Two dates – two numbers. Read them and weep for what could have, and should have, been. On Sept. 11, 2001, the OPEC basket oil price was $25.50 a barrel. On Nov. 13, 2007, the OPEC basket price was around $90 a barrel.
In the wake of 9/11, some of us pleaded for a “patriot tax” on gasoline of $1 or more a gallon to diminish the transfers of wealth we were making to the very countries who were indirectly financing the ideologies of intolerance that were killing Americans and in order to spur innovation in energy efficiency by U.S. manufacturers.
But no, George W. Bush and Dick Cheney had a better idea. And the Democrats went along for the ride. They were all going to let the market work and not let our government shape that market – like OPEC does.
You’d think that one person, just one, running for Congress or the Senate would take a flier and say: “Oh, what the heck. I’m going to lose anyway. Why not tell the truth? I’ll support a gasoline tax.”
Interesting argument, and by that I mean vacant. There is not a scintila of evidence presented how exactly an extra tax would accomplish anything. What is his economic theory, his premise, that tells him that giving the government a dollar more than it is already taking would effect what we are paying to the oil producers? Will they say, “I guess we can’t charge as much because the US Government has raised its tax”? Idiocy. Nonsensical ranting posturing as common sense.
I have several times written to my senators and congressman to impose an excess profits tax on all who are profiting on the higher oil prices as the congress did in the 70’s. None of them were in favor of this and used all sorts of excuses to not have the backbone their predecessors had. After the excess profits tax in the 70’s oil prices dropped and supply magically increased.
Art+
As if there is not already a hefty tax on gasoline. Nice one Tom. Yeah more taxes is the answer to the world conflicts and the price of gas. “It’s a Flat Idea”
No, Art+, the price dropped and the supply increased after price controls were removed. All the “excess profits” tax did was take money away from further exploration and refinement investment.
A mind-numbingly stupid column from Friedman.
“But no, George W. Bush and Dick Cheney had a better idea.”
===============================================
The seems to have been a recent change to the radical left’s ‘play book.’
Instead of just Bush ‘bashing,’ they are now focusing on Cheney as if he is some sort of evil Rasputin pulling Bush’s ‘puppet strings.’
I don’t buy it. And its stupid politically. Bush and Cheney are not running for reelection. By focusing of Bush and Cheney, they are ignoring the ongoing politics that should be focussed on electing our next president. But that’s good. The more ineffective the radical left are, the better American politics will be.
Thank GOD we have the editorial board of the New York Times to show us the way.
Now, can we hear more about how Maureen Dowd can’t get a date?
Friedman is clueless. Between 2000 and 2006 …
a) China’s oil consumption increased 45%, by over 3 million bpd, and continues to increase by over 1/2 million bpd every year. This has added 4% to aggregate world demand.
b) India’s oil consumption increased over 35%, by nearly 1 million bpd, adding another 1% to aggregate demand.
c) America’s oil consumption increased by about 3%, adding a fraction of a percent to aggregate demand.
Do ya think that in a world of steady oil production, maybe –just maybe– adding 5% to global aggregate demand is gonna have some impact on the price? Nah. Couldn’t be.
Anglican First: Please note that he certainly includes the Democrats: “the Democrats went along for the ride.”
The article cannot be dismissed as a one-sided screed; it is balanced in its indictment of BOTH parties.
Little Cabbage (#8),
the best, that is the most artfully constructed propaganda, now called ‘spin,’ almost always contains a percentage of true information in order to make the propaganda more palatable and more easily digested.
The gas tax is the single most regressive tax, save perhaps an extra sales tax charged at Hooters. It hits hardest those least able to afford it.
In high school economics class I got an “A” on the “supply and demand” chapter. But, I guess that is no longer valid (according to Friedman).
Why take courses in school if they teach irrelevancies?
Little Cabbage — Friedman’s core premise is just plain wrong, and it is easily proven so with perhaps a minute of googling. The rest of his piece is therefore irrelevant.
Once again the NYT has failed pitiably in their inability (or unwillingness) to exercise even basic editorial oversight and research. This is the same outfit that in its lead had “pursuit of happiness” as coming from the Constitution instead of the Declaration of Independence.
This is far beyond the NYT’s well-known bias and selective reporting; it’s blatant journalistic incompetence, and I’d flunk a 10th-grader for work this poor.
There are two significant factors to the rise in oil prices. The first is uncertainity over supply. We are not sure about supplies in Iraq and Iran as well as Mexico or Venezuela. This is made a larger concern due to the us presence in Iraq and the lack of stability as it moves from a strongman government (where the trains ran on time) to a participator democracy of some form. Likewise, Iran’s posturing over nukes destabilizes the world oil prices. The second largest contributer is the overall increase in demand due to China, India and the developing third world. As they grow more properous, their appetite for oil increases – and at a much faster rate that the USA. So limiting our demand (which is what the tax is supposed to do) will not do much to curb oil prices. Stabilizing the Middle East will do more in the short term, but that is not completely within our power.
Phil Snyder
Saw a little piece on one of the news channels showing that people in one of the poorest counties of the US were spending over 12% of their income on gasoline, while people in one of the richest were spending less than 2%.
It’s good to know that folks like Mr Friedman care about the poor people of the country.
Lets think about supply side – drill in ANWAR and off the coast. Increase our ability to supply ourselves. I know, big environment is now apoplectic. If we don’t need oil from OPEC, then what happens? They get to argue with China about the price of oil. That I want to see.
Sorry to keep jumping in here, but my first two degrees are in geology and the Alberta oil patch paid for my Masters.
Crude oil is a [i]world[/i] market. There’s a bit of a split between light-sweet crude and heavy (usually sour) crude, and they’re refined somewhat differently, but on the whole it doesn’t matter where the oil comes from — the price is the price, and that’s a worldwide supply-demand determination. Supplying ourselves won’t lower the price.
Depending on how you work inflation-adjustments, world crude prices peaked in 1980 at roughly $150 in today’s money. We’ll probably see that again.
By the late ’80s there were a dozen fields producing 1 million bpd or more. Now there are just four, and Cantarell (Mexico) is failing fast. Newer sources such as oil sands are abundant, but more expensive.
Get used to it. Lucky for us we have a President and a Veep each of whom can read a raw well log and make sense out of it. Friedman can’t even find the relevant information via Google.
A $1 per gallon tax on gas would have done very little to restrain demand (as the recent price rise of more than that has seen an increase in demand). A this tax would have done is put more money into the hot little hands of sleazy DC politicians, and they have way more than enough already.
Is it just me, or has Thomas Friedman’s writing style become more snippy the last few years? I used to read his column regularly. I might not have agreed with him, but he used to put meaningful research and thought into his columns. Now, he writes more like someone writes opinionated blog entries.
“Now, he writes more like someone writes opinionated blog entries.”
Yes, that’s called journalism in these enlightened times. Especially at places like the NYT.
Actually, environmentalists should be very happy about the high price of oil. Nothing encourages conservation more. As pointed out above, the already high taxes on gasoline only make an increasingly scarce commodity more expensive for the poor.
The other thing about the “Hugh oil profits” is the profit margin on oil production and processing isn’t that great, about the same as any other industry. We have not built new refineries due to “environmental” concerns. This has lead to inefficient processing, reduced copacity to refine and periods where production can barely match demand. Taxes help this problem how?
I’m not going to comment on the economics of taxes one way or another; I’m simply going to say that truth seems to be the first casualty of politics. What a better place the world would be if politicians had the guts to say “I’m sorry. I screwed up, and I will do my best to make it right”.
The very phrase “excess profits tax” chills me. Excess by whose standards? Let’s be truthful, call it an “envy tax.”
OK gents and ladies, you don’t like taxing oil rather increasing taxes on oil. I for one, hate sending a dime to countries like Saudi Arabia, and they are our “allies.” They then build muslim schools in the GS. It riles me up good to see the fat slob driving the Hummer all be his lonesome zooming past me (in my little 4 cyl 5 spd Suzuki).
So what are we going to do about it?
Robroy,
[url=http://www.fastcompany.com/magazine/120/motorhead-messiah.html]Check this out[/url].
On topic (the Friedman article), the New York Times has Paul Krugman as a columnist as well. Mr Krugman is a very well respected economist. How hard would it have been for Mr Friedman to have run his article by his colleague?
I have a blog thingy
Arrgh, must use preview!
OK gents and ladies, you don’t like taxing oil or rather increasing the existing taxes on oil. I, for one, hate sending a dime to countries like Saudi Arabia, and they are our “allies.†They then build muslim schools in the GS. It riles me up good to see the fat slob driving the Hummer all by his lonesome zooming past me (in my little 4 cyl 5 spd Suzuki).
So what are we going to do about it?
Hmm, interesting. Thanks, mousetalker. I am sending him my order for a 60 mpg 600 horsepower hummer today. I am finally going to show up the fat slob!
P.S. I enjoy your blog thingy.
It seems a number of otherwise astute observers are missing the point of Friedman’s article, which is: American dollars should not be sent overseas in ever increasing numbers to finance an anti-American agenda in the name of the free-market. Again, in case you missed it: American dollars should not be sent overseas in ever increasing numbers to finance an anti-American agenda in the name of the free-market.
The “patriot tax” Friedman envisions is a last-ditch means to slow the flow of American dollars. Chinese currency may continue flowing into Mideast coffers–so what? That might well be consistent with their long-term national interests. And the impact on AD is beside the point; Friedman mentions rising oil prices not to talk about AD but to point out we continue to transfer American wealth overseas at an increasing rate to hands that might well be hard at work on anti-American projects.
Everyone should be able to agree the oil market is not free; we’re not talking cattle futures. Talk of a free market in connection with oil is merely ideological, i.e. serving other agendas.
Finally, alot of folks here talk as if there are real AD/AS curves, when in fact they are meant to model market behavior by controlling for other troublesome real-world variables that make reliable computation near impossible, like information, time, individual imopact on prices and consumer attitudes to products. The model is not meant to represent or be a copy of the real world.
#21 — Q. “Taxes help this problem how?”
A. One of the reasons that the US does not invest in “homegrown” energy sources (images of solar panels, Willie Nelson, hemp-mobiles & hydrogen powered cars) is because petrol is cheaper for the consumer. The only way we get folks to buy homegrown energy (and make the US as energy independent as it can be) is to artificially increase the cost of petrol by taxation. Of course, the sheiks wouldn’t like this—-What I think may be a better solution is just to slap a (larger) tariff on oil imported into the country. This accomplishes the same thing–only then the government doesn’t have to “directly tax” consumers for choices which make the homeland less safe. Consumers would then be free to choose between energy sources which are cleaner & better for US foreign policy, or sources (namely oil) which are dirtier and line the pockets of folks that hate American values—
But… Who knows? Maybe #4/#21 are right–Federalists could be a greater threat to America than Islamic Radicalism–I certainly don’t have that answer.
Thank you Anglican Scotist. The dark Scotsman (Duns Scotus) would have been proud of you for your incisively clear argument. The wasteful use of energy in the US is creating a capital transfer to some nations hostile to the US. I too was worried that this aspect of Friedman’s article was being ignored in the somewhat febrile debate that followed.
One of the chief problems is that gas taxes are extremely regressive. A better solution would be heavy investment in mass transit, raised CAFE standards, increased tax breaks for fuel efficient vehicles (the Prius no longer qualifies, for example), subsidised home CNG charging stations (there’s a Honda Civic that runs on natural gas, which comes from Kansas mostly, but lack of fueling stations is a problem. So CNG is msotly confied to fleets like buses and taxis which can afford their own refueling stations)etc. But the ham-fisted approach of gas taxes is easier to explain, I guess. The fact remains, though, that Friedman’s proposal is one of the worst ways to go about meeting his announced goal, less effective in reducing petroleum imports and with greater negative side effects.
Let’s evaluate some of the Econ 101 parts of this theory.
1. $/bbl – this is a relationship between two commodities – dollars and oil which have supply and demand acting on them. As the dollar is weakened – more dollars in circulation since the FED has been printing them like crazy – this changes the relationship. Oil has been steady, tough there have been uncertainties in the supply line which may have a relationship to the scarcity of the good. So as More dollars are in circulation – each barrel will cost more (take more dollars to buy one – just like Gold).
2. Tax the “bad thing” – if oil is a “bad” then economic theory is to tax it to make it more unattractive. So we should not want to drive cars, heat our homes, use electric lights or visit blog sites?
There are supply shocks to both Dollars and oil, but adding a tax on a good that each of us use pretty regularly will only increase our own payments out on this good, not necessarily cause us to use less. (I drive 12 miles to work each day – should I only drive 8 miles and walk the last 4? What about when it rains or snows?)
[i]”Chinese currency may continue flowing into Mideast coffers–so what? “[/i]
Er, what exactly do the Chinese receive for all those gee-gaws they ship to the West Coast? What do you think they send to the Middle East (and Sudan) for their oil? What do we send to Japan for all those HD tellies? Where do Japan get much of their oil? Hint: they’ve had several destroyers operating in the Arabian Sea for several years. India?
You cannot control the free flow of any world currency, at least not successfully, and not for long.
Oh, and were it not for oil revenues used domestically to buy a measure of social peace from the under-30 set, several regimes would be replaced (rapidly) with something far worse.
# 29 “The only way we get folks to buy homegrown energy (and make the US as energy independent as it can be) is to artificially increase the cost of petrol by taxation.” How about letting the US develope its natrual energy resources, oil in the Gulf off of Florida, Anwar, Soft coal in Utah, etc instead of starting on a program that will increase the cost of almost all goods and services. The food in the grocery store doesn’t get there by camel caravan, the clothes in Walmart don’t walk in. Almost all products are sent via roadway powered by internal combusiton engines, as transportation cost increases so does the cost of all over road transported items. The consumer really doesn’t have a choice in how objects are shipped, The local Grocer hasn’t polled me on how he should recieve shipments.
I think folks are a little hard on Friedman. Anglican Scotist correctly notes that TF raises an important issue. But as others have noted TF only addresses a small portion of total demand. USMA87 (n.b. i’m usna71) correctly notes that any discussion also needs to address supply, which TF does not do. Bart Hall should comment further n Athabasca and Utah/Colorado, the reserves of which massively dwarf Saudi Arabia and which are economically viable at @$40/bbl. Finally, TF fails to account for the falling dollar, as Rick W points out.
#34–I think that the argument that increasing oil will necessarily increase food prices is a specious one. Our food prices are already artificially high because of suppliers’ (i.e. agri-buisness’) unwillingness to promote local agriculture. North Dakotans insist on eating oranges in February that come from Florida. My grocery sells 10 varieties of apples, none of which come from area orchards (some are even from New Zealand). Chickens are butchered in Kentucky that are sent 500 miles north to Cleveland when there are facilities to do so locally. Food prices are already articially high because of the death of local agriculture markets. Also true that Walmart’s wares don’t travel there themselves–They usually come from China (a country which I too am against supporting for a different set of reasons).
Now, you say how about letting the US develop its own resources (and I agree), but why oil? Why coal? when it will cost just as much (or more) to fund exploration efforts as it will to invest in renewable technology that is much less cleaner? I don’t know the oil industry, but I do know about coal mining, and there is nothing clean or humane about that industry–from the extraction, to the consumption, to the scars in the earth that it leaves in the form of polluted streams and denuded hill-sides–After all that you have a disposal problem because you’re left with coal slag.
What Friedman puts forth is really a moral argument to sway the US people away from resources which (for many reasons) harm the republic.
#35, briefly, ’cause this thread’s gettin’ real long in the tooth …
Athabasca is existing technology, coming on line NOW. Pipelines here in Kansas (presumably elsewhere) are being reconfigured for south-only flow to feed Citgo in Houston, which is where most of it will have to go. Sr. Chavez owns Citgo.
Extraction of syncrude from oil sands costs about US$30 per barrel. There is one project (Canadian Natural Resources, trades as CNQ) on target to bring light-sweet syncrude to market 08Q3, and it can be refined [i]anywhere[/i], not just Citgo.
All Alberta syncrude uses local natural gas for heat, much of it from Advantage Energy (AAV), and the major downside is that it pretty well trashes immense volumes of water. It’s probably a “bridge” technology, useful for a generation or so as conventional oil starts to dry up.
Oil shales are quite a bit farther off, and the potential reserves are mind-boggling. The most promising technology seems to be owned by Shell (trading as RDS-B). Full disclosure: I own CNQ and AAV, but not RDS. The oil age is not over. Far from it. But the age of [i]cheap[/i] oil has probably passed astern.
Raise taxes on companies and corporations:
Companies and corporations raise prices on the consumer
prices raise for the consumer, congress advocates raising the minimum wage.
Minimum wage is raised, companies and corporations lay off workers and raise prices to pay the increased wages.
can someone say ‘viscious cycle’?
Jim E.
Bart,
I do not think that any currency currently runs freely–there are not any free markets for currency. Currency flows here and there, but as recent Fed moves in financial markets show prima facie, currency quantities are affected by political and business interests: almost “fiat!” Or: that other Friedman’s hands-off, rule-based monetarism (Milton) is far from the real world.
Such flows as there are are already politicized; all I suggest is that we might consider chancing some more politicized intervention consciously aimed this time to promote our own national interests.