Opinion : Flirting with economics

I just finished reading the book Freakenomics, which has gotten me thinking of economics. Actually I always think in questions about numbers, I guess the book really has just inspired me to write about it. Anyway here are two examples, questions I had and the answers that I found:

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First, Congratulations to Exxon Mobil, (EM) who announced last week that they had another record profit (just over $40 Billion). With Gas prices always fluctuating, (supposedly to help the sellers to cope with crude oil price changes) I was wondering how much profit that is per gallon of gas that EM sells. I figure if that profit just is a few cents a gallon, then they are entitled to it. If the profit share is significant however, I have to wonder if the competitive forces are efficiently regulating the gas market.

To find how much Exxon Mobil makes on a gallon of gas, I looked at their 2005 financial and operating review. For the year 2005, EM made $36.13 billion in profit for all operations. To find out how many gallons of gas they sold, I looked at the downstream sales number for the US, which is 621,960,000 barrels. Using a conversion factor of 31.5 b/gal, that comes out to a grand total of 1.5917 e10 (~ 15 billion - holy crap) gallons of gas sold in 2005. Dividing their profit by sales, EM managed to make about $0.54 in profit for every gallon of gas they sold in the US.

Now I realize that it is not fair to compare the total profit to one small segment of a global vertically integrated company (only 52% of EM gas sales are in the US), but that does make me wonder if a 3 cent hike for any given week is really necessary.

Other interesting facts: Exxon Mobil sells an average of just over 1 million gallons (1004828) of gas per year at each gas station. It sells 38.6 gallons per year per capita.

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My next inquiry came from reading that John Edwards proposed to establish Universal healthcare by simply buying plans for people who do not have insurance and paying for it by raising taxes. He claimed it would only cost $120 billion. Now I would never trust a round number from a politician, but that got me wondering how much it would cost to simply buy everyone health insurance.

To figure out the actual amount, I went to a health insurance comparison site and shopped around. Without community payments, our current system gives different prices to different people, so I attempted to estimate a per-person cost based on an average of the lowest (approx. me) and the highest (male smoker, 60yo, chronic disease) rates for plans in the Philadelphia area (fairly representative and average for nationwide markets) To eliminate under-insurance, I picked the cheapest plan that had a reasonable deductible (<$1000) and no coinsurance. This leaves us with the HMO offered by Aetna, which costs an avg of $338.31 per month or $4,059.72 /yr. (range $113.62 - $563 /month) (HSA plans were 50% cheaper but carried huge deductibles and are therefore not practical for older individuals or those with chronic disease) It is claimed that there are 47 million un or under-insured people in this country (I have no idea how they got that number, lets just roll with it) which means that to simply buy them all insurance it would cost $1.90806 e11 (~$190 billion ). To extrapolate per capita, it would cost $1.217916 e12 (~$ 1.2 trillion) to pay for insurance for everyone at current rates.

Now Edward's guess wasn't that bad (poloticians use wider tolerances than engineers...) although my calculated price would skew upward a bit if the uninsured population had more chronic illnesses or lived in more expensive markets, both of which are very likely. It is worth noting though that this price is less then half or national defense budget or current deficit, and wouldn't represent much of a tax increase to cover. Unfortunately health care costs are rising at almost triple the rate of inflation, so I doubt this would be a sustainable plan for very long without other measures. Also it would tempt businesses to offload their employee benefits on the government...then again, that could be the market way to establish a single payer system...