ARCHIVE - DECEMBER 2014
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THREE CHEERS FOR THE FEDERAL GAS TAX. YES, SERIOUSLY, THREE CHEERS!
2014/12/26 - Section 8 of the Constitution gives the Federal Government the authority “To establish post offices and post roads”. Clearly the Founding Fathers understood the need to have an integrated national transportation system that would both unite the colonies of the nascent nation, as well as facilitate the efficient flow of goods and people between the States.
And so it is even to this day, we see mail trucks on both our Interstates and our lesser highways too. And so much better off we are to have these highways. Highway construction is an enumerated power of the Federal Government. It’s in the Constitution. Thanks again, Founding Fathers!
So it’s all good, right? Well, actually, strangely, no. The Washington Examiner’s Michael Barone, a usually astute individual, on Christmas Eve gifted us with an unexpectedly incorrect assessment of our national highways.
At Chalprem we believe the Founding Fathers got it right. Like Barone, we object to the Federal Government seizing power it is not entitled to, such as in areas the areas he mentions - healthcare, education and environmental regulation. By the same token we equally object to its abdication of enumerated powers, such as border security. So we fully endorse the Federal Government’s involvement in constructing, maintaining and servicing our highway system. It’s in the Constitution.
Barone, however, seems genuinely pleased that the feds are falling short in their constitutional responsibilities. He begins by making the point that federal fuel revenues are flatlining, due in part to hybrid and electric cars. True, but the solution to that is to eliminate the punitive “gas guzzler” tax and stop subsidizing alternatives. A loss of fuel revenue is the necessary “unexpected consequence” of these anti-market penalties and handouts.
If policy makers would stop penalizing people for using gas, then more gas will be consumed and revenues will increase. And if they stop rewarding people for not using gas, then still more gas will be consumed and revenues will increase even more. Anyone who understands supply and demand can figure that out.
Once these dislocations are removed, the existing fuel surcharge is the simplest, fairest and most economical means of raising revenue to fund our roadway system. And did we say "easiest"? The incremental effort to consumers is zero - buy your gas and off you go.
Toll roads, meanwhile… ever get caught in a traffic jam at a toll booth? Ever had a transponder malfunction? Ever get caught behind someone whose transponder has gone awry? Ever get a speeding ticket for not grinding to a halt at a toll lane? Ever get caught in the wrong lane? Ever get hit by someone trying to swerve out of the wrong lane?
Ever been on Florida’s Turnpike in Broward County, trying to figure out what the heck you're supposed to do with the card they handed you when you got on in Palm Beach County, but never took back from you when you left the highway? I have - last Tuesday, in fact. Now I'm back in New York City, still with that toll card, terrified at what Hertz is going to do to my credit card!
Most importantly, have you ever taken a good look at these toll plazas springing up like weeds, and wondered what it costs the taxpayer to fund this duplicate and unnecessary government agency?
Seriously, toll booths? Are we only going to tax the users of some highways, the ones where we've set up a toll/transponder system? And everyone else gets a free ride? How is that even remotely fair or efficient? Or are we going convert our entire highway network to toll roads? Are we going to place toll booths at everyone’s driveways? Who is supposed to pay for that? Or are we going to use GPS tracking - the automotive equivalent of ankle bracelets? No privacy concerns there! Surely Libertarians should just prefer to pay for both their fuel and highway usage charges in one fell swoop at the gas station, rather than interact with unnecessary additional government agencies that would need be created to collect and administer these new tax schemes?
The fuel surcharge is efficient because it forces more intensive users to pay a higher fee. For example, larger vehicles like trucks use more highway capacity, but they also get inferior mileage and therefore pay higher fees.
The fuel surcharge is also progressive – people who can afford heavy powerful luxurious cars use more fuel and thus pay higher fees than less affluent drivers in small efficient vehicles.
The fuel surcharge has a built-in peak-loading mechanism. My car gets 30 mpg at 70 mph, but only 12 mpg stuck in stop-and-stop bumper-to-bumper traffic. Thus I pay a 150% higher usage fee to drive at rush hour than I would pay to drive the same road at quiet times.
The fuel surcharge is most certainly a user fee, not a tax. Highways aren’t free, and people who use the highways should pay. All revenue from fuel charges at whatever level should go to building, maintaining and servicing highways, and nothing but. The fuel surcharge is broad, fair and simple, and eliminates the need to create other fees and taxes that serve no other purpose but to feed the statists' zeal for big government.
Toll roads? Who is Barone kidding? I struggle to understand his motivation to come out in favor of such an economically invalid, intrusive, big government solution. The only people who should have an interest in building a toll system are... well, there you go - the crony capitalist contractors who build toll systems!
If policy makers and commentators would simply focus on explaining that the fuel surcharge is a fair, efficient and simple method of funding a constitutionally enumerated mandate of the Federal Government, they might find it a lot easier to make necessary adjustments as circumstances require. Barone’s retrograde analysis is a step in the wrong direction.
WILL WE ACT TO AVOID RECESSION, OR BE TAKEN BY SURPRISE?
2014/12/14 - Is there such a thing as the price of oil being too low? Because, if there is, we may well have sleepwalked beyond that point. Prices have recently fallen to levels not seen since the recession of 2009. On Friday, West Texas crude closed at under $58 per barrel, down 45% from highs in late June when it closed above $102.
This stunning price collapse is, as always, the result of supply and demand. Our friend, fracking, has enabled daily US oil production to climb from 8 million barrels per day to 9 million barrels, an increase of 12%, in just one year, now representing 10% of total global production.
Meanwhile the growth in global demand is slowing, particularly in Europe and China. The International Energy Agency (IEA) has reduced their demand growth forecast by 230,000 barrels per day down to 900,000 barrels, a reduction of over 20%.
In the past, OPEC has cut production to reduce supply and put a floor to the price, but this time Saudi Arabia has stated they will maintain production at current levels. One can suppose at least three reasons for this strategy: first, to maintain market share; second, to inflict geopolitical pain on rival sovereigns; and third, to wipe out small corporate producers.
In the 1980’s Saudi Arabia cut production to prevent a price collapse, only to see OPEC “cheaters” – as if OPEC isn’t by definition "The Cheaters Club"! – boost production. In the process the Saudis lost a significant share of their export market, some of which it has never recovered. They don’t seem to want to repeat that mistake.
Geopolitical rivals of the Saudis include Russia and Iran. Iran’s fiscal budget breakeven price for oil is over $130, Russia’s is $105, and Saudi Arabia’s is $90. Little wonder Iran’s President Hassan Rouhani accused the Saudis of “treachery” this week for their unwillingness to cut production. The Saudis will inflict severe pain on their enemy Iran, and to a lesser extent their rival Russia, while getting off quite easily themselves. And they will, because they can. And for other countries, like Venezuela with its $160 fiscal breakeven price? And as for other unstable producers like Nigeria, Libya and Iraq? Doesn't seem like it matters much to the House of Saud...
And what about us? Most worrisome is the looming shakeout in domestic production. No one knows for sure what the breakeven price is for domestic petroleum self-sufficiency but it’s unlikely below $75. At the current predatory prices we face the potential scenario of bankruptcies, job losses, destruction of capital, and an unwillingness to invest and rebuild our productive capacity in the future.
These unsettling events presage a recession. In 2008 the collapse of real estate prices gutted the housing industry and the hard landing plunged us into recession. Now the collapse in oil prices has the potential for another hard landing that would gut the energy industry and plunge us back into recession. The “boom and bust” cycle of hard landings is exactly how recessions are triggered, and we are on the brink of a bust induced by economic warfare waged by Saudi Arabia. If the shakeout doesn't cause a recession, the subsequent price spike surely will! And then it will be too late...
We recommend that Congress and the President immediately impose a temporary two-year tariff on imported oil equal to the difference between the import price and our probable domestic breakeven price of $75. This would protect our domestic infrastructure against economic attacks by rival sovereign states, yet allow domestic competitive pressures to push the price lower and lower. Effectively the $75 tariff-point becomes a price ceiling as unlimited foreign production floods the market above that price.
Are we going to allow the Saudis to "teach us a lesson", or are we going to fight back in the economic warfare being conducted against us? We must protect our economy, our consumers, our producers. We must protect ourselves.
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