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Fungible doesn't mean you're off the hook

The economists who are gleeful over the Dilbert cartoon on Sunday are missing a very, very, very important point.

War trumps economics, and economics can prevent war. Sometimes that's a good thing (economics preventing war); sometimes not.

In this case, We're (in the US) supposedly prevented from dealing forcefully with the country which paid most of the money and sent most of the people on the planes which killed 3,000 of our own people on our own soil. Why? That country is essentially the only one today which could practically increase or decrease its oil production, and we, unlike the rest of the industrialized world, are critically dependent on not just oil, but CHEAP oil.

In other words, the French and Germans care less about the Saudi royal family being overthrown because they don't need cheap oil as badly as we do. They use oil, sure, but they've taxed it heavily (as a rational response to the costs of delivering it, the associated infrastructure such as roads, and negative externalities such as pollution). We, on the other hand, actually keep gasoline CHEAPER than it would be if we just required drivers to pay for all of the roads and such they use, without even accounting for pollution and other less easily quantifiable externalities.

As a result, we still haven't really struck back at the people who so badly need striking back upon because the ruling party is so critically dependent on the votes of people who 'need' to drive a truck 15,000 miles a year at 12 miles per gallon and were livid at $3/gallon gas, much less the $6 or $7 the Europeans pay.

FDR and Truman would have had the heads of anybody who suggested that we couldn't 'afford' to fight the Germans or Japanese. But, today, that's exactly what people say about the Saudis. We can't 'afford' to even SPEAK toughly with them, because, hey, the oil!

In WWII, we put up posters reminding people that they were sacrificing cheap oil for a bigger cause. War, in other words, trumped economics, as it should have. Now, of course, we can't, because even the Democrats are in the thrall of suburban sprawl, and the Republicans are much worse. Even when 3,000 of our own civilians died on our own soil. It'll be hard to change this even when cheap oil is no longer possible, but Scott Adams is making it even harder by making those who care about the issue seem like fools.

It makes me sick that we still haven't done squat to the Saudis after all this time, but it makes me even sicker that Scott Adams has fallen in with such loathsome, cowardly people. Shameful, Scott. Shameful.

This entry was posted in the following categories: Economics , Politics (Outside Austin) , Republicans Hate The Environment

Comments

[W]e, unlike the rest of the industrialized world, are critically dependent on not just oil, but CHEAP oil.
In other words, the French and Germans care less about the Saudi royal family being overthrown because they don't need cheap oil as badly as we do. They use oil, sure, but they've taxed it heavily (as a rational response to the costs of delivering it, the associated infrastructure such as roads, and negative externalities such as pollution).

Sorry, I can't buy that at all. Both the French and German economies consume massive amounts of petroleum-based products (including plastics-- petroleum isn't all about gasoline as you know, though various fuels are the primary use by far). A rise in the commodity price of oil hurts the French and German economies as much as it does the US. Even if you think that France and Germany would cut their gas taxes in order to keep the price of gas stable in their countries, that would still cause enormous problems in their tax revenue. Undoubtedly higher fuel prices would cause disruptions in the US economy; but higher fuel prices than what they have currently would also cause disruptions in the French and German economy.

Indeed, one could offer an argument in the other direction easily. The US could adopt technology and techniques already used in various countries (including Japan) with higher gas taxes, while those countries with higher gas taxes would be forced to invent new technologies to increase their efficiency further. Since invention is more expensive than copying, it could be easier for the US to adjust.

Combine that with the fact that the US does still produce 8.69 millions of barrels per day of petroleum whereas France and Germany have essentially no domestic sources, and it's certainly possible to make a case that the effects would fall more harshly on France and Germany. While oil is fungible, the existence of oil in a country provides a hedge for the overall economy against price increases. (Countering this is the existence of Total, the giant French oil company that gives the overall French economy a boost, though they don't have domestic sources.)

Also, incidentally, note that the UK doesn't tax jet fuel at all. Also note that France and Germany have considerably lower fuel tax on diesel than on gasoline, unlike the US and UK. (Some data.)

Most oil, even in Europe, is used for transportation. The effect of raising the end-user price of a gallon of gas from $5.00 to $6.00 is less than that of raising the end-user price of a gallon of gas from $1.00 to $2.00, especially given how many miles and how few miles-per-gallon the latter driver gets.

The domestic production of oil IS, in fact, meaningless. The US oil producers would, as the fungibility argument states, sell to the highest bidder, which is not necessarily the local one.

"The US oil producers would, as the fungibility argument states, sell to the highest bidder, which is not necessarily the local one."

Yes, they sell to the highest bidder. But they're still making more money. If you want to consider the effect on the US economy as a whole, it's still a hedge. The oil companies make more profit and do more operations in the US. Ask anyone from Louisiana or Houston; those areas did very well during the late 70s oil crisis. The overall economy still suffers, but sectors of the economy do well, counter-cyclically. If the price of oil is going up, it's better to own oil.

"Most oil, even in Europe, is used for transportation."

Well, we'll set aside heating oil for now, though it is important in those economies which use it rather than natural gas. (If we want to discuss hydrocarbons in general, that's a different issue.)

http://www.eia.doe.gov/emeu/iea/wecbtu.html

Check out the total petroleum use totals. Besides noting that Canada uses more per capita than the US, note that the US uses 39 quadrillion BTU of petroleum energy. The EU countries (with a population roughly that of the US) in total use roughly 32-33 quadrillion BTU of petroleum energy. A $10 per barrel increase in world market price is going to affect both areas heavily.

"The effect of raising the end-user price of a gallon of gas from $5.00 to $6.00 is less than that of raising the end-user price of a gallon of gas from $1.00 to $2.00, especially given how many miles and how few miles-per-gallon the latter driver gets."

The total price difference is the same per gallon used. How many miles driven is affected by population density, but of course it makes a difference. How many miles-per-gallon can actually be spun as a win for the US-- it is easier for the US population to transition to higher fuel economy cars that are already being produced and used in Europe and Japan than it is for Europe and Japan to transition to cars with yet higher fuel economy which don't exist yet. Thus, it's easier for the US economy to cushion the blow from higher gas prices, because there's an obvious fairly cheap way to transition to higher gas efficiency.

Sorry, I should say that the Western European countries use roughly 30 million quadrillion BTU of energy, and have a population roughly similar to the US. The recent Eastern European additions add lots of population, but have smaller economies and much less per capita petroleum use.

I'm sorry, but you're spinning pretty heavily if you don't acknowledge that a 100% increase in the cost of gas in a country where the average driver goes 12,000 miles per year at 20 mpg (if that) affects the economy more than a 20% increase in a country where the average driver might go 5,000 miles per year at 40 mpg.

In the USA, in particular, consumer spending is the main economic driver - so you have THAT multiplier as well.

"The domestic production of oil IS, in fact, meaningless. The US oil producers would, as the fungibility argument states, sell to the highest bidder, which is not necessarily the local one."

Let's take this to the reducto ad absurdum. "The domestic production of oil IS, in fact, meaningless. The Saudi economy, which has very high per capita oil consumption due to ridiculous oil subsidies, will clearly be hurt even more than the US economy if the world price of oil rises further." Do you buy that? I don't. Clearly in the case of Saudi Arabia, since they're a massive net exporter of oil, a rising oil price helps their economy rather than hurting it, even though it hurts the world economy as a whole.

"I'm sorry, but you're spinning pretty heavily if you don't acknowledge that a 100% increase in the cost of gas in a country where the average driver goes 12,000 miles per year at 20 mpg (if that) affects the economy more than a 20% increase in a country where the average driver might go 5,000 miles per year at 40 mpg."

Your example, if valid, "proves" that personal transportation cannot be the main use of petroleum. Your example gives an average use of 600 gallons of gas in the US, but only 125 gallons of gas in Western Europe. Quite simply not accurate. Total per capita consumption of petroleum in the US is higher than in Western Europe, but it's certainly nowhere near double. Please check the official statistics I linked to.

Percentage increase is irrelevant. Total per capita consumption is important. The important thing is the total per capita cost to the GDP. Just like oil is fungible, so is consumer spending. People can (and do!) cut back on other spending when oil prices increase. If your rent goes up by $50 per month, that's an extra $50 per month out of your pocket regardless of whether you were paying $200 or $1000 per month. The increase as a percentage of your total _income_ is important, certainly, because that controls how much you can afford to rearrange your other spending. However, since the US has higher per capita GDP than Western Europe (except for very high per capita income-- and incidentally even higher than the US petroleum usage-- Luxembourg), the average US consumer has a better ability to absorb a gas increase in his or her budget.

Dude, this ain't usenet. Find your own citations, and argue shorter.

I maintain that the hit TO THE CONSUMER is far worse in the US scenario than in the European scenario, since they're "used to" $5.00 a gallon, and have obviously adjusted to use less petroleum for transportation.

(The rest is probably made up by more heating oil which is a lot easier to 'turn down' than is your daily commute - and a lot easier to replace with other sources if necessary - i.e. get an electric heater which you run off your convenient frenchy nukular power).

And your earlier comments about cycling the vehicle fleet in the US are nonsensical as well - last I read it took something like 20 years to cycle the whole fleet.

I gave you the citation:
http://www.eia.doe.gov/emeu/iea/wecbtu.html

Click on the Excel table discussing petroleum use. The commenting system removes HTML, so I can't do it as a link.

Look, I FAVOR higher gas taxes, and I AGREE that higher gas taxes would, in the long run, reduce oil consumption and, indeed, reduce foreign policy dependence on the Saudis. I'm only taking issue with your confusion on the international comparison, and with your maddening inconsistency.

International comparison:

"I maintain that the hit TO THE CONSUMER is far worse in the US scenario than in the European scenario, since they're "used to" $5.00 a gallon, and have obviously adjusted to use less petroleum for transportation."

As I said, and posted sources for, the difference in overall petroleum useage is not as large as you're making it out to be. The hit TO THE CONSUMER depends on per capita petroleum usage in the entire economy, not just on their direct gas consumption. Non-direct use counts as well; if it's used by industry, that price increase is going to find its way into consumer prices. In addition, the effect on the domestic economy from domestic production matters as well. Ask people from Houston and from Louisiana how the price of oil affects their entire local economy.

Combine those two things (per capita use is not as different as you claim, perhaps 50% higher in the US than in Germany and France, the presence of a domestic oil economy that benefits when prices rise, hedging the overall effect on the economy), and I believe that Germany and France are affected to a very similar degree geopolitically as the US. All of the countries have an addiction to oil that causes them to suck up to the Saudis. Germany and France would be even worse off if their gas taxes were lower and their consumption higher, but it's wrong in my opinion to claim that "the French and Germans care less about the Saudi royal family being overthrown" than we do.

Maddening inconsistencies:

"(The rest is probably made up by more heating oil which is a lot easier to 'turn down' than is your daily commute - and a lot easier to replace with other sources if necessary - i.e. get an electric heater which you run off your convenient frenchy nukular power)."

I'll grant this point-- the difference in Western European and North American petroleum consumption is larger

"last I read it took something like 20 years to cycle the whole fleet."

Which, interestingly enough, is a problem with raising CAFE standards from an emissions standpoint (as opposed to raising the gas tax). Raising CAFE standards increases the prices of new cars, and thus slows down fleet turnover, definitely worsening emissions. (From a fuel economy standpoint, raising CAFE generally helps, although the feedback effects are complicated.)

OTOH, raising the gas tax encourages faster fleet turnover by owners of less efficient vehicles. The same thing would happen if the commodity price of oil increased.

Look, I support raising the gas tax. I think it's a fairly economically efficient way to raise government revenue since that has to be done some way, and it would indeed reduce our dependency on oil by reducing per capita consumption in the long run.

I just don't understand why you seem to simultaneously argue that the US economy couldn't possibly handle an increase in the price of oil due to commodity price increases, yet then, when advocating an increase in taxes, seem to argue that the economy could handle it. If we're so "critically dependent" on CHEAP oil, then we can't afford to raise the price of oil by raising the gas tax. I don't believe that we are, incidentally. I believe that the Western European experience shows that our economy could adjust to higher gas prices, albeit with some pain. But the 40mpg cars are out there, the technology is there to reduce oil consumption in other areas as well. As you mention, heating oil can be replaced with things like nuclear; if that's cheaper for the economy than turning over the fleet, let's do it. At least if the goal is to reduce dependence on the Saudis rather than just to be anti-car.

The same forces that cause us to suck up to the Saudis cause us to resist raising the gas tax. It's the same thing, except that an increase in the commodity price of oil would affect things other than just cars. If you really believe that the Saudis have a gun pointed at our heads, that's no reason to pull the trigger first. Luckily, I don't think that that's the case. I think that we can safely raise the gas tax.

The one paragraph should say:
"I'll grant this point-- the difference in Western European and North American petroleum consumption is probably larger in petroleum used for transportation than in petroleum used for other uses, after adjusting for certain uncontrollable factors about the climate."

Either we can reduce our oil usage with little pain or we cannot. I can think of lots of arguments either way. I happen to think that the Western European experience shows that there's lots of room for us to reduce oil consumption with little pain, whereas the Western European countries probably have less headroom to conserve more, since they're already doing more.

Picking one small element, since again, this ain't usenet:

"I just don't understand why you seem to simultaneously argue that the US economy couldn't possibly handle an increase in the price of oil due to commodity price increases, yet then, when advocating an increase in taxes, seem to argue that the economy could handle it. "

Gas taxes can be raised incrementally over years and years, and the money stays in this country, presumably doing some other good (building transit infrastructure; reducing payroll taxes; etc.). Higher commodity prices just result in the Saudis getting richer and richer. (And no, our relatively large oil production compared to the Europeans doesn't even come close to making up for it - our costs per barrel are far higher; and we do a piss-poor job of recapturing any of that economic benefit which the oil companies get from those prices - i.e., it doesn't trickle down for shit).

"we do a piss-poor job of recapturing any of that economic benefit which the oil companies get from those prices"

Well, the oil companies get the economic benefit, and their shareholders are mostly American. From a macroeconomic point of view, that's a difference. Look, I have lots of friends from Louisiana who are *not* in the oil business, and they can tell you that it makes a difference for their region when oil prices are higher.

"Gas taxes can be raised incrementally over years and years, and the money stays in this country, presumably doing some other good (building transit infrastructure; reducing payroll taxes; etc.). Higher commodity prices just result in the Saudis getting richer and richer."

Sure, both of those points are largely true. But the latter is just another way of stating that we're better off no matter what if the commodity price of oil is low (or, another way, if oil isn't scarce.) No matter whether our gas taxes are high or low, it's better for our economy if commodity prices are low. Both higher commodity prices and high gas prices due to higher taxes make up poorer, even though one is voluntary and one involuntary. (Yes, we recover some in revenue, but there's deadweight loss to the economy that's larger the more we actually reduce usage.)

If we're truly "addicted to oil," to the point where we couldn't shift away from it without extremely high cost, then high gas taxes plus high commodity prices would be even worse for our economy than just high commodity prices.

It's even quite hypothetically possible that the economy could fairly easily absorb an increase in commodity prices which brought our gas prices in line with current European prices, by switching to the technology and car models that they currently use, but that an increase much beyond that would hurt the economy substantially because of a lack of substitutes. In which case, higher gas taxes would make us *more*, not *less* vulnerable to higher commodity prices and oil shocks.

It all depends on how addicted we are to oil. If a higher price (whether from gas taxes or commodity prices) causes us to reduce our use sufficiently (and the statistics show that people did), then the Saudi power isn't that great and the economy could handle it. If it doesn't cause us to reduce our use, then the Saudi power is high, but gas taxes would be just as painful. I'd argue that the economy fairly successfully weathered the recent oil shock and gas price increase, evidence that the gas taxes could be safely increased. It's strongly *not* in the Saudi interest to let the price per barrel increase much past $60 or $80.

I also don't quite understand the argument that goes "switch fuel oil use to electricity generated by nuclear would be cheap and easy, whereas reducing gasoline use would be expensive and hard, so let's reduce our oil usage by doing the latter first." But perhaps you actually favor doing the former as well, and this post just doesn't address it.

And no, our relatively large oil production compared to the Europeans doesn't even come close to making up for it

"Relatively large" meaning 8.69 million barrels a day, 3rd most in the world compared to Saudi Arabia's 10.37 million barrels, and more than twice the 4th most, Iran.

http://en.wikipedia.org/wiki/Petroleum#Top_petroleum-producing_countries

Obviously the UK and Norway face a different situation than France and Germany, too.

We certainly don't produce enough for our needs, but it does hedge things somewhat.


"our costs per barrel are far higher"

Irrelevant. The additional profit per barrel as the commodity price goes up is the same regardless of extraction cost. Extraction cost affects total profit, but not change in profit. If anything, this means that a higher cost per barrel transforms unprofitable oil fields into profitable ones; e.g. when oil is $20/barrel, Texas and Louisiana oil fields can't compete with the Saudis and lose money.

If higher taxes are good, then why don't we raise taxes on eerything?

Things should cost what they cost; no more and no less. Whenever government imposes a tax or supplies a subsidy, that distorts the information available to consumers about what is worth what. Taxing gasoline as a proxy for taxing road use is fine. Taxing gasoline for public policy reasons is decidedly not fine. It's meddling in things the legislators don't understand.

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hairy chest photos atk hairy sissy Alec Baldwin asks for his voice to be removed from an "unfair" documentary about Arnold Schwarzenegger...