Tuesday, June 10, 2008

It's enough to make me want to avoid a Democrat controlled Congress

I already laid out why the "windfall" tax is a bad idea. Thank goodness there are some economically reasonable folks in the Senate who will smack down populist pandering. I'm disappointed that Obama has endorsed this windfall tax. It's dumb. And I'm afraid what would have happened had there been more Democrats. Why can't we get a Democrat for both civil and economic liberty? I guess that's the Libertarians, but they've been taken over by cabin dwelling second amendment nut survivalist types, and continue to propose reverting to isolationism and the barter system.

The petroleum companies have made their investment decisions and built their operations to be profitable when oil is a lot less expensive than $100/ barrel. I've heard $60. It might be even lower. So when oil is $130, they're wildly profitable. This isn't because they're evil, it's because they planned for the worst and got the best. Giant profits attract competition, which drives prices down and makes energy sources that were less economically viable more so. So if we want to see more refining capacity, and a more diverse set of potential energy suppliers, we need prices to stay high.

Who's to blame for the price spike? We are. We're the inelastic demand: As prices rise, we barely reduce our consumption, providing little disincentive to raise prices. If everyone started riding bikes and taking transit and carpooling when gas rose a nickel (which has happened this time, to some extent), we'd not see prices as they are. But most of us have carried on, and just complained more.

If government wants to intervene in the market to help out, do something to buoy the prices of gas guzzling second hand cars. Folks are going to realize that vehicles apt for crossing the Sahara or an amphibious assault are overkill for life in the paved and manicured suburbs and start selling their Land Rovers and Navigators for more reasonable, less ego maniacal options. And no one will want to buy them. Which will make it harder for folks to switch, and extend the time it takes for us to get to more efficient infrastructure.

So give people an outside option, much like CA does for gross polluters: We'll give you $1000 for any car that fails emissions which you choose to junk. Same thing on a national scale: We'll give you $1000 for any car whose factory spec says it gets less than... 15MPG city? Treat the disease, not the symptom. The disease is our wasteful energy infrastructure, the symptom is high fuel prices. Help us change infrastructure, and the prices and economic hardship will sort themselves out.