Big Oil Colluded with Foreign Interests to Steal Thousands of Dollars from You
The Pitch: Economic Update for May 9th, 2024
Friends,
For the last three years, under Lina Khan’s guidance, the FTC has become the staunchest proponents of antitrust laws in forty years, combating giant corporate mergers and other monopolistic pursuits in the name of a more competitive market for both consumers and workers.
So it was striking that the FTC didn’t move to block Exxon Mobil’s $60 billion purchase of oil and gas exploration giant Pioneer Natural Resources. But when you look at the particulars of the FTC’s decision, the reasoning behind letting the merger go through becomes clear: As part of the deal, The Associated Press reports, “the former CEO of Pioneer was barred from joining the new company’s board of directors.”
AP explains why FTC called out this executive: They claimed that “Scott Sheffield, who founded Pioneer in 1997, colluded with OPEC and OPEC+ to potentially raise crude oil prices.” OPEC, the Organization of the Petroleum Exporting Countries, is a coalition of oil-producing nations including Kuwait, Saudi Arabia, and Venezuela. OPEC+ is a looser coalition that expands to include other oil-producing nations like Mexico, Russia, and Kazakhstan. Notably, the US is not a member of OPEC or OPEC+.
“Through public statements, text messages, in-person meetings, WhatsApp conversations and other communications while at Pioneer, Sheffield sought to align oil production across the Permian Basin in West Texas and New Mexico with OPEC+,” the FTC said. The evidence indicates that those supposed competitors worked together to drive down supply and drive up prices on American consumers. As a result, AP explains, the FTC “proposed a consent order that Exxon won’t appoint any Pioneer employee, with a few exceptions, to its board.”
The implications of these accusations are staggering. In his newsletter BIG!, Matt Stoller explains how the deal went down: “American producers, after a bitter price war from 2014-2016, got tired of competing on price with the Organization of Petroleum Exporting Countries, or the OPEC oil cartel, and at some point from 2017-2021, decided to join the cartel and cut supply to the market. This action had the effect of raising oil prices, costing oil consumers something on the order of $200 billion a year.”
On an individual level, Stoller explains, “we’re talking $500-1000 dollars of extra cost per year to Americans through direct and indirect effects of this conspiracy. This cost shows up most obviously in the form of more expensive gas, but higher oil prices increase the price of everything right down to potato chips because of gas being a primary cost in distribution of goods and services.”
He concludes, “For a family of four, that’s two to four thousand dollars a year in higher costs.”
Stoller estimates that the $200 billion in profits drawn by the American oil industry in 2021 “ is 27% of the total corporate profit increase that year.” In other words, he’s saying that just over every one in four dollars of profits raked in by American corporations in 2021 and 2022 was collected by oil companies.
“That’s a pretty astounding amount, more than a quarter of the total inflationary increase being a result purely of a price-fixing scheme,” Stoller says. So put another way, more than a quarter of every dollar that Americans paid in inflation in 2021 went directly to the profits of Big Oil. Or as Stoller says, “this is pretty good evidence that oil firms helped collude with Saudi Arabia to steal thousands of dollars from each American family.”
Also of note is what Sheffield and Pioneer did with some of those profits. For The American Prospect, Luke Goldstein writes, “Sheffield has financed the political careers of Big Oil’s most loyal foot soldiers in Congress regardless of party, from Republican Sens. Ted Cruz (R-TX) and Lisa Murkowski (R-AK) to Democrats like Sen. Joe Manchin (D-WV) and Rep. Henry Cuellar (D-TX), who was recently indicted for taking bribes from an Azerbaijani state-owned oil company.”
All told, Goldstein writes that since 2006, “Sheffield has personally contributed over $281,000 to House, Senate, presidential, and joint fundraising committee campaigns along with nearly $200,000 to PACs,” while “Pioneer employees and the company’s political action committee have separately donated $1.2 million to campaigns since 2012.”
This is what happens when big corporations buy political favor and collude to erase competition: Profits for the wealthy shareholder class skyrocket while prices climb for working Americans.
Hopefully, there will be consequences for gaming the system. In addition to barring Sheffield from sitting on the board of the merged Exxon/Pioneer, the FTC is also pushing the Justice Department to criminally prosecute Sheffield for his alleged collusion.
Chairperson Lina Khan announced on May 2nd that Sheffield’s comments “make clear that he believed and acted as if he could persuade his rivals to join him in colluding to restrict output and raise prices.” She added, “Corporate executives are not always credible narrators. But when corporate executives’ words or actions reveal, against their interests, a belief that they can collude, we should generally believe them.”
It’s frankly shocking that this story hasn’t gotten more play in the mainstream media. After all, it’s quite a tale: An American CEO making deals with foreign interests including Russia that kill competition and harm the interests of the American people; rampant and unchecked corporate greed; and massive theft from virtually every single household in the country. This ought to make one hell of a movie someday.
The Latest Economic News and Updates
Proof That Filing Taxes Can Be Free and Easy
In 2022, the Biden Administration invested $80 billion in the Internal Revenue Service, calling on the IRS to hire more staff in order to go after wealthy tax cheats. By January of this year, the IRS had already recovered more than half a billion dollars in tax money owed by wealthy individuals, a total that is far above the most optimistic predictions, and a warning flare that might convince other tax cheats to finally pay what they owe.
But at the same time, the Biden Administration also made a much smaller investment in the IRS that didn’t get nearly as much attention: $15 million was set aside for the IRS to begin creating an online service that would allow Americans to file their taxes for free. Now that we finally see the preliminary results of that program, it seems clear that this investment could one day result in billions of dollars of savings for working Americans every year.
Private firms like Intuit, which charge working Americans to access tax assistance software including TurboTax, have become a big business, raking in $11.9 billion from users in 2022 alone. And even though many countries around the world make filing taxes free and easy, the tax prep business has become so profitable that firms like Intuit spent unthinkable amounts of money lobbying Congress to stop the IRS from creating a free filing option.
That was the status quo until the Biden Administration’s aforementioned $15 million investment, which resulted in this year’s Direct File Pilot, in which residents of 12 states with relatively simple tax returns could file directly with the IRS for free. The IRS announced at the end of April that “the program surpassed the Treasury’s goal of 100,000 users, received positive user ratings, and saved taxpayers money.”
The IRS notes that during the abbreviated trial period of the Direct File Pilot program this year, “140,803 taxpayers successfully filed returns using Direct File, with users reporting a high degree of user satisfaction.” Those users “claimed more than $90 million in refunds and saved an estimated $5.6 million in tax preparation fees on their federal returns alone.”
Even more impressive, those taxpayers loved the new filing system: “90% of respondents ranked their experience with Direct File as ‘Excellent’ or ‘Above Average,’” the IRS reports. One of those users was the Washington Post’s Shira Ovide, who wrote, “I liked using the IRS website — and I definitely prefer it over TurboTax, which annoys me with constant nags for more money and my private data.”
The IRS is expected to announce plans for the future of the program in the next few weeks. Given that this early trial exceeded all expectations in terms of users and especially customer satisfaction, they’ll hopefully move forward with expanding Direct File to even more of the country next year. If that happens, working Americans will save tens of millions of dollars in refunds that they didn’t realize they were entitled to, and they’ll save billions of dollars that they would have spent on unnecessary tax preparation software.
In her review for the Post, Ovide concluded, “We deserve effective online government services. Direct File is visible proof that government websites don’t have to stink.”
That’s the goal. Government should prioritize putting more money in the pockets of working Americans, and it should also be interested in saving peoples’ time. Technology has delivered a lot of efficiency for working people over the last twenty years or so. And government has fallen behind the times—often by the design of trickle-downers who want to make peoples’ interactions with government as frustrating and complicated as possible, so they’ll support those trickle-downers’ same budget cuts.
Now, the IRS is pointing the way to a new, middle-out understanding of how government should work. Access to government services should be free, easy, and enjoyable, so the same working Americans who used to spend hours navigating purposefully complicated systems every time they interfaced with government services will instead free up that time to get to the business of what working Americans should be doing: Making money, creating jobs, and growing the economy.
Now Is the Time to Grow Worker Paychecks and Power
“U.S. employers added a seasonally adjusted 175,000 jobs in April,” reports Sam Goldfarb at the Wall Street Journal. “That was far less than in March, when gains exceeded 300,000. It was also below the 240,000 economists had expected,” he adds. Though the added number of jobs weren’t quite as high as the expectations of mainstream economists, it’s important to note that the economy still added jobs—and unemployment still stayed at a record-low 3.9% for another month.
“Friday’s report will keep hope alive for a late-summer interest-rate cut from the Federal Reserve, because it eases fears of an overheating economy,” Goldfarb writes. We talked at length about jobs and the Fed last week, and that piece still holds true when taking this latest jobs report into account—but suffice it to say that Goldfarb’s explanation of the economy is at best outdated and at worst flatly wrong.
In fact, as explained by wealth management CEO Barry Ritholz at the Big Picture blog, the Fed should already be cutting rates in order to bring down high housing and credit costs for ordinary Americans, which are making up most of the high inflationary prices people are paying.
Nobody—least of all the Fed—should be trying to make the job market worse for workers. What our leaders should be doing now is making sure that workers have bigger paychecks to spend in their local economies, and more power to improve working conditions and wages for themselves.
Here’s one way lawmakers can give workers more power: From video cameras to keystroke-tracking software, advances in technology have allowed employers unprecedented opportunities to keep track of their employees. And those workers have had very little recourse to dispute that tracking technology—or even to know if and when they’re being watched by their bosses.
“New legislation introduced by Rep. Christopher Deluzio (D-PA) in the U.S. House of Representatives—the Stop Spying Bosses Act—would take important steps to protect workers against misuses of automated surveillance and management systems and ensure these technologies are not used to undermine workers’ rights,” reports Alexander Hertel-Fernandez at the Washington Center for Equitable Growth.
After years of advances in cheap and accessible surveillance technology, this legislation would mark a huge step forward for workers—and consumers. Hertel-Fernandez explains that the bill “would require employers to disclose to workers and the general public any workplace surveillance being conducted, including what is being collected, how it is being collected, the purposes for which it is being used (including if it will affect employment-related decisions), and whether the collected information is being transferred or sold to other entities.”
The bill would also require employers to tell workers when they make employment decisions based on the surveillance technology, and give workers the opportunity to contest the decisions if they think they were treated unfairly, or that employers are misinterpreting information from the surveillance.
The Stop Spying Bosses Act, if passed into law, would finally update a crucial worker protection for the 21st century, rebalancing the power dynamic between employers and workers. In other words, it’s exactly the kind of middle-out legislation that we like to see from Congress.
The Rich Are Getting Richer Again
So now that this month’s jobs data shows that those huge worker gains from the last three years are starting to decrease to normal historic levels, how are corporate profits doing? As Justlin Lahart points out for the Wall Street Journal, they’re booming:
“The bulk of U.S. companies have now reported first-quarter results, and they show profit growth is picking up,” Lahart writes. “Earnings per share for companies in the S&P 500 now look to be up 5.2% from a year earlier, according to FactSet, better than the 3.4% analysts expected at the end of March, and marking the strongest growth in nearly two years.”
In fact, corporate profits are doing so well that analysts are becoming more optimistic about their economic forecasts, and they “expect second-quarter earnings per share to gain 9.8%, compared with 9% at the end of March.”
Of course, the WSJ interprets this spike in corporate profits as a positive sign “because they show the U.S. economic engine continues to purr.” But those of us who study middle-out economics understand that those corporate profits don’t mean anything for the rest of the economy until they’re spent—and that wealth never trickles down under its own power. Corporations aren’t the economic engine of the U.S.—workers are.
This boom in corporate profits offers an opportunity for our leaders to explain how the economy really grows. While reporters love to hail corporate profits as a positive economic sign, working Americans don’t feel as though they’re sharing that prosperity—because they’re not.
When he was president, Donald Trump famously slashed the corporate tax rate from 35% to 21%. If this quarter’s robust corporate profits were taxed at pre-Trump levels (or—better yet—even higher, as they were when the American middle class was at its strongest) federal and state governments would have more revenue to invest in working Americans. That would be great for everyone—including corporations.
Meanwhile, another group of economic winners are hoarding wealth that used to circulate through the economy. Axios’s Emily Peck reports that “U.S. homeowners are sitting on a record mountain of wealth…just under $17 trillion in equity, a record high.”
That’s great news for the tens of millions of Americans who were lucky enough to buy a home back when mortgage rates were at rock bottom and house prices were at pre-pandemic lows. But “buying a house is increasingly out of reach for first-time buyers,” Peck warns.
“It now requires 36% of the median household income to purchase a median-priced home,” she writes—much higher than the 30% financial experts recommend. Even worse, those squeezed buyers are still facing “a shortage of homes to buy, and that's keeping prices elevated. There were 20% fewer home listings in March compared to what was typical in 2017-2019,” Peck concludes.
When you learn to view the economy through a middle-out lens, you quickly come to understand that the trickle-down concept of economic “winners” and “losers” is actively harmful to growing the economy. Everyone loses when money is frozen in corporate profits—which are often offloaded to the investor class in the form of buybacks and then dumped into ever-growing hoards of wealth—and in the home value of people lucky enough to be born before the current housing crisis. And everyone wins when money circulates freely through the economy, creating consumer demand and making it easier for everyone to invest in their communities.
This Week in Middle-Out
In a campaign stop in North Carolina, President Biden announced that he is investing $3 billion in funds to replace lead pipes around the state.
Biden also announced that Microsoft is making a $3 billion investment in Wisconsin to build an artificial intelligence data center on the site that President Trump previously announced a Foxconn factory that never materialized. The data center will permanently employ 2000 workers.
“Approximately 100,000 people with Deferred Action for Childhood Arrivals (DACA) and certain other statuses could gain access to affordable health coverage due to a new Department of Health and Human Services (HHS) rule,” writes Shelby Gonzales at the Center on Budget and Policy Priorities. Those DACA recipients were denied access to the Affordable Care Act during the Obama Administration.
And while the mainstream media begins its annual freakout over potential threats to Social Security and Medicare funding, Paul N. Van de Water at the CBPP explains why neither service is in any immediate danger of service cuts. He also explains that “President Biden’s 2025 budget contains Medicare proposals that would permanently close the projected shortfall in the HI trust fund, remove the threat of across-the-board cuts, and simultaneously reduce federal deficits and debt,” and that the same document “set[s] out several principles, including the need to raise revenues and prevent benefit cuts.” Remember when you see apocalyptic posts about the long-term health of services like Social Security and Medicare that trickle-downers want to use that fear to promote budget cuts and reduced services. And those fearmongers don’t want you to know that plenty of adults in the room already have simple, workable solutions that are ready to implement—or that, as the AP reports, “Medicare’s income [this year] will be higher than last year’s because the number of covered workers and average wages will be higher.".
This Week on the Pitchfork Economics Podcast
You may remember earlier this year that while the unemployment rate stayed at historic lows and workers continued to see their paychecks grow, Big Tech firms seemed to be engaged in a race to see how many workers they could lay off, even while they reported record profits in their quarterly calls. These layoffs caused a lot of consternation—economists couldn’t explain why tech companies were laying off nearly 25,000 workers at a time when every other sector seemed to be hiring, and the media was fretting about whether those layoffs were suggesting that the economy was heading into a recession. This week on the Pitchfork Economics podcast, Goldy and Nick talk with University of Washington professor Jeff Shulman, who explains the truth behind those tech layoffs, and explores the implications of what this might mean for workers in other industries.
Closing Thoughts
We’ve talked a lot in this newsletter about the fact that political candidates need to center middle-out economics in their messaging to potential voters. Ohio Senator Sherrod Brown, who is running for reelection this year, released an ad this week that is a great example of how to talk about economics. It’s a pretty great political ad for several reasons. Superficially, opening on a cute kid in a suit is a real attention-grabber, pulling eyeballs to the screen during commercial breaks. And there’s a good reason to open the ad on the kid—he’s visually demonstrating the theme of this commercial, which is shrinkflation.
“Even as corporations raise prices, they’re shrinking products,” Brown explains, which results in “less cereal, fewer cookies—even smaller rolls of toilet paper.”
“It adds up to record profits for them,” Brown says, “And higher costs for us.” Senator Brown then says he’ll “never stop fighting to crack down on corporate greed. Plenty of senators look out for corporations,” Brown says, before concluding: “I work for Ohio.”
This is powerful middle-out messaging which identifies a problem (greedflation and its little brother, shrinkflation,) explains the conditions that caused the problem (corporate greed,) and identifies a solution. And it’s all laid out in less than 30 seconds, using a compelling visual image and positive messaging.
Brown loses a point or two on my report card for not clearly laying out the finer points of his solution, but that’s a tough task to accomplish within the intensive time constraints of television advertising. Instead, the commercial explains through a visual of a headline that Brown created a piece of legislation that would directly curb shrinkflation.
Reshawn Hudson at KXAN explains that the legislation would direct the FTC to regulate shrinkflation, prohibiting companies from simply cutting the size of products and selling them for the same price. It would further allow the FTC and attorneys general in states around the union to bring civil actions against greedy corporations that shrink their products in an effort to pump up their quarterly profit margins.
Those kinds of details are very hard to convey in a 30-second ad, and Brown correctly chose to sacrifice them in exchange for explaining the problem in straightforward language, educating voters about shrinkflation and confirming their lived experience that their dollars aren’t going as far as they used to at the grocery store checkout lines.
I also appreciate that the ad explains how Brown is going to get more money into the pockets of working Americans—in this case by cutting costs. But it would have been ideal if Brown could have gone back in to explain why that matters: Because working Ohioans are the real job creators, the whole economy will do better when they have more money to spend, creating jobs with their increased consumer demand.
Adding that explanation frames the issue as more than just doing moral battle against corporate greed—it correctly frames American families as the source of our prosperity, and it explains that shrinkflation is bad for everyone, including the CEOs who gain short-term profits at the expense of long-term economic uncertainty.
But these are all quibbles that I can only focus on because Brown’s ad is so roundly good. Brown has always been one of the best economic communicators in the Democratic Party, and that’s why he’s been so successful as a Democratic candidate in an increasingly red state like Ohio. Honestly, if more candidates make ads as compelling as Brown’s this election season, we’ll see a lot of middle-out victories at the ballot box this November.
Be kind. Be brave. Take good care of yourself and your loved ones.
Zach