Wednesday, April 16, 2008

Bad Idea, John

Here we go again: another pandering politician suggesting that the federal gasoline tax be reduced, suspended or eliminated. On a day when the price of oil hit another record high, John "Straight Talk" McCain proposed a suspension of the federal gas tax from Memorial Day to Labor Day.

McCain has said he doesn't understand economics, and I believe him. But even he should be able to grasp the rudimentary essentials of supply and demand.

Oil prices are streaking to stratospheric heights due largely to the fact that there's less oil available than the world wants to consume. Lowering the price of gasoline, either directly, or by lowering taxes, will not make oil or gasoline more plentiful.

Instead, lowering the price will have the effect of increasing demand, thereby making a bad supply situation worse. Increased demand will put additional upward pressure on the price of oil at the producer level, and before long the price at the pump will be back to where it was—except with the government's lost tax revenues going into the coffers of oil producing countries and companies.

To be fair, McCain has also proposed that the government concurrently suspend addition of oil to the strategic petroleum reserve. Temporarily getting the government out of the oil buying business will presumably balance the anticipated increased demand by consumers, with no net pressure on the price of oil.

It still stinks. The unmitigated, unrelenting, unassailable, unavoidable reality is that oil is a permanently scarce resource, in a long term trend of ever declining supply even as the short and mid term demand curve still arcs upward. Not only is cheaper gas not the answer, it is antithetical to the answer: the anti-answer. Only a revolutionary change in consumer behavior, under the duress of oppressively high prices, will set us on the path to reducing and ultimately eliminating our use of this diminishing resource. Oil needs more, not less, taxation. To state this truth plainly would be genuine straight talk. But not, alas, in an election year.

Will sufficiently high prices alter consumer behavior? Undoubtedly. We've proved this once during the oil crunch of the seventies. Demand dropped precipitously, and it took the resulting low prices and a lot of time to recover to where—ultimately—Hummers, Suburbans, and, yes, my F150, rule the road. Americans literally conserved their way out of a crisis. This time we need to do it for good.

Even now, our modest (compared to levels long prevailing in Europe and Asia) rise in gasoline prices is having some effect. I've spoken with salespersons at several Toyota dealerships, and they've told me they sell Priuses practically as fast as they can get them—even in the current weak economy, and even with Toyota having substantially increased Prius production. Dealers say the demand for Priuses rises in lockstep with gasoline prices. But we've barely, hardly at all, begun. Suspend the gas tax? Insanity.

One more thing. John McCain claims to believe that global warming is a serious threat that will be a major focus of his administration. Surely he realizes that policies that support demand for fossil fuels run counter to the need to reduce greenhouse gasses. Doesn't he?

Copyright (C) 2008 James Michael Brennan, All Rights Reserved


At Mon Nov 10, 10:33:00 AM, Anonymous Zulema said...

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