May 06, 2005

SACRAMENTO BEE GIVES READERS ECONOMICS LESSON

Predictably, however, it boils the concepts down so much in its editorial that they omit crucial information. But hey, there is only so much room to write the editorial.

In short, the Bee states that America's future energy policy will come through increasing taxes. That is, increasing taxes on SUV's, gasoline, and probably many more things.

But there is something funny about the editorial. The editorial has no clear point and the arguments are scattered. The Bee concludes that the US needs a new energy policy, one based on higher taxes, instead of a policy of trying to deliver inexpensive fuel to US consumers. The Bee never explains why we need this new policy. It merely makes the ominous statement, "Ahead are some challenging choices, and the longer we put them off, the more painful the day of reckoning will become." What day of reckoning? When fuel becomes really, really, really expensive? When there is no more oil to be found?

First, if fossil fuels continue to climb in cost, then it becomes economical to go after oil reserves we know exist, but which are not otherwise economically feasible to extract, as explained here by Peter Huber. The higher oil prices also means that it is economically feasible to explore in areas that were previously uneconomical to explore, namely, the bottom of the oceans (rumor is, oceans comprise a large percentage of the earth's surface). And hey, what is the effect of new oil coming into the market. That's right kiddies, reduced prices.

Second, although the Bee would like to see higher taxes on fuel because it would cause people to utilize (presumably) less fuel-intensive means of going about their lives. The Bee does not explain, or perhaps it does not realize, that people use fuel-intensive means of going about their lives (e.g., using cars) because it is economically feasible and convenient. The money and time people save by using cars and the cheap gasoline they pump into them means they can use that saved money and time on other things they find useful, e.g., healthcare, time with family, food.

If the Bee's policy of higher taxes went into effect, fewer people would drive and more people would change the way they go about their lives. Except, the people no longer driving still have to get their kids home from school, do the shopping, etc. So what is the cost to people in terms of money and convenience of changing their lifestyle? The monetary cost may go up or down, but the convenience will definitely decrease immensely. Why? Before and after the tax people are going to make decisions based on those factors. You have to assume that their choice to use (and pay for) the car maximized the convenience and minimized the cost to do so.

Third, the Bee states that if we reduced demand for fossil fuels, the energy companies would reduce prices. The Bee doesnít explain that as the price goes down, it becomes more attractive to buy. In other words, if there are other people, say, the emerging markets of India, China, and Russia, who are ready to purchase the fossil fuels, the net effect on the price of fossil fuels by the USís reduction in demand may be nothing.

Fourth, how exactly does raising taxes solve the economic plight Americans now face with high energy costs? Again, what the hell is the point of their editorial. Taxes for taxes sake?

I lied above when I said the Bee didn't have a clear reason for advocating higher taxes as a way to reduce demand. The Bee states quite clearly that it would hit BIG OIL where it hurts. The Bee states:

The world's four largest oil companies made nearly $24 billion in profits - in the first three months of this year alone.

Want to hit the oil companies where it really hurts by lowering demand? That's possible, but it means investing in a new energy future with much higher energy taxes and, perhaps, slowing down a bit on the highway.

There's good policy. Higher taxes for everyone to screw over BIG OIL. Talk about liberal bias.

Posted by Apiarist at May 6, 2005 10:53 AM | TrackBack
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