05 May 2008

econ for politicians, err, dummies

http://online.wsj.com/article/SB120977019142563957.html?mod=djemEditorialPage

I've been following for some weeks the political posturing given to presidential election cycles with considerable dismay. The latest in a set of mediocre, if not outright terrible, ideas deals with our ever growing energy crisis and its according dependence on foreign oil.
So the three remaining candidates have in the attempts to pander to the ever ignorant voter composed slightly distinct ideas on how to best handle the inflating price of gasoline/oil.

McCain proposed first a suspension of the federal gas tax, which amounts to roughly 18 cents (I believe that's per gallon). There isn't a great deal of merit to this idea. It does little to alleviate consumers. It does nothing to break or encourage breaking dependency on oil. And it removes a source of revenue to state and local governments (who actually have to balance budgets) for the construction and maintenance of infrastructure.

Naturally however, none of these assessments were brought up by Hillary when she borrowed the idea. Her claim was that the cost should be borne by 'the greedy oil companies and their windfall profits' and not 'hard-working Americans'. I'm rather bored with the notion that rich or wealthy people are idle and do little to support the fortunes they amass (this along with the premise that we somehow have a permanent upper class in American society makes no sense). Be that as it may, passing the tax from consumers to capitalists simply means that the capitalists will find some manner or method to pass it along to consumers. Despite the massive amount of profits by Exxon et al, oil and energy is still a volatile industry with minimal profit margins, and some of these carefully monitored by American regulators. There are then two means for these companies to pass this along: prices will remain the same even with a suspension, accomplishing nothing, or worse, shareholders will receive lessened dividends. This doesn't sound terrible until it is understood that many millions of Americans own, through pensions, 401ks and the like, energy stocks of some form and in some great quantities. Tack that together with the inflationary period we're in and this sounds rather dire. Yet it is proposed eagerly and at every campaign stop as though it is entirely sensible. It sounds rather suicidal.

So then there's Obama, who calls out this plan as folly.. but then proposes instead a pure tax on the oil barons themselves. While demonstrating at least a pretext of a command of economics to denounce Clinton as pandering, he then abandons this instantly to support his own idea. A tax on corporations will not bear anything of consequence on corporations (save that they will continue their flight from American shores and thus the employment of Americans). Taxes are a cost, generally fixed and predictable and are thus accounted for by either reducing other costs (which cannot be easily done quickly --without firing people) or passing these costs along.

So while all these ideas sound terrible. What would be better? Economic incentives for other large corporations, even energy corporations in a sense, for adopting energy conservative measures or using advanced construction methods (which tend to be expensive, but would retain greater value in an eco-friendly society, unlike the rapid explosion of investing in condos that crashed the real estate market). Similar incentives should be made available to individuals. We have a silly subsidy on corn-ethanol production. That doesn't seem to have been wise as it has diverted resources from food-- something people tend to need even more than energy. Get rid of it. Let that market clear, instead continuing to fund research/developments into wind or solar power.

We should seek to reward behavior that is beneficial rather than punish behavior which is either neutral (profits are evil?) at best or at worst, not quite helpful in cracking our troubles to dust, but not harmful in breaking us either. Much of the rest of the world has borne higher energy costs than Americans have grown accustomed to. There are differences in American urban development or European lands, but there's no reason we can't grow accustomed to using energy sensibly.

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