Wednesday, April 30, 2008

Windfall profits tax?

Please tell me... in what universe will a windfall profits tax on the oil industry actually lower gas prices? (ref LA Times editorial, "economy puts heat on pols") Congressional Democrats are proposing this, and Obama is running ads here in North Carolina proposing same.

Looming over everything else is rising global demand, particularly from societies that are industrializing at light speed.

The law of supply and demand is like the law of gravity: it's fundamental.

If oil supply remains flat while demand rises, the price will go up. You cannot wish or tax that away.

McCain and some Congressional Repubs proposed reducing various gas taxes during the summer months. But even if we assume zero state and federal taxes for the sake of argument, this cannot change the underlying fundamentals of the commodity, thus not affect gas prices more than a dime or quarter or so.

Reducing US consumption of fossil fuels will help mitigate prices -- but with rising global demand elsewhere, any reduction in US consumption will easily be matched and exceeded by demand elsewhere.

Perversely, some environmental weenies like this situation, because economics forces use to consider alternatives. Alt-energy research is quite active, true, but we shouldn't hope for high prices to force events in that direction. Any increase in oil prices has a ripple effect that hurts the poor most of all. Gas and personal transportation costs go up. Food prices go up (getting it to market costs more). Wal-Mart prices go up (like it or not, the poor shop there, prices are cheap). Those that are the neediest, hurt the most when gas and food prices go up.