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Old 05-15-2006, 04:00 PM  
CHIEF4EVER CHIEF4EVER is offline
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A very interesting article on a solution to our oil addiction.

This is a very interesting article IMO. Discuss.




A sure cure for oil addiction
Americans guzzle gas faster than anyone else in the world. But there's a cure: paying full price, for both the direct and indirect costs of oil. Why not a significant gas tax?

By Roger Ibbotson

In President Bush’s State of the Union address earlier this year, he talked about America’s “addiction to oil.” The United States accounts for a little more than 4% of the world population but consumes about a quarter of its oil. Even by developed-nation standards, we consume a disproportionate amount of energy. The U.S. has around the same size population as Western Europe, but it uses twice the oil.

Western European and Japanese leaders have successfully reduced oil consumption in their countries, while the U.S. has continued to guzzle.

The reason the Europeans and Japanese have been successful where we have failed is that they realized you don’t cure an addiction to oil by subsidizing it. You cure an addiction to oil by making people pay full price -- both the direct and indirect costs.


No brakes on consumption
Back in 1973, following the Yom Kippur War fought by Israel against Egypt and Syria, the Organization of Arab Petroleum Exporting Companies refused to ship petroleum to countries that supported Israel in the war, namely the United States, Western Europe and Japan. By 1974, oil prices had tripled, sparking a major worldwide economic recession.

In the following years, countries looked for solutions to their energy reliance. Japan and Western Europe enacted high taxes to curb oil use, while the United States reacted by imposing fuel-economy standards. Since the mid-70s, oil consumption in Japan and Western Europe has remained flat. U.S. consumption has more than doubled, according to the Energy Information Administration.

The United States imported approximately $251.6 billion worth of oil last year -- a significant portion of our trade deficit. And more than half of that oil goes to gasoline for cars. The fuel-efficiency standards enacted after the oil crisis didn’t work to curb oil consumption in the U.S., partially due to population growth, but largely due to the changing mix of vehicle sales.

Politicians wanting to support American car manufacturers proposed far less strict fuel-economy standards for trucks. Today, approximately half of all vehicles sold in the United States are categorized as trucks -- the category includes SUVs and minivans -- and do not have to comply with the same standards as cars.

Demand for trucks has continued to grow in this country because gasoline is relatively cheap. It is roughly half of what Western Europeans pay. Besides buying gas-guzzling trucks, Americans have adapted their lives to inexpensive gasoline in other ways -- the number of people who carpool has dropped over the years, while average commute times have increased.

Americans think cheap gas is their right. Every time gas prices rise, there's a national outcry -- as we can see going on right now. Americans are pointing their fingers at big oil companies, OPEC and government taxation. But in fact, gasoline taxes have actually declined over time, while the amount we're paying in indirect costs for gasoline has increased.

Gunpoint subsidies
The U.S. government uses a large portion of its expenditures to build stable, friendly governments in countries where we have an economic interest -- in particular countries that supply us with a reliable source of oil. But these military costs are not reflected in the price of the oil we consume. Instead, they’re paid for by non-oil taxes. This, in effect, creates a price subsidy for oil.

The U.S. government has been spending approximately $100 billion a year on the Iraq conflict. This expenditure is approaching $1,000 per American citizen since the war began. And not only does much of that money flow out of the U.S. economy, but revenue from our oil imports goes to prop up regimes that suppress their people and sponsor terrorism. Since Americans are already paying high indirect costs for gasoline (funding wars with their non-oil tax dollars), why shouldn't we keep that revenue in our own country by enacting a meaningful gasoline tax?

Paying the true price
A significant gasoline tax would let the U.S. cut down the twin trade and budget deficits, and the tax would let the U.S. stop funding unfriendly, repressive countries. It would benefit the environment. And it doesn’t have to hurt. The tax could be phased in slowly over time to allow Americans, technology and industry to adjust. Also, gas-and-oil expenditures are actually a small percentage of both GDP and personal consumption. Done slowly and carefully, the economy should be able to absorb this tax.

There’s a cost to our inaction. Our current-account deficit cannot grow forever. Over time, foreign central banks will become increasingly reluctant to keep financing our debt, especially given the sizeable trade deficit. That will cause even more depreciation of the U.S. dollar and a rise in interest rates.

But there’s one good argument against a high gasoline tax. It will hurt the poor more than the rich because gasoline consumption accounts for a larger proportion of their income. And this is true. But gas prices are going to rise dramatically over time regardless of this tax. Worldwide demand for oil will only increase as China and India emerge as economic powers. By enacting a gas tax now and using the revenue to pay down the debt and cut away at the trade deficit, the benefits to the economy will help everyone.

If you believe that some of the military action we've taken (particularly in recent years) has been at least partially, if not primarily, to secure our supply of oil, then it is a cost of the commodity and should be factored into the price. We can change bad behavior -- buying gas-guzzling cars, forgoing public transportation and not adopting alternative energy -- by simply making people pay the true cost of gasoline, both direct and indirect costs.

Roger Ibbotson, Ph.D., is founder of Ibbotson Associates, a Morningstar company, and a professor of finance at the Yale School of Management.
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Old 05-15-2006, 04:20 PM   #2
BucEyedPea BucEyedPea is offline
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I have a better idea:
Let's just change our foreign policy.
That's the cheapest idea.

Besides Americans travel a larger expanse of terrain then Europeans and Japanese due to being a bigger country.

The flaw, imo, in this man's article is that we can't by oil from unfriendly countries. Yet, trade helps to ease war tensions, not the other way around. They don't eat their oil. They have to have trade and customers to survive. When trade is prevented....the following quote applies

"If goods can't cross borders, armies will" -- Bastiat


The oil theory of going to war is very limited.
I'm not saying businessmen won't jump on the spoils of war
but I don't think it's the reason we feel a need to intervene in the ME.
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Old 05-15-2006, 04:39 PM   #3
Logical Logical is offline
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Quote:
Originally Posted by BucEyedPea
I have a better idea:
Let's just change our foreign policy.
That's the cheapest idea.

Besides Americans travel a larger expanse of terrain then Europeans and Japanese due to being a bigger country.

The flaw, imo, in this man's article is that we can't by oil from unfriendly countries. Yet, trade helps to ease war tensions, not the other way around. They don't eat their oil. They have to have trade and customers to survive. When trade is prevented....the following quote applies

"If goods can't cross borders, armies will" -- Bastiat


The oil theory of going to war is very limited.
I'm not saying businessmen won't jump on the spoils of war
but I don't think it's the reason we feel a need to intervene in the ME.
Well stated, though I do feel we need to discourage consumption to a greater degree than we no do. Paying a more realistic price (not artificial via tax) is fine, regulating what can be considered trucks is fine, finally raising the standards on trucks would be fine.
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Old 05-15-2006, 04:51 PM   #4
CHIEF4EVER CHIEF4EVER is offline
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Quote:
Originally Posted by BucEyedPea
I have a better idea:
Let's just change our foreign policy.
That's the cheapest idea.

Besides Americans travel a larger expanse of terrain then Europeans and Japanese due to being a bigger country.

The flaw, imo, in this man's article is that we can't by oil from unfriendly countries. Yet, trade helps to ease war tensions, not the other way around. They don't eat their oil. They have to have trade and customers to survive. When trade is prevented....the following quote applies

"If goods can't cross borders, armies will" -- Bastiat


The oil theory of going to war is very limited.
I'm not saying businessmen won't jump on the spoils of war
but I don't think it's the reason we feel a need to intervene in the ME.
Well said.

I think we need to start being smarter as a people concerning the use of our vehicles and mass transportation. I remember when I lived in Berlin, I didn't own a car or have the need to. The BVB (Berliner Vekehrs Betrieb or Berlin Transport Co) was inexpensive, efficient, safe and utterly reliable. It was also fairly comfortable and convenient. One could reliably and safely go to any point in Berlin within 1 hour using a combination of Bus, U Bahn (subway) and S Bahn (streetcar). Every major US city should be required to have a public transport system available with all three of these elements. The Germans also have a well developed national rail system and it is likewise efficient and affordable. That is something else we could explore. Just food for thought.
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Old 05-15-2006, 05:22 PM   #5
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Quote:
Originally Posted by CHIEF4EVER
This is a very interesting article IMO. Discuss.

...

Paying the true price
A significant gasoline tax would let the U.S. cut down the twin trade and budget deficits, and the tax would let the U.S. stop funding unfriendly, repressive countries. It would benefit the environment. And it doesn’t have to hurt. The tax could be phased in slowly over time to allow Americans, technology and industry to adjust. Also, gas-and-oil expenditures are actually a small percentage of both GDP and personal consumption. Done slowly and carefully, the economy should be able to absorb this tax.

There’s a cost to our inaction. Our current-account deficit cannot grow forever. Over time, foreign central banks will become increasingly reluctant to keep financing our debt, especially given the sizeable trade deficit. That will cause even more depreciation of the U.S. dollar and a rise in interest rates.

...

If you believe that some of the military action we've taken (particularly in recent years) has been at least partially, if not primarily, to secure our supply of oil, then it is a cost of the commodity and should be factored into the price. We can change bad behavior -- buying gas-guzzling cars, forgoing public transportation and not adopting alternative energy -- by simply making people pay the true cost of gasoline, both direct and indirect costs.

Roger Ibbotson, Ph.D., is founder of Ibbotson Associates, a Morningstar company, and a professor of finance at the Yale School of Management.
Brace yourself, but...


I've been saying this for a while now.

http://www.chiefsplanet.com/BB/showt...76#post3195876
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Old 05-15-2006, 05:45 PM   #6
SBK SBK is offline
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Is is possible that we pay too much gas tax already?
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Old 05-15-2006, 05:50 PM   #7
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Yeah, let's add ANOTHER cost to the price of gasoline.

Unbelievable.

Who's going to be the first Democrat to bring this idea up in Congress? I'd like to watch that.

Taxes are already the second largest component in the price of gasloine, after crude oil.
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Old 05-15-2006, 05:51 PM   #8
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Quote:
Originally Posted by Logical
Well stated, though I do feel we need to discourage consumption to a greater degree than we no do. Paying a more realistic price (not artificial via tax) is fine, regulating what can be considered trucks is fine, finally raising the standards on trucks would be fine.
I'm looking forward to seeing what the present price does to demand. After Katrina, IIRC, we dropped 3%
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Old 05-15-2006, 06:02 PM   #9
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Quote:
Originally Posted by Donger
Yeah, let's add ANOTHER cost to the price of gasoline.

Unbelievable.

Who's going to be the first Democrat to bring this idea up in Congress? I'd like to watch that.

Taxes are already the second largest component in the price of gasloine, after crude oil.
I'll copy and paste couple of my comments from the other thread...
I've said this before, and I think it's important to bring this up now, as this author starts to touch on it and then just stops.

The energy markets are currently not operating properly. The cost of this war and on going operations to protect oil shipping lanes are not reflected in the price of oil, but rather are accounted for by using defense funds pulled from the general tax funds.

A proper market would link these defense/war costs to the energy source that we are trying to protect (imported oil/gas). To not do so is to subsidize imported oil over alternate energy sources. We actually *need* an increased oil tax for our free markets to actually function properly.

I'm willing trade taxes dollar for dollar so that we aren't causing a net increase in taxes, but we need to properly reflect the true costs of oil in the cost of oil.

And...
Any market that doesn't have perfect information is in fact flawed. It's the very definition of the idea of markets. They are theoretical entities that are in fact utopian. They have real life counterparts that just like anything practical (not theoretical), are flawed.

Being flawed does NOT mean they aren't functional. Our markets are functional for the most part, but without perfect information, our markets are inherantly flawed. This example of subsidizing oil through non-oil reveunes paying for securing access and transport of oil from the ME is a flaw in the oil markets.

Correction of this flaw can happen in only 1 way. Force the oil companies to fund any activities needed to secure their imported products. A utopian way to accomplish this would be to literally turn the responsiblity for that security over to the oil companies themselves. Let them buy the Stealth Bombers, cruise missles and battleships and soldiers to protect their imports. A more practical and less problematic way would be to shift the tax basis for the funds used to secure the import of oil, onto the product itself... thus allowing the market price to reflect the true costs of the product.

Notice, I said *shift*. Meaning, raise oil taxes and lower other taxes equally.

I recognize that doing this is akin to political suicide, and as a result NO ONE will propose or support this right now. The closest we will get is some Rovian spin calling out Democrats for agreeing that this factual scenario exists and claiming that they "support" increasing gas prices.
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Old 05-15-2006, 06:46 PM   #10
Donger Donger is offline
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Quote:
Originally Posted by jAZ
I'll copy and paste couple of my comments from the other thread...
I've said this before, and I think it's important to bring this up now, as this author starts to touch on it and then just stops.

The energy markets are currently not operating properly. The cost of this war and on going operations to protect oil shipping lanes are not reflected in the price of oil, but rather are accounted for by using defense funds pulled from the general tax funds.

A proper market would link these defense/war costs to the energy source that we are trying to protect (imported oil/gas). To not do so is to subsidize imported oil over alternate energy sources. We actually *need* an increased oil tax for our free markets to actually function properly.

I'm willing trade taxes dollar for dollar so that we aren't causing a net increase in taxes, but we need to properly reflect the true costs of oil in the cost of oil.

And...
Any market that doesn't have perfect information is in fact flawed. It's the very definition of the idea of markets. They are theoretical entities that are in fact utopian. They have real life counterparts that just like anything practical (not theoretical), are flawed.

Being flawed does NOT mean they aren't functional. Our markets are functional for the most part, but without perfect information, our markets are inherantly flawed. This example of subsidizing oil through non-oil reveunes paying for securing access and transport of oil from the ME is a flaw in the oil markets.

Correction of this flaw can happen in only 1 way. Force the oil companies to fund any activities needed to secure their imported products. A utopian way to accomplish this would be to literally turn the responsiblity for that security over to the oil companies themselves. Let them buy the Stealth Bombers, cruise missles and battleships and soldiers to protect their imports. A more practical and less problematic way would be to shift the tax basis for the funds used to secure the import of oil, onto the product itself... thus allowing the market price to reflect the true costs of the product.

Notice, I said *shift*. Meaning, raise oil taxes and lower other taxes equally.

I recognize that doing this is akin to political suicide, and as a result NO ONE will propose or support this right now. The closest we will get is some Rovian spin calling out Democrats for agreeing that this factual scenario exists and claiming that they "support" increasing gas prices.
Errr, the present price of gasoline is directly related to the price of crude, which is a commodity. Are you suggesting there's some collusion between the speculators and the defense industry, or something?
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