Tuesday, May 23, 2006

Gasaholic Communists

There's a lot of angst in the air, and much hand wringing in Congress, regarding the current price of gasoline. There should be. Gasoline is way too cheap.

What am I, one of those social-engineering, green-minded, soft-headed knee jerk liberals who wants to foster a utopia where everyone would commute to work by bicycle and the only place to find an SUV would be a museum?

Not at all. I'm just a plain old, market-oriented conservative -- a dying breed, it's true, and so a quaint way to picture oneself, but that's what I am. I trust markets to set prices and don't trust governments when they interfere. All I want, really, is for the price of gasoline to reflect its true cost. To let the market work.

"What do you mean, its true cost?" you're saying. "Between federal and state taxes, there's already an average of a 59 cent surcharge on every gallon of gas we buy at the pump. Doesn't that mean the price of gasoline is already higher than its true cost?"

No. The true price of a gallon of gasoline is whatever it costs the nation to secure it. How much of the size and scope of our military is devoted to securing access to foreign oil? How often do we in fact have to wage war to secure that access? After all, while there were doubtless many reasons for the first and the current gulf war, it's impossible to imagine either of them if Iraq didn't have the world's second largest oil reserves.

Our use of oil, which involves the transfer of hundreds of billions of US dollars to regimes like those running Iran, Russia, Saudi Arabia, and Venezuela, strengthens these anti-democratic regimes and finances their foreign agendas. What does that cost us?

Add these and other costs up, subject them to rational economic analysis, and you'll have the true cost of a gallon of gasoline. The difference between the true cost and the current price can be closed with a tax. Anything less than a full tax is simply a hidden subsidy. And as a good, market-focused conservative, I don't want the government to be in the business of subsidizing commodities.

And I know you don't, either. We're all Americans, after all; we know how silly it is when communist regimes like China and North Korea subsidize rice, or when the Soviets used to create those terrible Moscow queues by subsidizing bread. We're smarter than that and wouldn't want to dabble with that sort of communist market interference here.

Except... maybe we would. How long does an American politician last after suggesting that road access be priced higher during rush hour? Only until the next election, typically. But roads are in higher demand during rush hour. If the price of access is the same when the demand is higher, you'll get... why, you'll get queuing. Of course, we prefer to call road queuing "traffic jams." It helps obscure the real cause of the problem: rush hour road access is artificially cheap.

But everybody needs access to roads! And everybody has to buy gasoline! If it were more expensive, only the rich could afford it!

Well, that sounds like the definition of a market economy to me. After all, what could be more natural -- and desirable -- than items in higher demand commanding higher prices? If you think there should be exceptions to this rule, I hope you'll have a little sympathy for those Chinese peasants. They can as reasonably claim to need to eat as we claim to need to drive. Why are subsidies and artificially low prices communist claptrap for them, and a fundamental right for us? What is it about roads, cars, and driving that perverts our principles and sullies our common sense?

It's an odd thing. The same pundits and politicians who insist that medical marijuana be prohibited across the board because ordinary people might want a toke, too, simultaneously insist not only that Americans should be able to drive whatever fuel-inefficient vehicles they want, but that the government should subsidize their ability to do so. Why do we focus only on the potential costs of the first, and only on the public's appetites for the second? If we had to diagnose politics like these, we might call them... schizophrenic.

Still not convinced that something's wrong here? Try this: when it comes to cars, we're so neurotic that our favored means of creating fuel economy is by having Congress ordain it, in the form of Corporate Average Fuel Economy (CAFE) standards. This is classic, Soviet-style, command economy stuff, yet when it comes to cars we embrace the practice as though it's Adam Smith himself. Congress ordering fuel efficiency, rather than permitting the market to create demand for it? It's worse than embarrassing. It's un-American.

President Bush made headlines in his January State of the Union address when he described America as "addicted to oil." He was right about the addiction, but wrong about the source. We're not addicted to oil. We're addicted to subsidized oil. And the way to cure our addiction isn't through "technology," as the president suggested with Dr. Feelgood sincerity and a magician's sleight of hand, but simply by ending those insidious, hidden subsidies and letting the market work the magic we Americans know it will.


Anonymous said...

Interesting post, Barry. Lots of good points. I can’t tell from your post whether you really are in favor of a pure free-market economy – and I’d be very interested to hear your thoughts on that. For instance, what’s your view on agricultural subsidies?

But, regarding the gas / oil issue: You talk about ‘rational economic analysis’. Great. As defined by whom? Who would do the analysis? Could we trust them? Would these analysts be free-market or command theorists?

You talk about our addiction to subsidized oil, and further, that you “trust markets to set prices and don't trust governments when they interfere. All I want, really, is for the price of gasoline to reflect its true cost. To let the market work.”

Well, how long will all of that take? I hope you don’t think it’ll be easy to unwind the labyrinth of subsidies currently enjoyed by the oil and gas industry. There’s the oil depletion allowance, for instance, which is an offset against taxes owed, based on how much oil is taken out of the ground. So, taxpayers are subsidizing the oil companies for depleting our natural resources. And there’s the tax credit for leases on public land. The oil companies convinced Congress that it’s so hard to get the oil off our public lands, their lease payments should be reduced. Again, taxpayers who are having a tough time paying for gas to get to work are, in effect, subsidizing oil executives’ bonuses. How long will it take for us to unwind those subsidies? With our current laissez-faire electorate?

Like so many ideas, free-market is better in theory than it is in practice. Free-market assumes that everyone is going to play fair – that the suppliers aren’t going to cheat each other, collude with each other, cheat the consumer, or cheat regulators. That’s just never gonna happen, especially in today’s oil and gas industries. And, by removing taxes and tariffs from gasoline, you’d put pressure on other parts of the economy to make up the income lost to the government.

I believe that the concept of free-market is used as a panacea for the masses by the power elite, who use their power and access to protect themselves from the economic risk they impose upon those who are less powerful. Noam Chomsky called it “socialism for the rich” – I agree with him.

Anonymous said...

Yo Barry,

I agree very much with your sentiments on 'The True Cost of Oil' -

Your comment 'Our use of oil, which involves the transfer of hundreds of billions of US dollars to regimes like those running Iran, Russia, Saudi Arabia, and Venezuela, strengthens these anti-democratic regimes and finances their foreign agendas. What does that cost us?' - Is bang on, but I would also talk about the environmental cost as well -

It's all very well having cheapo gasoline, but remember that old addage 'there's nothing such as a free lunch' - well our love of the remains of dead dinosaurs and prehistoric plants as an energy source will cost us politically as well as environmentally.

I'm no eco-warrior but we must all see reason.

Great post Barry, and great you have the balls to say what is an obvious fact.


Anonymous said...

Spot on.

The price of gas has been kept artificially low. If one were to attribute the subsidized costs to our bottom line, we'd likely be paying something closer to the world market prices at the pump.

The problem is a political game where winning the election is the only concern. You don't win elections by telling people that gas prices will go up. Instead, you use invisible taxes, like an inflation tax, and hope people don't put two and two together. If our current adventures truly are to secure a strategic position in the world's largest oil reserves (among other reasons), governmental debt borrowing could be extrapolated into future inflation (if I recall my economics from years ago). Then the true cost to us is the price paid at the pump, plus the declining value of the dollars in our bank accounts.

Alternative technology will find a demand, once the true cost is visible to the public.

Barry Eisler said...

Rae, I'm probably not in favor of pure anything, let alone a free market. I don't have any problem with prudent adjustments of market excesses, failures, tragedy of the commons situations, and the other potential problems you talk about in your post. The market is a game, and games of course need honest referees.

To me, a free market is a means, with prosperity and freedom as the ends. If there's a way of achieving those ends that's better than a free market, I'm all for it. I just haven't seen anything that works better, in theory or in practice.

Regarding who would conduct the rational economic analysis of the true price of gasoline, I don't think this would be as hard as you imply. Yes, the effort would be partly politicized; all such efforts are. But let's not allow notions of unattainable perfection to prevent us from carrying out something that would be better than what we have today.

How long would it take? I don't know. My guess, again, is not as long as you imply. I do know that the longer we wait to get started, the longer we'll have to wait for results.

You said, "And, by removing taxes and tariffs from gasoline, you’d put pressure on other parts of the economy to make up the income lost to the government." But I'm arguing for *increasing* tariffs on gasoline, not for removing them. Did I misunderstand your point?

Ali, great to have you here my friend, and thanks for the kind words about HOTM. Anyone interested in crime, thriller, or suspense fiction, definitely check out the Shots website -- you'll have a ball. www.shotsmag.co.uk

Jim, totally agree about "invisible taxes." Part of the problem is that gas prices are prominently displayed on every street corner. Toll booth rates (for example), on the other hand, are not as blatantly advertised. So we tolerate toll booths, possibly the least efficient way to collect a tax anyone has ever invented ("You mean, we can collect a tax *and* create a traffic jam? Cool!"). The psychology of pricing is a fascinating subject all on its own...

Anonymous said...


Nope you didn't misunderstand my point, I made a wrong assumption about yours. What a surprise ;-)

A lot of what you say makes sense. But increasing tariffs on gas doesn't feel like the best solution to me. I continue to think that the people who would be paying the price for that solution are the ones who can least afford it. I just wish I had a better idea.....

Barry Eisler said...

Rae, it's a fair point about people who are least able to pay the tax being most burdened by it. But I'm sure there are solutions, if necessary... a rebate or voucher for people below a certain income level, something like that. I don't usually favor complications, particularly when they create openings for lobbyists, but if that's what it takes...

By coincidence, Tom Friedman writes about the same subject in today's NYT.

Anonymous said...

I just got back home for a brief break between the two halves of my book tour. Being on the road reminded me yet again of the suburbanization and the sprawl-ization of most of this country ... endless aimless miles being driven by absurd, inefficient vehicles.

Related point: if anything ever forces me to quit smoking it will be the sheer inconvenience of it.

Conclusion: don't hit people in the wallet with a tax. Hit them in the ego, the convenience, the self-image. Create high-efficiency lanes, like we have HOV lanes. Put a speed limit of 35 on (ballpark values) 15mpg cars, 45mph on 20mpg cars, 55 on 25mpg cars, 70 on cars that do 30mpg or better. Then let the market and the industry do its work. Within a few years we'd be like Europe - fast, sporty, technically sophisticated cars using way less gas.

Sandra Ruttan said...


Not sure what I think about this.

Of course, Canada hasn't gone to war in Iraq to secure access to oil. We haven't gone at all. And we have a fair bit of oil ourselves - I live in the debt-free province that's financially propping up the rest of the country while we still have to pay high prices for our gasoline. Because that's being fair.

I must say when I was in Indonesia I was astonished at how cheap gasoline was.

What I'd really like to see the government do, however, is take that tax money and invest it in research for alternative energy sources. Sugarcane fuel, etc. But that's another topic.

Anonymous said...

Sandra is correct. As soon as we change our dependance on oil, many of our current problems will disapear. Suddenly you will find that we really don't care what those people do once they are all living in tents and mud huts again in the desert. We are funding our own troubles.

Anonymous said...

Change our dependance on oil? I don't think so. :)

LDF made a very shrewd point above; pointing out that most of our oil usage doesn't go into gasoline. It doesn't - it goes into plastic. Bottles, bags, furniture, textiles, you name it. The problem is that when people think of 'oil' they think 'gas' because that's the price they see at the pumps, but our entire civilization is based around oil. If we were to decrease our dependance on oil; gasoline is the smallest part of our modern-day culture that would need to be changed - and given the vast size of that problem, we can just imagine what it would take to either do away with plastics or develop some sort of alternative.

It's a nice idea, but it isn't going to be happening any time soon. And realistically speaking; nothing is likely to be done at all until either a major independant scientific breakthrough in the production of polymers occurs, rendering oil-based plastics obsolete; or until oil itself forces the issue by running dry.

Dave O.

David Terrenoire said...

This is completely off topic, but as I believe this place attracts those who honor service to this country, I want to ask everyone who reads this terrific blog to think about those who have served, those who have not come home, or those have not come home whole. This is Memorial Day weekend, and among the barbecue, beaches and time away from work, please think of those who are doing what every infantryman has done since the beginning of war - putting one foot in front of the other, dreaming of the time they can come back home.

If you want to put this together with talk of our oil independence, that's OK, too.

Barry, thanks for this place. And thanks for your service. If I can humbly borrow from our Marine brothers, semper fi.

Anonymous said...

Seems like a nice thing to say David,
but this blog reminds me of a crap load of whiney pukes that can only find fault with our country. I see a whole bunch of people that have never been in the shit, thus can only fault. Not one positive blog entry. To easy to critize. So I don't see anyone REALLY gratefull to live in the GREATEST COUNTRY on the face of the earth!!
I'd like to see one entry say, Damn fine country here,we got sewers that work!! Oil prices? Give me a break!

Anonymous said...

Thats funny law dawg, Read back me boy, it's Barry thats set the rules of "proper thought" here.
Seriously Dawg, read back. I tow no line! You can't say anthing here, unless you tow Barry's be a nice libby line. Happy Memorial Week folks. Big ups Dawg, keepin me free.

Sandra Ruttan said...

I believe different perspectives should not be seen as a threat to your own viewpoint, but the catalyst for thinking through one's position, either strengthening their viewpoint or prompting them to adjust it.

I, ahem, might slightly disagree about America being the greatest country on earth. But you have to forgive me for that, because I'm not American. A lot of my best friends are, though. But America is a great country, with many wonderful points.

And yet, I would say that no country, certainly my own included, is perfect. This is not about embracing complacency and saying, "Everything's damn fine as is, thanks very much, and if you disagree you aren't patriotic."

It's about instigating a dialogue that gets people to think about how a great country could be even better.

As individuals, we're all aware of our own shortcomings, of what we could do to be better people. We see that in everyone else around us. And if a country is comprised of flawed people, stands to reason that sometimes, the country might make some second-rate decisions.

Ands much as I take advantage of it, I'd like to see less plastic. The point is that we have to start taking responsibility to increase our dependence on renewable resources. One thing might seem to be a baby step, but at least it's a step in the right direction.

Barry's post did center on selling gas at its true cost, factoring in the cost of oil. Therefore, reducing our dependency on oil and pursuing alternative energy resources would have a positive impact on the cost of gasoline in the long run. But adjusting the price of plastic accordingly could be a good thing if it would get people to start recycling.

David, thank you for expressing your thoughts. I hope everyone takes your reminder to heart.

David Terrenoire said...

If being "in the shit" means having heard the proverbial shots fired in anger, then I'm not sure I qualify. I've heard shots fired in terror and I've heard shots fired in determination, but never in anger.

Oh wait, there was that time in Panama City. I think she was angry when she unloaded her .22 in my direction.

So maybe I have been "in the shit" after all.

So, can I complain? Are there failings of this great country that I can point to and say we can and should do this better? Can I point to how we care for our veterans and insist we do better? And can I point to our leaders, men who have never been "in the shit" and wonder why they haven't done better?

Just wondering what this membership card gets me, because if all I get for being "in the shit" is the chance to say what a great guy George Bush is, well, I'm not sure I want to be in your club.

Unless there's an open bar, then count me in.

Anonymous said...

Sandra said: I believe different perspectives should not be seen as a threat to your own viewpoint, but the catalyst for thinking through one's position, either strengthening their viewpoint or prompting them to adjust it.

Couldn't agree more, and it's the thing I love most about this blog. It's making me think more than I've had to think in years (all evidence to the contrary ;-)

And thanks, David, for the reminder of the purpose of Memorial Day.

Elizabeth Krecker said...

This blog is one of my favorite stops for much the same reason as it is many of yours - in the great tradition of rhetoric, The Heart of the Matter represents a true marketplace of ideas. Thank you Barry for providing and monitoring such a great forum.

Rae, I was like you for many years. Now, I'm a rabid, if quant, market conservative. Why? Basic Economics: A Citizen's Guide to the Economy by Thomas Sowell.

b20, our ability to openly write about politics, economics and each other's theories of life is precisely why we have a damn fine country. But you and others raise a great point: on Memorial Day weekend, we should take a moment to express our gratitude for those who died fighting for our liberty.

Back to the original discussion: here in Phoenix I live in the heart of a sprawling metropolis made possible by cheap gasoline. And in spite of increasing gas prices, we continue to grow outward, not upward. We pave hundreds of miles of roads, while we lay track for a few token miles of a light rail system available only to that small minority of folks who live and work in Central Phoenix.

If subsidizing oil were taken away, and none of us could afford to drive great distances to work, guess what, we'd change our lifestyle. More of us would telecommute, buy hybrid vehicles and houses close to our jobs, more of our builders would build urban condominiums instead of tract houses over 50 miles from the economic centers, and our leaders would fund more public transportation in order to continue attracting new businesses to our economy. Oh, and did I mention how all this would help reduce global warming?

Eliminating the subsidization of cheap gas, no matter the means would cause a lot of initial pain - after all no one likes change. But in the end I see nothing but good things for all of us.

Barry Eisler said...

Lee, I've been following your tour progress on your tour blog at http://www.leechild.com/bloghardway.html and it sounds like things are going great. Looking forward to seeing that New York Times bestseller announcement on June 4. I'd be all for hitting people in the vanity department (though in addition to, not instead of, in the wallet) to change behavior, but I see some serious enforcement and other practical problems... I prefer to keep it simple and just work the tax angle.

Sandra, I agree, there's plenty of room to reinvest the gas tax proceeds into alternatives. Tom Friedman writes about this periodically; I think he calls it a feebate. For example, a gas guzzler tax on gas guzzlers that is applied as a rebate to hybrids. Here are some more ideas on the subject:

Dave O and Law Dawg, good points. To know how much of an impact we'd get from reducing US gasoline consumption, we should first know how our use of gasoline fits into our overall use of energy and imported oil.

I've been looking, and all I've found is that gasoline accounts for 17% of the energy consumed in the US. http://www.eia.doe.gov/bookshelf/brochures/gasolinepricesprimer/eia1_2005primerM.html That sounds like a lot to me, especially because all gasoline comes from petroleum, and therefore gasoline's percentage of US petroleum use is presumably a good deal higher than 17%. So my sense is that reducing our use of gasoline could have a significant impact on our need for imported petroleum. If anyone else has any numbers on this, I'd be grateful.

If it turns out that most of our imported petroleum is used to make plastic products, though, I would apply the same analysis and argument to plastics that I have to gasoline. The overall point is that imported oil costs us a lot more than we think, and it's price should reflect its true cost.

David T, thanks for mentioning Memorial Day. No need to thank me for my service, which was brief and not terribly important, but here's a bow of gratitude and respect to you, Law Dawg, Pancho (forgot to mention he's an ex-Jarhead), Dave O, and the other soldiers, LEOs, and cloak-and-dagger types who've been spending time here.

In which regard, two books that I'd recommend. Both of them opened my eyes to the burden soldiers bear so the rest of us can enjoy all the fruits of our civilization:

First, "Gates of Fire," by Steven Pressfield. Awe-inspiring novel of the Battle of Thermopylae. BTW, for the writers here, I just finished Pressfields' non-fiction book "The War of Art" about resistance to the creative process, and thought it was terrific.

Second, "On Killing: The Psychological Costs of Learning to Kill in War and Society," by Dave Grossman. Just what it sounds like; a fascinating, disturbing, eye-opening book.

Sandra, couldn't have said it any of it better than you did. Thanks.

Elizabeth, thanks for the kinds words about HOTM. You, LD in his comments above, and I think most of the other people here get the point of the place: thoughtful argument, respectful listening, civility in discussion. In the presence of those qualities, differences in opinion are a pleasure; in their absence, differences become nothing but noise.

Anonymous said...

I'd like to add my own word of thanks to those who are serving, or who have served this country. To me, feeling gratitude toward those who put their own lives on the line to keep this country safe is a separate issue from how I view any particular administration or policy. I might disagree with policy and direction at times, but that doesn't diminish how I feel about the people who do the work on the frontlines. Nor does it detract from my recognition of how vital that work is for all of us.

It's like that in my corporate life, actually. I don't always agree with the direction set by the powers that be, and I'll certainly question it if I think doing so will improve the company. However, I feel pride when I work with my team to meet the goals before us. The best policy in the world doesn't mean a darn thing without the effort of the people implementing it.

So thank you to all who serve and work for something larger than yourselves. I appreciate the opportunity to lead my own life with relatively little fear of harm. If I sometimes question policy and direction, it's because this is a democratic society, and I feel an obligation to do my part to think and contribute.

No one person has all the answers. I certainly don't. I discuss and debate to refine my own view of the world as much as anything, and I'm learning a lot from the other participants here. Times change, and fresh approaches are often required to make progress on old problems. Only by hearing the voices of many perspectives can those fresh approaches be uncovered, however. It's part of the process, and I believe it's one of the things that keeps us strong as a society.

Anonymous said...

Barry, you might want to add "Leadership and training for the fight" by Msg Paul R. Howe (U.S. Army Retired) to your reading list. Howe was one of the men involved in the Black Hawk Down incident. I've enjoyed Grossman and have heard him speak.

Barry Eisler said...

JH, I've heard of Howe and would like to read his book. Thanks for mentioning it.

Anonymous said...

As much as I would like to see shift in oil imports, or at least some form of regulation of oil consumption in the US, you have to think about how to illicit said change. Technically speaking you can write a bill for legislation, but as with every change it rests on the shoulders of a representative to vote for or against it. These representatives are further hindered by lobbyists and "the best interest", which in turn are employed by the same source with which we have a problem; a vertical hierarchy of influence that is also cyclical in interests, and all working against us as an average consumer.

What we have here is a game, and it's in every player’s (the industry’s) best interest to cheat, because that's the mentality that's been engrained in our heads as an American. We are rewarded for “making it happen” and being the “self-made man” (or woman ;-) ), and we strive for independence from our own family to be successful. Our commitment to familial unity compared to, say, the East, Central/South America, or Africa, is completely lacking. This, in my opinion leads to a greater development of greed on our part, and it’s this greed that drives us to cheat. It’s the same motivating force that will cause the big wigs in the oil industry to prevent such an idealistic change as has been explained in the previous posts. Even though Big Tobacco suffered the wrath of Jeffrey Wigand, they still remain a powerhouse … and people still continue to smoke, significantly.

I know this argument rides the line between realist and pessimist, but the bureaucracy is too far established to change. We must rely on the oil that powers research of alternate fuels to give us “the next best thing”, and then we can hopefully control the new bureaucracy before it gets too far out of hand. We are too far along to sacrifice innovation for fairness.