At $4, Everybody Gets Rational
I’m posting this Krauthammer editorial due to this report coming out today that states:
Oil seen hitting $150 this summer.
(Reuters) - Oil prices are likely to hit $150 a barrel this summer season, the global head of commodities research at Goldman Sachs said on Monday, as tighter supplies outweigh weakening demand.
What is America going to do when we are paying 5.00 or 6.00 per gallon?? Because diesel fuel is already past the 5.00 mark here in California.
Washington Post
By Charles Krauthammer
Friday, June 6, 2008;
So now we know: The price point is $4.
At $3 a gallon, Americans just grin and bear it, suck it up and, while complaining profusely, keep driving like crazy. At $4, it is a world transformed. Americans become rational creatures. Mass transit ridership is at a 50-year high. Driving is down 4 percent. (Any U.S. decline is something close to a miracle.) Hybrids and compacts are flying off the lots. SUV sales are in free fall.
The wholesale flight from gas guzzlers is stunning in its swiftness, but utterly predictable. Everything has a price point. Remember that “love affair” with SUVs? Love, it seems, has its price too.
America’s sudden change in car-buying habits makes suitable mockery of that absurd debate Congress put on last December on fuel efficiency standards. At stake was precisely what miles-per-gallon average would every car company’s fleet have to meet by precisely what date.
It was one out-of-a-hat number (35 mpg) compounded by another (by 2020). It involved, as always, dozens of regulations, loopholes and throws at a dartboard. And we already knew from past history what the fleet average number does. When oil is cheap and everybody wants a gas guzzler, fuel efficiency standards force manufacturers to make cars that nobody wants to buy. When gas prices go through the roof, this agent of inefficiency becomes an utter redundancy.
At $4 a gallon, the fleet composition is changing spontaneously and overnight, not over the 13 years mandated by Congress. (Even Stalin had the modesty to restrict himself to five-year plans.) Just Tuesday, GM announced that it would shutter four SUV and truck plants, add a third shift to its compact and midsize sedan plants in Ohio and Michigan, and green-light for 2010 the Chevy Volt, an electric hybrid.
Some things, like renal physiology, are difficult. Some things, like Arab-Israeli peace, are impossible. And some things are preternaturally simple. You want more fuel-efficient cars? Don’t regulate. Don’t mandate. Don’t scold. Don’t appeal to the better angels of our nature. Do one thing: Hike the cost of gas until you find the price point.
Unfortunately, instead of hiking the price ourselves by means of a gasoline tax that could be instantly refunded to the American people in the form of lower payroll taxes, we let the Saudis, Venezuelans, Russians and Iranians do the taxing for us — and pocket the money that the tax would have recycled back to the American worker.
This is insanity. For 25 years and with utter futility (starting with “The Oil-Bust Panic,” the New Republic, February 1983), I have been advocating the cure: a U.S. energy tax as a way to curtail consumption and keep the money at home. On this page in May 2004 (and again in November 2005), I called for “the government — through a tax — to establish a new floor for gasoline,” by fully taxing any drop in price below a certain benchmark. The point was to suppress demand and to keep the savings (from any subsequent world price drop) at home in the U.S. Treasury rather than going abroad. At the time, oil was $41 a barrel. It is now $123.
But instead of doing the obvious — tax the damn thing — we go through spasms of destructive alternatives, such as efficiency standards, ethanol mandates and now a crazy carbon cap-and-trade system the Senate is debating this week. These are infinitely complex mandates for inefficiency and invitations to corruption. But they have a singular virtue: They hide the cost to the American consumer.
Want to wean us off oil? Be open and honest. The British are paying $8 a gallon for petrol. Goldman Sachs is predicting we will be paying $6 by next year. Why have the extra $2 (above the current $4) go abroad? Have it go to the U.S. Treasury as a gasoline tax and be recycled back into lower payroll taxes.
Announce a schedule of gas tax hikes of 50 cents every six months for the next two years. And put a tax floor under $4 gasoline, so that as high gas prices transform the U.S. auto fleet, change driving habits and thus hugely reduce U.S. demand — and bring down world crude oil prices — the American consumer and the American economy reap all of the benefit.
Herewith concludes my annual exercise in futility. By the time I write next year’s edition, you’ll be paying for gas in bullion.
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Wait… This, “You want more fuel-efficient cars? Don’t regulate. Don’t mandate.”
Does not go with this, “I have been advocating the cure: a U.S. energy tax as a way to curtail consumption and keep the money at home.”
Isn’t this an oxymoron?
June 9th, 2008 at 5:40 amThe market will always determine what happens if the stupid government will stay the hell out of the picture…
June 9th, 2008 at 5:55 amit is easier to regulate the economy and an industry through incentives rather than amending some kind of industry-prohibiting law. let the consumer choose what he will buy, alas give a consumer a choice. let the auto industry struggle with marketing the “right” goods for the market…artificial protectionist laws are poison for an economy as they work only to a certain point after witch the law is no longer capable of protecting the home industry from the outside competition, rendering it inefficient, thus stretching time till the bigger collapse of an economy, that otherwise would have recovered naturally…or by actions of rational people who choose the right product at a right time, forcing the rest of players in the market to keep up with the demand and provide better goods…despite what has already been said about the Europeans, their auto industry has been under pressure since the 70’s oil crisis, and the gasoline tax has kept the automakers under pressure to produce fuel-efficient cars (Germans don’t count, i like their cars
cause the average Pierre of Luigi couldn’t afford to keep a gas-guzzler…no wonder that the Japanese automakers have been kicking ass pas several years, people want a fuel-efficient and a reliable car that is also easy on maintenance… trucks and SUVs are nice, but as we can see today the govt had a responsibility to somehow throw in incentives to buy more efficient cars, in light of growing gas prices, and the auto industry would have adopted better to a changes in demand, rather than what i see on the news GM closing 4 factories that produce trucks - no need for such shock therapy for an industry in trouble, they could have retooled and designed more efficient cars gradually, knowing that the govt would slowly raise the gas tax…less govt interference the more the efficiency
June 9th, 2008 at 6:41 amforget the fact that Americas backbone is suffering big time, strugling to carry the weight of the idiots at the top, its gonna snap
June 9th, 2008 at 7:07 amI usually agree with krauthammer but this is nuts. Draconian taxes on energy is the best way to destroy the economy. It is anti-Amercian and attacks our freedom of mobility, growth, industry ect. The boating industry, PWC, snowmobiles, atv’s, RV industry ect is gonna get sunk. We aren’t buying chinese motorhomes, pwc’s and snowmobiles, lots. A lot of Indiana and Michigan assembly plants are gonna go tits up. Never forget these columnists all live in NYC and have no idea how Americans elswhere choose to recreate (not a walk in Central Park).
June 9th, 2008 at 8:12 amThe dynamic changes dramatically at several levels and on several fronts if we’re drilling our own oil and building refineries and nuclear plants and using coal and shale oil more.
June 9th, 2008 at 8:17 amGlad to see the Senate Repubs acknowledging that finally. Now if they’d scare the fuck out of the oil speculators by threatening an intervention and then filibuster any Dhimmi attempt to control housing by pretending to give a shit about foreclosures, things might start improving.
but the sad part is something has to be done…one being the US becoming self-sufficient with regards to oil production…this will negate the whole worldwide oil demand, US consumes about 35% of oil produced worldwide…and draconian gas-tax, that something that shouldn’t be implemented right away, it should be done slowly, hell the price is high already, and i think at 5-6$/gallon all of the recreation industry is suffering, so whats the difference…the is fact that the oil demand will continue to rise globally, china is buying cars like crazy, main thing is to keep the economy out of control of politicians and adopt new laws at a whim of someone in power at the moment…then again why don’t people bother their senators and representatives to push for oil exploration on the US soil, whats the deal with that?
June 9th, 2008 at 8:33 amshotty;
you utterly miss his point. The price was gonna go up ANYWAY. Why send the money to the Saudis? They have enough.
So the price of avoiding the tax is to pay the same money abroad.
Capice yet?
June 9th, 2008 at 10:02 amA US energy tax to curtail consumption? What planet is this guy on? How in the world does he expect our foods and goods will be transported..by cow?
June 10th, 2008 at 3:26 pmThis kind of opinion is clearly written by someone who has a travel account, doesn’t own a car and walks to work or takes the subway.
Oh..and the illogic that the price of gas will not increase and therefore allow for a $2 tax to go to the US treasury. Is he going to ask the Saudis personally to cut back on production?
I have too many questions here..tells you how irritated this kind of commentary makes me.