April 11, 2005

A Little Energy

First, a fun link, to Gas Buddy. All the local gas prices fit to post (yes, the Canadian prices are per liter, not per gallon)!

Calculated Risk has a helpful summary of the Department of Energy's Short-Term Energy Outlook . Noteworthy points include:

* For not quite a year, oil prices have exceeded DOE base case estimates. DOE has been predicting prices to flatten or go down, and it isn't doing that anymore. The low end of the range for 2005 and 2006 is $45/barrel, just a little below where oil is now; the high end is $65.

* Prices could more easily spike up than down. There just isn't that much slack in the system -- not from OPEC, and not from American refineries operating at close to peak capacity. Relatively small increases in demand, or cuts in supply from weather or other causes could cause prices to jump significantly.

* The IMF's chief economist is talking about a "permanent oil shock." While this is a problem for the United States, it is a much bigger problem for smaller developing countries.

It's not as if we didn't know this was coming. In part, high energy prices are the result of economic growth, something we rightly encourage in America and overseas. They also -- as we saw in the 1970s -- can inhibit future economic growth. Personally I would have preferred we anticipate that problem by taxing energy use, starting several years ago and beginning with gasoline. But with gas prices where they are now, that ship may have sailed.

Thanks to Lynne Kiesling for the CR link.

Posted by at April 11, 2005 05:12 PM | TrackBack (8)
Comments

This is evidence that such taxes are not only unnecessary, but futile as well. They are futile because consumption taxes in the U.S. would not have predicted or compensated for the surge in oil consumption in China and India. A consumption tax is unnecessary because the market will correct the problem of high gas prices, either by accelerated development of fuel alternatives or by increased demand for fuel-efficient hybrid vehicles.

In fact, in some cases, fuel taxes are actually counter productive. For example, let's say we could all take the magic Green pill tonight, and when we wake up tomorrow morning; our cars will all run on highly available and inexpensive chicken farts without modification. Big Oil still makes their money becaues they have, with the help of their friends in the environmental lobby, consolidated fuel distribution. So, we'll still be paying them to pump chicken farts into our cars. On the other hand, the US government will lose the 18 cents for every gallon of gasoline consumed in this nation. The State of California will lose its 18 cents for every gallon of gasoline consumed in the state, and California and San Diego will lose the 25 cents for every gallon of gas purchased in the County. The battles over replacing those lost revenues with new revenues would have to be re-fought in a climate that isn't very tolerant of tax increases.

Posted by: VD at April 11, 2005 10:49 PM | Permalink to this comment Permalink

Oil prices are volatile. They will fall in the future, just as they will rise. Were we smart now, we would implement oil import fees designed to minimize volatility by maintaining a consistently increasing minimum price for imports of oil and petroleum derived products including an environmental charge for products refined overseas. Now is the time to do it when the price is high and the incremental tax low. When oil goes to $30 a barrel, everybody will be so happy the problem is gone that they won't sign up for a $20 per barrel tax.

This would provide the guidance necessary for the long term investments necessary to convince industry to convert to alternatives sooner rather than trying to guess what the new plateau price will be.

Posted by: Mrs. Davis at April 12, 2005 01:36 AM | Permalink to this comment Permalink

VD: This is evidence that such taxes are not only unnecessary, but futile as well.

Depends what the goal is. If the goal is reduced emissions or less dependence on foreign oil for national security reasons or for environmental, then a gas tax or oil import fee would probably be the best policy, and cars running on chicken farts would be an unqualified success (depending on the smell).

On the other hand, if the goal is to prevent companies from making money, then you're probably better off just moving the economy towards socialism. :)

Posted by: fling93 at April 12, 2005 01:58 AM | Permalink to this comment Permalink

fling93: Depends what the goal is.

That's just it. The goal should be for government to get the hell out of the way and the let the market fix the problem. There already are federal, state, and local taxes imposed on gasoline that are used for everything from infrastructure, law enforcement, to the environment.

As I stated, and has been proven, gas taxes make government reliant upon our consumption of foreign oil. Gasoline taxes also introduce the anti-capitalist policy or corporatism into the economic system by institutionalising the oil industry and making it a necessary part of the government.

Posted by: VD at April 12, 2005 03:03 AM | Permalink to this comment Permalink

Mrs Davis,

Yes you're are right that Oil prices are volatile and could go down. However most if not all pundits are predicting that at some point in the next 20-100 years, depending on to whom you listen to, the reserves of Oil will be come depleted to such a point that it will become increasingly expensive and less economic to extract - Peak Oil I think its called. Ultimately this means Oil prices in the long term will only ever increase.

So whilst you might be right in the short term I will be very very surprised if we ever see Oil prices go back down to $15-$20 per barrel. I'd be happy to be wrong on this though....

I think most Western Governments need to pull their head out of their rear ends and do something fast in terms of promoting the development of sustainable alternative power sources which we are eally only just beginning to explore - and converting the world's cars, trucks, trains, boats, planes, and other petrochemical fueled engines to utilise them. - Hemp seed oil anyone?

Posted by: Aran Brown at April 12, 2005 03:12 AM | Permalink to this comment Permalink

Two words, Benjamin: nuclear power.

What are we waiting for?

Posted by: thibaud at April 12, 2005 05:11 AM | Permalink to this comment Permalink

Aran,

Oil prices will increase in the long run. But decision makers make decisions based on the short run. And when faced with immense volatility in prices, they will be unwilling to make the large capital investments required in most alternative fuel scenarios. What I am proposing is for the government to remove that volatility. Then I agree with VD, the government should get out of the way and let the market figure out the correct solution. I have complete confidence that any other government sponsored efforts to promote "the development of sustainable alternative power sources" will be as effective as the Synfuels corporation.

The only exception is the nuclear industry. This must be revitalized and the federal government will have a part to play in standardized design, saftey regulation and liability limitation.

Posted by: Mrs. Davis at April 12, 2005 01:30 PM | Permalink to this comment Permalink

I tend to concur that I do not see what good energy consumption taxes would have done, unless the taxes were directed at energy consumption devices (SUVs), rather than oil itself. The idea is to find alternative sources of fuel. That will not happen unless it is profitable to do so. Taxes do not increase the profits of the folks who explore for energy.

Posted by: Appalled Moderate at April 12, 2005 01:45 PM | Permalink to this comment Permalink

Just so we're clear, my advocacy of energy consumption tax was based on their ability to accustome individuals and businesses to higher energy prices; am economy that uses energy more efficiently (and higher prices are the best way to encourage this) is less vulnerable to price spikes. Also, I lean toward a move toward consumption taxes generally as a way to address the very low rate of individual savings mentioned in my 4/10 post on Volcker. In that context, energy taxes are the thin end of the wedge.

There is also the revenue they would raise. Ideally I'd prefer using new taxes to be offset by cuts in other taxes, but with deficits at current levels that may not be practical. Finally and per AM's comment, while energy taxes do not directly make alternative energy sources more profitable, higher energy prices do encourage people to look for alternatives, increasing demand for alternatives, thus making the production of alternatives more profitable.

I am not arguing for energy taxes as a way to reduce the trade deficit (they wouldn't) or to get people to live a more virtuous lifestyle in harmony with nature. And, as I suggest, it is easier to sell energy taxes when market prices are low than when they are high and rising. So all of this may be a moot point.

Posted by: JEB at April 12, 2005 03:53 PM | Permalink to this comment Permalink

From an economist's perspective, the optimal policy would be some sort of import tariff on gasoline -- the US has some market power as a consumer of gasoline, hence it could improve its terms of trade and overall welfare by implementing such a tariff.

Second, to the degree that you think consumers of foreign oil don't bear all the costs of obtaining such oil (think soldiers in Saudi Arabia), there's an externality to be corrected by implementing such a tax.

Third, to the degree that we want a relatively smooth transition to a less-oil equilibrium (rather than a sudden, painful jump), raising gas taxes would be a good idea.

Posted by: Guy at April 12, 2005 04:55 PM | Permalink to this comment Permalink

The only exception is the nuclear industry. This must be revitalized and the federal government will have a part to play in standardized design, saftey regulation and liability limitation.
Weird... I don't understand why you would be opposed to the government encouragement of alternative energy sources due to faith in market solutions, but throw that argument out the window when it comes to nuclear power. Why should government subsidize that specific form of alternative energy?

Posted by: Guy at April 12, 2005 05:01 PM | Permalink to this comment Permalink

Sorry for inundating you guys with my comments but I'm unclear about VD's argument:
In fact, in some cases, fuel taxes are actually counter productive. For example, let's say we could all take the magic Green pill tonight, and when we wake up tomorrow morning; our cars will all run on highly available and inexpensive chicken farts without modification. Big Oil still makes their money becaues they have, with the help of their friends in the environmental lobby, consolidated fuel distribution. So, we'll still be paying them to pump chicken farts into our cars. On the other hand, the US government will lose the 18 cents for every gallon of gasoline consumed in this nation. The State of California will lose its 18 cents for every gallon of gasoline consumed in the state, and California and San Diego will lose the 25 cents for every gallon of gas purchased in the County. The battles over replacing those lost revenues with new revenues would have to be re-fought in a climate that isn't very tolerant of tax increases.
What you seem to be saying is that increasing gas taxes would result in a decline in revenue from gas taxes (possible, but unlikely for moderate increases in the tax -- an empirical question of elasticities), therefore causing a budget crunch due to lost revenues (unlikely for the federal government; not sure how dependant state and local gov'ts are on gas taxes for revenue) and a general hostility to tax hikes. If you don't buy the 1st link your chain, and I don't, then this argument doesn't amount to very much.

Posted by: Guy at April 12, 2005 05:07 PM | Permalink to this comment Permalink

In response to Guy: What you seem to be saying is that increasing gas taxes would result in a decline in revenue from gas taxes...

No. I'm saying that tax revenues would, of course, increase if gasoline taxes were increased. That's the problem. As I point out, the government then only becomes more dependent on tax revenues from the consumption of gasoline and, by extension, the oil industry. This creates a disincentive for the government to support other fuel alternatives, and worse, an incentive to actively protect gasoline consumption and the oil industry.

We don't need new taxes to give us higher gas prices. We now have a higher gas prices with the current taxes. This is a sustained increase, a new plateau. We may see a drop in prices after the summer, but I'll never see gas prices south of $2 a gallon ever again. As a result, development of hybrid vehicles is accelerating with Ford already out with one hybrid SUV and GM offering two hybrid SUVs in 2007, in addition to the small hybrid cars by Toyota and Honda. Of course, this is being driven by consumer demand so high that many people are willing to pay a premium for a used model instead of waiting the for the new ones to arrive.

The federal government began offering a $2000 tax write-off in 1992 for those purchasing hybrid vehicles. The results were entirely underwhelming. On the other hand, natural market forces a fueling development and demand more than any combination of tax incentives/disincentives possibly could.

Posted by: VD at April 12, 2005 05:44 PM | Permalink to this comment Permalink

The government should be involved with nuclear because of saftey regulation issues.Nuclear is the most likely alternative to make a big impact in the medium term. If the government does not act on liability, no nuclear plants will be built.

Posted by: Mrs. Davis at April 12, 2005 08:05 PM | Permalink to this comment Permalink

VD: The goal should be for government to get the hell out of the way and the let the market fix the problem.

The problem is that the government is motivated more by campaign contributions than by individual voters. A free market with a level playing field and perfect competition is a nice ideal, but it's not what we have. Companies spend a lot of money lobbying the government to tilt the playing field in their favor. Indeed, our society as it exists now has been significantly shaped by the oil companies. For example, freeways and roads were built largely with taxpayer money due to lobbying from oil, automobile, and tire companies, making the cost of automobile transportation artificially lower to consumers. The FHA and VA loan programs after WWII were skewed towards single-family homes instead of mixed-use or urban housing for similar reasons, which helped fuel the flight to the suburbs and our current automobile dependency.

Arguably, the invasion of Iraq had some economic motives, as cheap oil is necessary to sustain the above infrastructure and keep consumers from demanding alternatives. After all, as I understand it, that's why we spend taxpayer money to defend Saudi Arabia in exchange for them selling us oil below market.

VD: gas taxes make government reliant upon our consumption of foreign oil.

I agree that there's a dependence issue, but I think it pales in comparison to the effect of campaign finance. Besides, politicians aren't particularly incentivized towards increasing revenues, or else we'd never get tax cuts. With lower revenues, they can still just deficit spend and let their successors deal with the fallout.

In addition, you could try to minimize this effect by mandating that all revenues from the gas tax or oil import fee would go towards R&D of alternate energy sources. That way, the less gas gets used, the lower the research subsidies. Which is perfect because it also means our dependence is also lower (I made a similar suggestion when the reliance issue was brought up in regards to Gary Becker's suggestion of replacing the drug war with a consumption tax).

Speaking of drugs, I believe cigarette smoking is on the decline despite "sin" taxes.

Posted by: fling93 at April 12, 2005 09:58 PM | Permalink to this comment Permalink

fling93, Where to begin...

Voting blocks have always been infinitely more powerful than business campaign contributions, that's why we do get tax cuts, as you correctly pointed out. The short-comings of the voters' attention span certainly cannot compete with lobby money on any particular piece of legislation or favor-seeking in the unwieldy tax code. This has little to do with the problem of corporatism.

After the 9/11 attacks, a severe drop in consumer demand threatened to bankrupt several (if not all) major U.S. airlines, which would result in 200,000 airline industry workers hitting the unemployment lines and public healthcare system. That's how it would've worked under capitalism.

Instead, the federal government has over $2 billion in annual Social Security revenues vested in those employees, not to mention the workers' compensation, disability, retirement accounts, and private healthcare being shouldered by those airline corporations, often at the imposition of federal legislation. So, the American taxpayers fork out over $5 billion to save those anachronistic airline corporations. That's how corporatism works. The federal government has disproportionately elevated the value of those corporations above and beyond its true value in the market economy.

The example of the cigarette tax is a prime example. Smoking has indeed been in decline, but that is more likely a result of social stigma and education rather than the cruelly regressive sin tax on tobacco. The decline in cigarette consumption has triggered U.S. government subsidies to support these industries that the market would have otherwise tossed onto the midden heap of corporate America's past, long ago. Even more than the taxes, federal and state governments are hopelessly addicted to the rediculous lawsuit settlements from the last decade.

In order to get an FDA funding bill through, a $10 billion tobacco buyout was included in the legislation, and that was an attempt to stop the ever increasing annual subsidies. Perhaps even more egregious, we have states' attorneys general lining up to help protect tobacco companies from individual lawsuits, and we have state lawmakers enacting legislation that would cap individual awards. This is all very necessary to insure continued tobacco settlement payments to federal and state governments.

By the way, the invasion of Iraq did not make oil cheaper and it was never thought that it would. Also, Saudi Arabia does not sell the U.S. oil below market prices.

Posted by: VD at April 12, 2005 11:14 PM | Permalink to this comment Permalink

VD: By the way, the invasion of Iraq did not make oil cheaper and it was never thought that it would. Also, Saudi Arabia does not sell the U.S. oil below market prices.

Okay, I was misinformed. Strike that paragraph.

VD: Voting blocks have always been infinitely more powerful than business campaign contributions, that's why we do get tax cuts

I disagree. For example, the anti-oil-company bloc is hardly more powerful than the oil companies. We get tax cuts because they benefit all current taxpayers, not any specific bloc (and it only hurts future taxpayers, who can't vote yet).

VD: So, the American taxpayers fork out over $5 billion to save those anachronistic airline corporations. That's how corporatism works.

And as I explained, the same effect created our society's dependency on automobiles, and thus, foreign oil. My whole point is that the free market doesn't automatically counteract this effect.

VD: Smoking has indeed been in decline, but that is more likely a result of social stigma and education rather than the cruelly regressive sin tax on tobacco.

I didn't say that it was. But by your argument, the sin tax should have given the government an incentive to increase smoking rates. That didn't happen because, as I said, politicians aren't incentivized by increasing revenues, and that is because they face little or no penalty if they fail to balance the budget.

VD: The decline in cigarette consumption has triggered U.S. government subsidies to support these industries that the market would have otherwise tossed onto the midden heap of corporate America's past, long ago.

Those subsidies occurred due to corporate lobbying, not the sin tax.

Posted by: fling93 at April 12, 2005 11:53 PM | Permalink to this comment Permalink

If you put a tax on imported oil that varies with price, you tend to increase availability and increase price. When bidding for oil, american bidders can bid up to the post-tax price at no extra cost to themselves. Pay the exporter or pay the government -- the price is the same.

A more realistic solution might be to use the US strategic reserve to buffer prices. When the price goes below the strategic reserve set-point, the federal government can buy oil until the price goes above that point. That sets a price floor on oil, and builds up the strategic reserve. Then if the price spikes above the reserve's ceiling, they can sell a limited amount of oil to americans at the going rate. That helps moderate the high price.

The setpoints have to be set carefully and continuously reviewed. Done just right, the oil the reserve sells at high prices more than pays for what it buys at low prices, it makes money and increases the reserves both. But that requires federal bureaucrats to predict the long-term market accurately. If they guess low for the low point then they don't buy any oil and are irrelevant. And if they guess low for the high point they sell oil that they should keep; they wind up with less money and less oil and have to buy replacement oil for more money than they sold it for.

Still, the traditional way to moderate prices is to get a market-maker who has a reserve of product and a reserve of money, who makes a profit while moderating the price. It doesn't take a tax. All it takes is the sort of market regulation that markets often develop on their own.

The US government is a natural to take that role this time -- they already have a strategic reserve, and they have dollars. If they get a lot of political influence to make them do the wrong things, they'll run out of money (or oil) quick. It's easy to monitor their competence -- look at how fast the strategic reserve and the money that fund it are increasing.

Much better than taxes for reducing volatility.

Posted by: J Thomas at April 13, 2005 01:58 PM | Permalink to this comment Permalink

"But by your argument, the sin tax should have given the government an incentive to increase smoking rates. That didn't happen because, as I said, politicians aren't incentivized by increasing revenues, and that is because they face little or no penalty if they fail to balance the budget."

That's an important point. So if we do manage to change the system so that politicians get more responsible about balancing the budget, then they *might* start doing weird things to get people to do things to be taxed for.

I've seen that in state and local governments, where the funding is important. We get things like $90 parking tickets and they lay out the cities to encourage people to do illegal parking so they can fine them. In Alameda CA there's a residential 4-lane street where the speed limit varies randomly between 25 mph and 40 mph, apparently with the intention of catching more people to give traffic tickets to.

That sort of thing on a national level would be very bad news.

Posted by: J Thomas at April 13, 2005 02:04 PM | Permalink to this comment Permalink

fling93,

While I share your skepticism about any desire to balance a budget, politicians do love revenues. They just want them to be raised in ways that are politically popular. In the case of tobacco it works exactly that way. One of the reasons many financial analysts like the settlement with tobacco companies is that it does lead to the government protecting the industry.

Now I am not one who thinks hating people being able to buy cigarettes is a good thing, or that punishing them through taxes is right, but from a stock owners perspective the settlement is great. Governments are now going out of their way to protect MO and RJR from the ravages of the court system to keep the money flowing. On this point I side with VD.

Outside of that an interesting debate all around.

Posted by: Lance at April 13, 2005 08:06 PM | Permalink to this comment Permalink

J Thomas' proposal is theoretically reasonable. But the government does not have a great track record of converting theoretically reasonable commercial ideas into profitable projects, e. g. Synfuels Corporation. Such an arbitrage process seems more likely to generate corruption on a massive scale, e. g. Oil for Food, Elk Hills Reserve. The best thing to do is leave the SPR for real emergencies, i. e. a cutoff of imports or some similar catastrophe.

Posted by: Mrs. Davis at April 13, 2005 09:29 PM | Permalink to this comment Permalink

J Thomas: So if we do manage to change the system so that politicians get more responsible about balancing the budget, then they *might* start doing weird things to get people to do things to be taxed for.

Well, they already do a lot of weird things, like the accounting shenanigans with SS and AMT (not to mention unsustainable deficit spending in the first place). I'm not sure this would make it worse. I suspect it'd improve somewhat, albeit some weird things would get shifted around a bit.

But I can't see how this problem is fixable anyway. It stems from term limits and the fact that we have separation of powers, allowing branches to blame each other for the deficit. I don't think we want to do away with either.

As for reducing volatility, I don't think that's as an important goal as energy independence.

Lance: While I share your skepticism about any desire to balance a budget, politicians do love revenues.

They do love revenues, but my point is that they love campaign contributions much more, as the latter has a much more direct effect on their political careers. And my argument is that the latter created our dependence on oil in the first place, and unless we fix that, the dependence won't go away on its own.

As for tobacco bailouts, note that our government also bails out airlines and banks, which has little to do with revenues and more to do with political reasons (and this effect is magnified for public industries). So you'd still have this issue regardless of any revenue dependency.

And as I said, the dependency can be ameliorated somewhat by mandating that the oil import fee revenues go entirely towards alternative energy research. No, nothing stops politicians from changing the law to allow them to tap into it, but I would think it would be hard to justify that politically. Especially if Dubya portrays oil independence as a national security issue and impugns the patriotism of those who would dissent (not that he ever would actually do this, but he could, and he'd also have the neocons and the Greens on board).

Posted by: fling93 at April 13, 2005 09:37 PM | Permalink to this comment Permalink

The central problem is that economic activity always factors in the input prices, a huge factor is energy prices. High energy prices depress economic activity.

It costs more to transport everything, so people at all levels buy less.

Global recession?

Posted by: Jim Rockford at April 14, 2005 03:57 AM | Permalink to this comment Permalink

"Such an arbitrage process seems more likely to generate corruption on a massive scale, e. g. Oil for Food, Elk Hills Reserve. "

Unfortunately true. We have been doing precisely that with our reserves of strategic metals. The last I heard it was run by FEMA and was not sufficiently independent.

On the other hand, what happens whena private institution serves as the market maker? They have reason to be corrupt too.

When they're corrupt they risk losing money -- provided the market is "rational". But when rising prices get people to attempt to buy *more*, or when falling prices get people to buy less, then the market maker can profit by destabilising the market on purpose. And so a system that's designed to reduce volatility will do the reverse.

To my way of thinking, the advantage of having the government do it is that at least there's the *chance* that the people who do the work will feel responsible to the public. When you lievae it to private entities -- or worse, foreign entities -- they will be responsible only to stockholders or foreign governments etc.

And if we don't do it, somebody else will.

Posted by: J Thomas at April 15, 2005 03:03 AM | Permalink to this comment Permalink

"As for reducing volatility, I don't think that's as an important goal as energy independence."

The original claim was that reducing volatility was probably necessary for energy independence. That too much volatility inhibits private investment in alternate energy.

Reducing energy price volatility is a good thing generally, because that volatility makes it hard for everyone to plan, not just alternate energy investors.

I agree that it isn't anywhere near as important as energy independence. It's a palliative that might aid energy independence, but if you could get our need for oil reduced a whole lot, that would be far better than just watching the prices rise smoothly.

Posted by: J Thomas at April 15, 2005 03:09 AM | Permalink to this comment Permalink

J Thomas: The original claim was that reducing volatility was probably necessary for energy independence. That too much volatility inhibits private investment in alternate energy.

I don't really see it that way. Volatility is one of the drawbacks of using oil, as it makes it harder for the consumers to plan ahead. If you reduce volatility, that makes alternate energy sources less attractive to the private market. If you want to make them more attractive, the easiest way is to just increase the market price of oil with a gas tax or oil import fee. The advantage of the latter being that it won't discourage domestic oil producers, which was one of the obvious problems with price controls.

Posted by: fling93 at April 15, 2005 10:01 PM | Permalink to this comment Permalink

Good thought! Price volatility is a drawback to using oil.

But wait, oil price volatility is a drawback to making alternate fuels. Say you can make a whole lot of an alternate fuel at a price equivalent to $65/barrel. But you need a whole lot of investment to do it, and the investors look at your projections and ask, "What if the price of oil drops to $50/bbl for 2 years just when you're all online?". You don't have a good answer for that. Hard to get a whole lot of investment money when there's a great big bankruptcy risk.

So it seems to me that month-to-month price volatility is bad for consumers, but year-to-hear price volatility is bad for competitors. And unfortunately it's day-to-day variation that market-makers are good at alleviating. I guess I should scratch that idea. Or at least it would need some modification.

Would we have problems with an import tax concerning our various free-trade agreements? I'm not sure exactly how those things go. I'd expect that usually oil producers couldn't retaliate effectively by setting up their own tariffs; they don't import that much from us anyway. If they didn't like it they could preferentially give contracts to companies based in other countries etc.

Posted by: J Thomas at April 15, 2005 11:04 PM | Permalink to this comment Permalink

J Thomas: Hard to get a whole lot of investment money when there's a great big bankruptcy risk.

Well, that could be addressed by directing the revenues from the import fee towards investment in alternate fuels. Or making the fee high enough to make those options have more viable business plans.

J Thomas: Would we have problems with an import tax concerning our various free-trade agreements?

Not sure. My understanding is that most oil-rich countries tend to have nationalized oil industries (corruption is a lot more lucrative that way), and since extraction of oil is more capital intensive than labor intensive, not much of a middle class. So I also can't imagine they are importing that much from us. Then again, I also thought Saudi Arabia was selling us below-market oil.

Posted by: fling93 at April 15, 2005 11:58 PM | Permalink to this comment Permalink

Fling, we might be getting somewhere now. OK, so how do we put federal money into alternate fuel research without turning it into a corporate giveaway? WHen we do that badly the companies just take the money and don't actually do the research.

The program might be modeled on the penicillin research from WWII. (Do you have better examples?) They set up a consortium where industry researchers and government experts worked together, and the cooperation held up all the way from the starting point where they had a laboratory curiousity, to the end point where there was something that was worth selling. Then the consortium fell apart and the researchers went home and did their own separate research to beat out the competition.

Of course, the problem with making oil fees high is that they tend to cripple the economy. We're oil junkies, and raising the price a whole lot is like raising the price on somebody's heroin -- in the long run it encourages them to find a new drug, but in the short run they suffer.

About the "corruption is more lucrative" remark, I have no particular brief for nationalised industries, but if you're an employee how much difference is there between working for a nationalised industry versus working for a multinational? Giant company, unresponsive higher management, etc....

The big difference I see is that when the nationalised company gets in trouble the government tends to bail it out and lets it keep being inefficient, but when a giant private (owned by stockholders, usually) company gets in trouble the government tends to bail it out and lets it keep being inefficient.

No wait, when it's a private company the government tends to extract taxes from it for revenue, but when it's a nationalised company the government tends to use it as a cash cow. No, that's not it either....

Posted by: J Thomas at April 16, 2005 01:06 PM | Permalink to this comment Permalink
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