Okay; so oil's going back up- back over $70 a barrel. A far cry from last July, but an increase of well over 100% from the winter.
Of course, as uzless will no doubt point out, it's mainly because the speculators are getting back in after taking a bath last Fall. But how do you stop that? Transparency? I don't think that will help much. Investors will invest as long as it's legal. Prohibit trading of commodities for speculation? I don't think this is practical. Determining what is speculation and what is purchasing for later use is very difficult. To what extent would you stop oil companies from hedging by buying more future stocks than they need? It would be difficult and would, IMHO, be against the spirit of the free market.
What I recommend is as follows:
Gasoline where I live is now about $2.75 a gallon; it's a little lower on average throughout the USA, but we'll use that number for now. Last July, the price was as high as $4.60 and in the winter it dipped close to $1.50.
I would take a high, but not crazy number, say $4.00 per gallon. I would announce that henceforth, the price of gas will never drop below $4.00 Whatever amount less than $4.00 gasoline costs, we make up the difference by assessing a special new federal tax.
At the end of the year, we take all of the revenue from that tax, minus the costs of administering it, divide it up 310,000,000 (give or take) ways and cut a check (or income tax credit) to every citizen.
In this way:
1) You keep demand down; decreasing our dependence on foreign oil and damage to the environment; you also obviously encourage conservation because of the high price
2) You keep speculators from stoking the price. Who would speculate in the price of oil going up when you know that demand is going to stay artificially depressed?
3) You don't really hurt the average person, as the rebates will mostly compensate the average person. You do hurt the people who use a lot of oil disproportionately; but they'd be hurt anyway by high oil prices which are virtually inevitable eventually in a totally free market
4) You decrease the amount of our gas bills that are being paid to foreign oil producers by keeping the price for crude oil down
5) You help stimulate the economy with these rebate payments. For whatever reason, it's well established that people are more likely to spend money they see as windfall money than money they had in their pockets to begin with. Instead of spending this money on expensive gas, they'll spend it on goods and services.
Originally posted by sh762 things.
Okay; so oil's going back up- back over $70 a barrel. A far cry from last July, but an increase of well over 100% from the winter.
Of course, as uzless will no doubt point out, it's mainly because the speculators are getting back in after taking a bath last Fall. But how do you stop that? Transparency? I don't think that will help much. Investors will invest ...[text shortened]... tead of spending this money on expensive gas, they'll spend it on goods and services.
1. You can ban speculation on commodities by not allowing someone to re-sell it after they bought it. This would ensure that only people who need oil would buy it. They would buy it when they need it. No more re-selling equals no more speculation. If you absolutely need to sell it, you can only sell it for the same price or lower that you bought it for. This removes the incentive to buy hoping the price goes higher. Simple.
2. people will complain that people that don't drive will get a cheque for free. people will also complain that people who drive alot are paying a higher proportion of the money and by dividing it equally, it isn't fair.
Originally posted by uzlessGood. Anything that encourages people to drive less is fine with me.
2. people will complain that people that don't drive will get a cheque for free. people will also complain that people who drive alot are paying a higher proportion of the money and by dividing it equally, it isn't fair.
Taxes, by definition, are not fair. That's why they're "taxes" and not just "keep your own money."
Maybe Joe Biden will even get to build his bullet train. Then maybe we can stop hearing about how he took the train to Delaware and start hearing about how he took the train to LA in just 17 hours.
Originally posted by sh76Interesting idea, but how would this be implemented? Who decides "Whatever amount less than $4.00 gasoline costs"? If it's the gas companies, that amount will likely be zero.
I would take a high, but not crazy number, say $4.00 per gallon. I would announce that henceforth, the price of gas will never drop below $4.00 Whatever amount less than $4.00 gasoline costs, we make up the difference by assessing a special new federal tax.
Originally posted by richjohnsonIt should be easy enough to write a formula based on the current profit margins and the current price of oil. We know that, in general, say $60/barrel oil = $2.25 per gallon at the pump (for example). So, of each $4.00 gallon purchased, the oil company gets its $2.25 and $1.75 is this federal tax.
Interesting idea, but how would this be implemented? Who decides "Whatever amount less than $4.00 gasoline costs"? If it's the gas companies, that amount will likely be zero.
Originally posted by uzlessThis idea has a couple of problems. First, to stop speculation in this way, the policy would have to be implemented globally. Otherwise the speculative buying and selling will just take place in another country.
2 things.
1. You can ban speculation on commodities by not allowing someone to re-sell it after they bought it. This would ensure that only people who need oil would buy it. They would buy it when they need it. No more re-selling equals no more speculation. If you absolutely need to sell it, you can only sell it for the same price or lower that you b ...[text shortened]... ve alot are paying a higher proportion of the money and by dividing it equally, it isn't fair.
Second problem, you can't ban all reselling, as a lot of it is simply needed as oil moves through the supply chain.
Last, it won't stop oil companies themselves from speculating. Think the price is going to rise, stop selling and build up a stock.
sh has a couple of other good points in his first post as well.
His idea does seem better to me too, oil is a product with a lot of negative externalities, for example impact on climate and also dependence on foreign countries. The logical solution to such a problem is to tax it. Of course, richjonhson pointed out that taxing in this particular way (variable taxes to keep it at a certain price) has the problem that it'll just mean the oil companies will raise prices. That would also lead to less consumption, but without the benefit of added income for the government.
Seems to me that efforts to "control" speculation create more problems than they solve -- and it seems like commodity bubbles self-correct relatively quickly (unlike say, the housing market).
But the gas tax & rebate concept is essential if we are to seriously move away from fossil fuels and/or find ways to use them much more efficiently - because this movement will not happen while fossil fuels are as cheap as they are now.
Originally posted by sh76I expect that whatever formula you picked, the price of oil would quickly rise to level where the oil company gets $4/gal.
It should be easy enough to write a formula based on the current profit margins and the current price of oil. We know that, in general, say $60/barrel oil = $2.25 per gallon at the pump (for example). So, of each $4.00 gallon purchased, the oil company gets its $2.25 and $1.75 is this federal tax.
Originally posted by richjohnsonNot necessarily, oil is traded globally, so oil companies won't always (or completely) be able to raise the price to get at $4/gal if they want to stay competitive in the rest of the world.
I expect that whatever formula you picked, the price of oil would quickly rise to level where the oil company gets $4/gal.
Originally posted by sh76The current rise in price is partly because the oil cartel cut production when the price dropped.
I would take a high, but not crazy number, say $4.00 per gallon. I would announce that henceforth, the price of gas will never drop below $4.00 Whatever amount less than $4.00 gasoline costs, we make up the difference by assessing a special new federal tax.
Its fine to suggest high fuel taxes in the US- we all wish that would happen whatever the formula. However, it is rather unpopular with the people, so its unlikely to happen. I think its a cultural thing because most European countries seem to have no problem with it.
I am not sure what the benefit would be to stabilizing the oil price with a variable tax.
Originally posted by twhiteheadThe precipitous price drop in oil last Fall showed that the cartel is all but irrelevant. Every time the price fell by $10, the cartel got together and said "That's it, oil stays at no lower than $100" and then $90 and then $80, etc.
The current rise in price is partly because the oil cartel cut production when the price dropped.
Its fine to suggest high fuel taxes in the US- we all wish that would happen whatever the formula. However, it is rather unpopular with the people, so its unlikely to happen. I think its a cultural thing because most European countries seem to have no proble ...[text shortened]... it.
I am not sure what the benefit would be to stabilizing the oil price with a variable tax.
The cartel is full of one crop economies that need to produce and sell oil to avoid falling to third World status. The current rise is due to the speculators getting back in after the crazy fall last Fall.
I know it would be unpopular. That's why we need a few politicians with the guts to say "Screw my short term popularity; this needs to be done." Also, if it were sold in a convincing, thoughtful manner, I think the masses can be brought onboard.
I think I laid out what I perceive the benefits to be.
Originally posted by sh76I dispute your assertion that taxes, by definition, are not fair. If we accept that a system that breeds great levels of income inequality is unfair, then certain taxes would be an attempt to restore a small measure of fairness back into the system.
Good. Anything that encourages people to drive less is fine with me.
Taxes, by definition, are not fair. That's why they're "taxes" and not just "keep your own money."
Maybe Joe Biden will even get to build his bullet train. Then maybe we can stop hearing about how he took the train to Delaware and start hearing about how he took the train to LA in just 17 hours.