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| Home Front Economy |
| Keeping Oil Money At Home |
| 2008-06-07 |
| So now we know: The price point is $4. At $3 a gallon, Americans just grin and bear it, suck it up and, while complaining profusely, keep driving like crazy. At $4, it is a world transformed. Americans become rational creatures. Mass transit ridership is at a 50-year high. Driving is down 4 percent. (Any U.S. decline is something close to a miracle.) Hybrids and compacts are flying off the lots. SUV sales are in free fall. The wholesale flight from gas guzzlers is stunning in its swiftness, but utterly predictable. Everything has a price point. Remember that "love affair" with SUVs? Love, it seems, has its price too. America's sudden change in car-buying habits makes suitable mockery of that absurd debate Congress put on last December on fuel efficiency standards. At stake was precisely what miles-per-gallon average would every car company's fleet have to meet by precisely what date. It was one out-of-a-hat number (35 mpg) compounded by another (by 2020). It involved, as always, dozens of regulations, loopholes and throws at a dartboard. And we already knew from past history what the fleet average number does. When oil is cheap and everybody wants a gas guzzler, fuel efficiency standards force manufacturers to make cars that nobody wants to buy. When gas prices go through the roof, this agent of inefficiency becomes an utter redundancy. At $4 a gallon, the fleet composition is changing spontaneously and overnight, not over the 13 years mandated by Congress. (Even Stalin had the modesty to restrict himself to five-year plans.) Just Tuesday, GM announced that it would shutter four SUV and truck plants, add a third shift to its compact and midsize sedan plants in Ohio and Michigan, and green-light for 2010 the Chevy Volt, an electric hybrid. Some things, like renal physiology, are difficult. Some things, like Arab-Israeli peace, are impossible. And some things are preternaturally simple. You want more fuel-efficient cars? Don't regulate. Don't mandate. Don't scold. Don't appeal to the better angels of our nature. Do one thing: Hike the cost of gas until you find the price point. Unfortunately, instead of hiking the price ourselves by means of a gasoline tax that could be instantly refunded to the American people in the form of lower payroll taxes, we let the Saudis, Venezuelans, Russians and Iranians do the taxing for us -- and pocket the money that the tax would have recycled back to the American worker. This is insanity. For 25 years and with utter futility (starting with "The Oil-Bust Panic," the New Republic, February 1983), I have been advocating the cure: a U.S. energy tax as a way to curtail consumption and keep the money at home. On this page in May 2004 (and again in November 2005), I called for "the government -- through a tax -- to establish a new floor for gasoline," by fully taxing any drop in price below a certain benchmark. The point was to suppress demand and to keep the savings (from any subsequent world price drop) at home in the U.S. Treasury rather than going abroad. At the time, oil was $41 a barrel. It is now $123. But instead of doing the obvious -- tax the damn thing -- we go through spasms of destructive alternatives, such as efficiency standards, ethanol mandates and now a crazy carbon cap-and-trade system the Senate is debating this week. These are infinitely complex mandates for inefficiency and invitations to corruption. But they have a singular virtue: They hide the cost to the American consumer. Want to wean us off oil? Be open and honest. The British are paying $8 a gallon for petrol. Goldman Sachs is predicting we will be paying $6 by next year. Why have the extra $2 (above the current $4) go abroad? Have it go to the U.S. Treasury as a gasoline tax and be recycled back into lower payroll taxes. Announce a schedule of gas tax hikes of 50 cents every six months for the next two years. And put a tax floor under $4 gasoline, so that as high gas prices transform the U.S. auto fleet, change driving habits and thus hugely reduce U.S. demand -- and bring down world crude oil prices -- the American consumer and the American economy reap all of the benefit. Herewith concludes my annual exercise in futility. By the time I write next year's edition, you'll be paying for gas in bullion. |
| Posted by:Bobby |
| #16 Except that oil exploration is going crazy, and oil has been found pretty much everywhere, as far as I can tell. And if oil prices stay high or go even higher, as presumably the Saudis and other jihadi countries would like, the oil will be exploited, non-oil burning power plants (nuclear, natural gas/gas from coal, even coal fired) will be built, and in the end the jihadi countries will lose both their economic war and their terror jihad. |
| Posted by: trailing wife 2008-06-07 22:21 |
| #15 Wait till US unemployment goes to 7.5%, demand for cheap Chinese goods goes to 0 because of internal dislocations following the Olympics and oil goes to $70 or lower per barrel. Because of inelastic demand, oil is volatile, up and down, whatever the reason. Go long SUVs now. |
| Posted by: Nimble Spemble 2008-06-07 20:47 |
| #14 Ed - correct, at least until the Chinese move into Siberia to increase production and transport efficiency. |
| Posted by: Shomosh Tojo7120 2008-06-07 20:32 |
| #13 P.S. What has kept a lid on oil prices rising even faster has been sharply increased Russian oil exports. That is now over and Russian exports are expected to decline over the years. |
| Posted by: ed 2008-06-07 20:12 |
| #12 Hedge funds are our enemies? You give them too much credit. Oil is priced by demand at the point of use (ultimately at the pump but more directly at the refinery). Futures markets don't move the price at the point of use unless they take delivery and warehouse the stocks. This was done a few years ago with rented tankers anchored with full holds. There is no evidence of this now except for a dozen or so tankers off Iran. Instead you will find that Persian Gulf oil exports have dropped by almost 1 million barrels/day just in the past year. Saudi Arabia alone has a production capacity of 12 or so million barrels/day but elect to produce 9 or 9.5. During the Iran-Iraq war when they wanted to cripple Iran, they produced full out and oil dropped to $8/barrel. Now they want to cripple the west and the US specifically. In a rising consumption market they can do that without resorting to an embargo or drastic cuts, but by holding production steady or slowly declining. That they are making 5X/barrel than pre Sept 11 is the icing on the cake. |
| Posted by: ed 2008-06-07 20:08 |
| #11 More ill concieved, non thought out, lame brained ideas from the temple of taxation. I really don't want them to pass any more laws or come up with any more ideas. Veto all of it unless of course it is simply a drill and refine plan. Has not enough damage been done yet? |
| Posted by: newc 2008-06-07 19:51 |
| #10 It didn't take a genius to figure out 6 1/2 years ago that our enemies would use their only effective weapon. Hedge funds are our enemies? |
| Posted by: AzCat 2008-06-07 19:30 |
| #9 Any tax only adds to the world price of oil. Any tax only adds to prices in addition to the world price of oil. Too many beers today. |
| Posted by: ed 2008-06-07 19:11 |
| #8 TW, GM is closing 4 truck plants. That means full size trucks and SUVs. They are adding shifts in their small car plants. Smaller SUVs built on car chassis get mileage similar to cars. |
| Posted by: ed 2008-06-07 19:09 |
| #7 Great plan, except the US does not control the price of oil. Any tax only adds to the world price of oil. Any reduction in consumption will be more than absorbed by growing China alone (whose car sales should exceed US sales this or next year), not to mention India and the other growing Asian economies. Other than taking the Persian Gulf oil fields and in the process funding our war effort with plenty left over, the only viable solution is electric centric transportation and that will take a generation at a minimum. Any surtax will have to go to speeding up BEV, PHEV and infrastructure adoption. We're in this squeeze because of a complete lack of leadership and strategic planning. It didn't take a genius to figure out 6 1/2 years ago that our enemies would use their only effective weapon. |
| Posted by: ed 2008-06-07 19:04 |
| #6 Rebates and taxes have to be filtered through the bureaucracy before they get back into the economy -- not an efficient proposition. As for SUV sales: I haven't seen it in the smaller SUVs. Perhaps it's different for the vehicles that take up two parking spaces. |
| Posted by: trailing wife 2008-06-07 18:52 |
| #5 Variable oil import fee that will maintain the cost of a barrel of imported oil at $100 if the market price paid falls below $100 with the proceeds remitted per capita to all social security card holders. That's all we need to do. |
| Posted by: Nimble Spemble 2008-06-07 18:48 |
| #4 Roger that, AzCat. |
| Posted by: eLarson 2008-06-07 18:39 |
| #3 As a matter of principle I'm strictly opposed to taxes intended to bring about "social engineering" results no matter how seemingly noble the goal. |
| Posted by: AzCat 2008-06-07 18:24 |
| #2 I'm not totally opposed to the idea of a $1 - $2 per gallon gas tax, rebated back either by lowering the payroll tax or the income tax. Problem is, I see the Democrats looking at that gas tax money and thinking, "Oh boy! Look at all that money we can spend!" And Repubs like Stevens and others who want their share of the earmarks and the pie. So you'd have to show me that, dollar-for-dollar, the gas tax money is coming back to the taxpayers in cuts and rebates. I think I'll see a pink zebra first. |
| Posted by: Steve White 2008-06-07 18:12 |
| #1 No way am I trading the ol' M/B land yacht in for a hybrid. She's got at least another half-million miles in her. Heck I might belch out enough emissions to warm the globe all by myself. |
| Posted by: AzCat 2008-06-07 17:38 |