like Venezuela, Iran, Nigeria, etc.; they must contend with new and ever-shifting government regulations; and, of course, they must deal with the complex, manipulative and risky issues associated with OPEC. Pure luck? A windfall? Didn't earn it? I don't think so.

So why bash success? Where does such oxymoronic behavior end? While the oil market is certainly not a model of pure capitalism, a windfall tax as a socialist-style intervention is hardly appropriate. Such punitive measures imposed on the industry in the 1970s hindered reinvestment in the industry's infrastructure. The answer may lie in the fact that the politicians' top priority is often survival, and far less frequently the protection of capitalism. If so, oil companies—and capitalism—may be in for some hard times.

"What kind of society isn't structured on greed? The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of system." —Milton Friedman

Ted Sares, PhD, is a private investor who lives and writes in the White Mountain area of Northern New Hampshire with his wife Holly and Min Pin Jackdog. He writes a weekly column for a local newspaper and many of his other pieces are widely published.

His works focus on issues and themes dealing with socio-political topics, business and economics in which he advocates a free market approach to capitalism, patriotism, and matters dealing with individual freedom.They are frequently inspirational in nature and sometimes reflect the Objectivist philosophy of novelist and philosopher Ayn Rand. He also writes short stories that feature ironic and surprise twists.

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