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Friday, May 05, 2006

Manipulating Markets

The Washington Post editorial board has an interesting way to reduce oil consumption in the US, tax our way away from it.

That's what they are advocating in "An Opportunity on Oil". Instead of the tried, and failed "gas guzzler tax", which didn't stop people from buying Hummers and Expeditions, they are now advocating a sliding tax on oil anytime the price gets too low.

They aren't the first to advocate this, environmentalists have liked the idea for years, and I can't say the logic is totally bad. When oil and consequently gas, are cheap, we tend to shy away from conservation. When prices get high enough to be painful, we start looking at smaller cars, carpools and mass transit more seriously. So, by manipulating the market, to force the price of oil to stay painfully high to the consumer, logic has it we'd continue to shy away from gas guzzlers and single purpose trips in the car.

How high would that price have to go? According to Mark Zandi at Moody's, it would have to hit $4 per gallon to get people to make major changes in their driving habits. In an article in the Chicago Tribune he derides Congress for their feel good legislation on price gouging, and lack of action on increasing production at home and refining capacity here in the US.

So, if $70 per barrel oil, and $3.00 per gallon gas aren't making the change, using the Post's plan, we'd need to toss about a $25 per barrel of oil tax on top of the current $70 price to hit the magic $4.oo per gallon "pain point".

There is a problem with "sin taxes" like the one the Post proposes, though. They generally don't work, people adapt to them. The rate of smoking in New York and Chicago, with huge cigarette taxes to discourage it isn't dropping any faster than other areas with lower taxes. Alcohol consumption changes haven't occurred in the states that have jacked up that sin tax.

The likely bigger effect of such at tax on oil would be inflation, plain and simple, at least early on. That means people would look for adjustments elsewhere to make up for it. Collective bargaining units would figure the cost into wage negotiations, meaning that the $4 pain point would move up. Remember, 10 years ago the "pain point" was considered $2 per gallon, and we investigated oil companies when gas hit $1.50 per gallon.

The second major problem with the tax the Post proposes is it's sliding scale. While it's low it's not a problem, but if oil were to drop back to a 2000 price level, the huge tax influx would be a windfall to Congress. The problem with Congress is when you give them money, they spend it, and then some. Giving them a windfall, then having it go away in a year or two when prices go up would end up encouraging them to engage in dangerous spending, not that they need much encouragement.

The Post rightfully points out that the free market has had a bigger effect on our use of oil than Congressional or Presidential action, so why try and manipulate it to speed the action? Instead, allow the market to continue working. Sales of SUV's and light trucks are dropping right now based on the price of oil, so instead of playing with the system, let it continue to work.

If Congress does feel the need to start tweaking taxes to influence consumers, here's a couple of ideas. Expand the gas guzzler tax to light trucks that aren't bought for business purposes.
Instead of having tax credits for any hybrid, remove it from the one's that get below the average EPA milage for cars. Expand the tax credit that's on hybrids to any vehicle that gets more than 50% better mileage than the CAFE standard, even if it's strictly gas powered.

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3Comments:

Blogger ablur said...

For some reason people seem to think you can tax people into submission.

Public transportation is failing in America because of "On Demand" business. From office work to factory work companies have changed from shift work to "On Demand" work schedules. This system places workers on transitioning schedules based on the goal or target result. Deadlines are tight and employee time is scheduled to meet the demands of the job in the most efficient manner. I often here complaints about moving schedules and the added difficulties placed on personal time. Family time has also suffered due to this system.
These schedule changes does not allow for car pooling and public fixed transportation systems. The working class needs greater flexibility in meeting these transportation challenges. These difficulties are further demonstrated when you throw in getting your children to school, daycare and special events.
The car and personal transportation has gotten to be even more important today then it was in the past. Having this in mind, we need to work on ways of continuing to meet this need. Attempting to drive people out of your car will fail. The result will only be inflation across the board.

1:06 PM  
Blogger shoprat said...

They accept any solution to the problem except producing more oil. The bogeyman of oil must haunt their worst nightmares.

1:29 PM  
Blogger Robosquirrel said...

Better yet, abolish the Federal Income Tax, repeal the 16th Amendment, and stick to taxing what I spend. If they didn't get you coming AND going, it wouldn't be near as bad.

This is a fairly popular idea, especially since the socialists think that the extra tax revenue will go for good causes, like social programs or subsidizing alternate fuels and electric cars. Of course, in reality (as opposed to their reality-based world) this doesn't make a lick of sense. For starters, it presupposes a responsible and efficient government. If you need proof of the opposite, look at Social Security, Medicare, or welfare.

Despite overwhelming evidence that their "ideas" are crap and these possibilities exist soley in their imaginations, they continue to get brought up as potential sloutions to economic problems. If ignorance is bliss, these folks must be extremely happy people.

12:40 PM  

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