McCain Flip-Flows Toward Truth
by tdaxp ~ June 19th, 2008
Nice that John McCain now supports expanding offshore drilling. I like it when politicians go my way, such as McCain on this or Obama on trade. With this new position, McCain makes up for any ground he lost by Obama’s good move:
The Weekly Standard
Congressional Democrats are attacking McCain for flip-flopping on offshore drilling:“This week’s flip-flop on offshore oil drilling by President Bush and Senator John McCain is nothing more than a cynical campaign ploy that will do nothing to lower energy prices and represents another big giveaway to oil companies already making billions in profits,” said Senate Majority Leader Harry Reid (D-Nev.).
That might be an effective attack–if so many voters hadn’t flip-flopped on the issue themselves. As Jonathan Martin reports:
A veteran of Florida politics who is not tied to Crist says the gas price-driven poll numbers justify the drilling flip-flop (justify in the political sense, that is):
“[After many years working in the state], I would have told you that it was the single issue that would never, ever, ever change. Ev-uh,” says the source.
But “somewhere between $3.00 and $4.00, the [poll] number literally flipped upside down.”
Offshore drilling has a marginal economic value, but it’s real value (pace Shlock) is strategic. Expanded domestic production is a form of expanding the Strategic Petroleum Reserve, protecting the US from world shocks in supply.
As Catholicgauze notes, expanding US production of petroleum complements US production of ethanol, US production of gasoline, and other projects as part of diversifying a weak link in our economy. It is good that McCain sees a least part of this.
The New York Times uses top 1% of income, not wealth. From the legend:...
June 20th, 2008 at 5:53 am
It’ll take over a decade to add those offshore resources to the reserve. Strategic picture is going to be vastly different from today. There are much better short term solutions that will result in price decline ASAP and will yield major strategic benefits. Critical step: get off oil.
June 20th, 2008 at 6:35 am
Shlok,
Can you name any?
There are clear needs for short-term fixes (such as a higher but rebated gas tax [1]) and long-term fixes (such as nuclear and wind power). But medium-term solutions are also a sensible part of the playbook.
[1] There are much better short term solutions that will result in price decline ASAP and will yield major strategic benefits.
June 23rd, 2008 at 10:32 am
Flex fuel = breaking the vertical monopoly.
June 28th, 2008 at 4:50 am
Shlok,
Do you mean importing Brazilian sugar-ethanol, or something else?
Unless it’s something like that, I don’t see how it is a “short term fix” that results in “price decline ASAP”
July 2nd, 2008 at 6:18 pm
I suspect that Shlok is proposing that we adopt Robert Zubrin’s proposal that he makes in the book Energy Victory.
It is actually a pretty good proposal. The basis of it is that for most economic goods, higher prices cause people to substitute alternate cheaper products but in the case of transportation fuel, we currently have no easy substitute because our cars run only on gasoline. By requiring that all new cars sold in the US be capable of using a high proportion of ethanol or methanol in the fuel mixture, this would impose a limit on how high the price of gasoline can go.
Where the ethanol or methanol comes from, Zubrin leaves to the market. He sees the main problem to be transforming our transportation fleet to vehicles that can use substitute fuels. Considering that the cost of building Flex-fuel capability into new cars is approximately the same as the cost of installing seat belts, it seems to me to be a reasonable requirement that allows the market system to work despite the best efforts of the oil cartel.
Ethanol can be made from corn in the US or sugar in many parts of the world. Methanol can be made from coal or from garbage.
You can listen to a podcast interview with Robert Zubrin at this link if you don’t have time to buy and read Zubrin’s book.
July 3rd, 2008 at 11:58 am
Mark in Texas,
Interesting! Definitely sems similar to Anatole Kaletsky’s thoughts [1], which were recently featured on The Corner [2].
I think I agree.
Flex fuel is part of the solution. Higher gas taxes are too [3]. We need to reduce the parasitic rents that go to OPEC, and redirect them to more productive purposes and more free economies.
[1] http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article4258181.ece
[2] http://corner.nationalreview.com/post/?q=M2E0NjA3OWYwNjE4OTU5Yzg0ZTU2YzAzN2NmN2Q1MWI=
[3] http://www.tdaxp.com/archive/2005/04/01/a-modest-geogreen-gas-tax-proposal-5gal-gas.html
July 5th, 2008 at 11:41 am
Anatole Kaletsky makes a very important point in that article which is crucial to understanding why it has been so hard to get more investment in alternate fuels.
It costs less than $10 a barrel to produce oil in Saudi Arabia and the other OPEC countries.
That means that any investment that depends on oil selling for more than $10 a barrel faces the risk that OPEC will cut their prices below the price at which the alternative facility can make money long enough to drive the alternate fuel producer into bankruptcy. That is why my plan (in the comments at [3] ) to tax imports of oil from non NAFTA countries is better than your plan to tax retail gasoline and diesel fuel.
Gasoline is not bad. Gasoline is good. It is how I get to work, to shop and to various other activities that make me happy and help drive the economy. What is bad is sending $1.6 trillion a year to OPEC. If we tax only oil imported from outside of NAFTA, we encourage more fuel production inside NAFTA where market forces of supply and demand are not subverted by government oil companies that benefit more from high prices than from increased production.
For every dollar that we increase the price of imported oil, we reduce the risk to investors that market manipulation can drive them out of business. If you don’t like the idea of allocating money from a NAFTA oil import tax to the cost of NAFTA citizens in other NAFTA countries, use it to buy more F-22s or reducing the income tax rate by 1% in each bracket or buy Play Station 3 for everybody on welfare some other favorite cause.
July 6th, 2008 at 6:04 am
Mark,
Thank you for the defense.
What is the point of continental protectionism wrt oil supplies, though?
If your concern is OPEC countries, why not just tax oil from OPEC countries. If your concern is countries with oil that is cheap to extract, why not just tax oil from those countries?
July 6th, 2008 at 11:49 am
Because of WTO I believe that there are legal complications to imposing taxes on imports from specific countries that might be avoided by a NAFTA oil tax. If nothing else, it pits one group of trans national progressives against another. There is also the fact that most of our oil imports come from Canada and Mexico so there would be a minimal disruption of our economy and theirs. Canada and Mexico are also reasonably market oriented economies that respond to price incentives, unlike much of the lowest cost oil producing regions. I also see one of the most probable short to mid term sources of increased oil production being Canadian oil sands. I want that stuff to be on the inside of the protectionist tax barrier.
However the most important reason for a NAFTA oil tax with revenue directed to pay for NAFTA country immigrants is that I think it is more politically feasible than most other plans. Politics is the art of the possible. Most of the time it is not politically possible to raise taxes on oil or gasoline because the number of voters who will feel the pain is a lot larger than the number of voters who a) think that our oil imports from the financiers of the jihad (as well as a resurgent Russian empire and wacky Hugo) is a problem plus b) who understand enough economics to grasp “supply and demand” plus c) who are willing to bear the pain in the short term for a better future. If there are a large number of voters who see an oil import tax as a way to keep their local emergency room open or keep the quality of their local public schools from declining much further or keep their property taxes from going up much more in order to pay for the illegal immigrants in the local jail, that can add up to a constituency to raise oil imports. Rather than a perfect plan that could never be implemented, I would prefer a pretty good plan that can.
I see the current oil problem as a deliberately caused market failure. Reducing the risk of providing alternatives to the market manipulators is the best way to get the market working again.
What the heck, as long as we are talking about taxes to restore working markets, I’d impose a nickel a pound tax on high fructose corn syrup which would make the stuff economically uncompetitive, freeing up the corn that would otherwise be used to make it and dropping the price of corn from $8 to the $4 to $6 a bushel range which is still insanely high by historical standards but it might keep some feed lots and meat raising farmers in business through the transition period. It would also get high fructose corn syrup out of soda and out of our food which might be a very good thing given current diabetes and obesity rates.
July 6th, 2008 at 11:55 am
Sorry about that. The sentence in the second paragraph should have read:
If there are a large number of voters who see an oil import tax as a way to keep their local emergency room open or keep the quality of their local public schools from declining much further or keep their property taxes from going up much more in order to pay for the illegal immigrants in the local jail, that can add up to a constituency to raise oil import taxes.
The current political consensus seems to favor raising imports, not import taxes. We both seem to want to change that.
July 6th, 2008 at 12:08 pm
Mark in Texas,
It’s surely right that a good idea that’s implemented is preferable to a better one that isn’t. Likewise, it’s true that not doing anything is preferable to implementing a bad idea.
I think that’s the case here.
Risking a trade war in order to fulfill a plan that harms Mexico’s development and lowers the international cost of oil strikes me as really, really dangerous. Especially as the purpose of the plan can be more easily accomplished with raising the gas tax.
Likewise, as a libertarian I’m not normally one for sin taxes, like the one you propose for corn syrup. If you simply want to end market distortions, why not buy out the sugar farmers… Florida has already started on that. [1]
[1] http://www.tdaxp.com/archive/2008/07/03/the-sugar-buyout.html
July 6th, 2008 at 1:01 pm
Who would we be engaging in a trade war with? We are already in a shooting war with some of the oil exporters, or at least their proxies.
What will happen if the oil exporters decide to engage in a trade war with us? They might raise their prices which accomplishes many of the things that you are hoping to achieve with a gasoline tax. They might restrict production which does the same thing. They might lower prices or increase production which deprives them of revenue. Unless they drop prices by more than 75% of today’s price, though, they are not going to make ethanol and Canadian oil sands uneconomical.
Almost all of Mexico’s development problems result from its “culture of corruption” and from its tradition of government control of way too much of the economy. The first has roots going back to Cortez and the second back to at least to Antonio de Santa Ana. Mexico’s development would benefit far more from improved respect for private property and the rule of law than from any conceivable change in its oil industry.
If the international cost of oil drops, that is an immediate benefit to third world countries and will probably save the lives of tens of thousands of people in Gap countries. It also reduces the revenue flowing into OPEC countries unless they boost production.
Raising the retail gasoline tax discourages gasoline consumption but also discourages the development of alternatives to OPEC. Taxing oil imported from outside of NAFTA results in higher gasoline prices until more fuel is produced within NAFTA because the risk of being forced out of business by market manipulation by low cost producers who are outside the control of the various federal agencies that would put people in jail if they conducted their business that way in the US. If additional sources of fuel are developed within NAFTA, I don’t see a problem with the price of motor fuel dropping and the consequent economic improvement that would result.
High fructose corn syrup is not used anywhere outside the United States. It is only economical here because decades of sugar tariffs raised the cost of imported sugar high enough to the point where high fructose corn syrup can compete on price. In the intervening years, sugar beet farmers and sugar cane farmers have adapted to the high sugar price environment. Yes, my first choice would be to eliminate the sugar tariffs, but the senators from every state that grows sugar beets would fight it and call in all their owed favors. Taxing high fructose corn syrup to make it economically uncompetitive actually benefits domestic sugar growers and it does not really hurt corn farmers who are making more money than they ever dreamed was possible. It will adversely affect ADM and Cargil who make corn into HFCS but they are making plenty of money from ethanol and they could probably convert some of their HFCS facilities into ethanol plants.
July 6th, 2008 at 1:47 pm
Mark in Texas,
Thanks for your quick reply.
Are you saying that taxing energy imports from certain countries at a higher rate would not risk a trade war, or that we’re engaging in much more hostile activities to them anyway?
Regarding Mexico, it’s hard to imagine how increasing the natural-resource-export-dependency of that country would be a good thing. It’s very easy to imagine how it would be a bad thing.
You’re right on the short-term impact of a lower world gas price. The systemic effect, however, would be to artifically increase the energy-dependence of large developing economies such as India and China.
No more so than taxing non-NAFTA oil at a higher rate.
As the logical point behind ethanol subsidies is to build an economy of scale that allows us to switch over to sugar (or maybe someday, switchgrass) ethanol, empowering the domestic sugar lobby even more would seem to be counter-productive.
July 6th, 2008 at 5:14 pm
I am saying that even if oil exporting countries were to decide to engage in a trade war with us, their options are limited, most of them are harder on them than they are on us and that most of the things that they could do to us are no worse than what they are doing now.
WRT Mexico, when you are talking about a country that has had to export the poorest 10% of its population to the United States in order to avoid a popular revolution and which depends heavily on the remittances of those emigrants to support its economy, worrying about increased natural-resource-export-dependency is kind of like worrying that a cancer patient is getting too much radiation exposure from X-rays. They have more important things to worry about. If Mexico had more respect for private property and the rule of law, their economy would grow enough that oil exports would be a much smaller percentage of their GDP. Why is it that Mexicans who cannot make a living in Mexico are so much more economically successful in the US? If the Mexicans could make the same use of their human resources in Mexico, they would not have to worry about how much of their economy depends on exporting natural resources.
Look at a NAFTA oil import tax like the premium that Americans pay for prescription drugs. New Drugs are developed because there is an American market where drug companies can recoup their development costs. The rest of the world gets to be free riders. So far this has worked. If the free rider problem becomes too great, you can expect that there will not be a lot of new drugs being developed. If India and China build infrastructure and develop their economies with cheaper oil thanks to a NAFTA oil import tax, that is a good thing. If developments within the NAFTA area cause a dramatic change in the supply/demand relation which causes the price of oil to drop like a rock, that will also be good for India and China as well as every country that imports oil.
The US domestic sugar industry is already pretty well empowered. Senators from at least five states (10% of the Senate) which grow sugar beets are not going to vote to put their sugar beet producers and processors out of business. I’d like to see the tariffs on sugar imports eliminated. If you know of some politically feasible way that this could happen, I would love to hear of it. I propose a five cent a pound tax on high fructose corn syrup as a politically difficult but achievable way to make more corn available for ethanol and animal feed since the political factors that created a US market for high fructose corn syrup are no longer quite so strong at this moment. If you allocate the revenue from this tax to diabetes and obesity research you will pick up some more political support.