FB Economy 101, Part Deux

Anonymized FB'r: So what you are saying is that because of all of these regulations we have in place, we have some of the most expensive gas in the world... oh wait...

There is no need to give money to the worlds richest companies - they are already doin their damnedest to explore, refine and produce, they don't need help. Besides, we are *exporting* oil. So we don't have a supply problem.

The economy is doing better now than it has been in the past few years. One cannot claim we are 'sabotaging the economy' given the economic facts at hand. Please present evidence.

Gay_Cynic: We have fuel costs that we have some elements of control over is point the first. We are not entirely helpless at the mercy of external players. Whether or not we wish to exercise the controls we clearly have is up to us and our elected representatives.

I agree there is no need to give money to some of the worlds wealthiest companies. However, when we *stop* (as opposed to just say "let's not give them more, faster"), it's a pretty good bet that the response will be a shrug by executives and an increase in the prices they charge down the line at least equivalent to the "subsidy" that was terminated.

Nobody just passively sits and eats bright shiny new costs or reduced revenues. So, we cut off the "subsidies". Yay. At the point in the supply chain we choose to cut a long-extant subsidy, this has the effect of a new cost. That entity jacks up their prices to cover this new "cost" interfering with their revenue stream...and the next one downstream, noting the exciting new price of goods they are buying...does the same...until we come to the hapless end-user.

The problem with fuel/energy pricing is that it's a fundamental cost. In other words, when fuel prices go up for end users, the operating costs for everyone from truck drivers to airlines to Metro increase - followed shortly by inflationary activity as everything downstream adjusts. When it suddenly costs more to ship a 100lbs of wheat or Billy Joe Bob the thick-necked receptionist to their respective destinations, it rather shortly costs the bakery more to get flour or the employer to get Billy Joe Bob to show up (as Billy Joe Bob can do math and figure out that losing money to go play receptionist is a bad deal)...

In short, stable or declining energy prices tend to support economic growth. Increasing energy prices tend to suck up capital that could be used to hire employees, do R&D, or just get some flour at a decent price to make a loaf of bread.

Then, just to make it even more special, as energy prices (and as a result operating costs for both individuals and businesses) increase...the odds of compensating salary increases diminish due to reduced profits/earnings.

For energy prices, insert any other *fundamental* cost. Water would be another variable I'd describe as a fundamental cost.

So sure. Go ahead and whack the long-extant subsidies. Then watch the fun.

Anonymized FB'r: That sounds like fear tactics to me. Give me the data.

Gay_Cynic: For a *quick* skim, see below. Happily, Google is a resource available to all.

Basic economics are by definition not fear tactics.

WA Tax #: www.washingtongasprices.com

Fed Tax: http://www.oregon.gov/

Economics: http://cdixon.org/2009/10/16/whats-the-relationship-between-cost-and-price/

Oil & Transport Costs: http://www.marad.dot.gov/documents/Modal_Shift_Study_-_Technical_Report.pdf

Side Article: www.dailymarkets.com/economy/2011/04/27/gasoline-taxes-vs-exxon-profit-per-gallon/

Anonymized FB'r: So why gas prices? And why now? Why not cut defense spending, and *increase* oil subsidies?

Really, the meta question is: what is your *actual* end goal. Talking about oil subsidies is talking about a symptom, not the problem.

Gay_Cynic: Why set ourselves up for a yet worse problem "x" number of years down the road? (re increasing subsidies)

Eventually, oil subsidies (and much other federal spending) need to end...simply because they are not affordable. HOWEVER, "all at once" may not be the ideal strategy in our current economy. I would suggest that a gradual shift to a balanced federal budget is probably the best approach for our nation, but have my doubts (based on the number of political oxen that would need to be gored in even a gradual shift) about political feasibility.

I would suggest that a guiding principal might be"even if it feels good, do nothing in passion or that looks to make things worse". And my comment on gas prices (equally applicable to diesel, heating oil, etc) is based on "whatever you do, don't make things worse". I can get behind backing off that particular set of subsidies *a little bit at a time* so the economy has time to adjust, and hopefully, improved alternative energy options can emerge. Flinging ourselves over the cliff for either funsies or on some philosophical jihad seems...ill-advised.

The law of unintended consequences exists *everywhere*, but in my opinion...is writ in 30' tall letters of fire across the sky when it comes to economic matters. Caution is thus a much greater virtue than showmanship.

Anonymized FB'r: I would assume we would back off subsidies gradually (if they are significant compares to the revenues of the companies affected.) After all, Congress would have to approve such things.

Gay_Cynic: Regrettably, the current proposal (and let us be gracious, and assume that political brinksmanship and "make the other guy look bad" are significant motivators in this) does not appear to endorse gradualism. And $4 billion isn't peanuts for anyone, I don't think. Nor is this new...

http://www.cbsnews.com/obama-seeks-halt-to-tax-subsidies-for-oil-industry/

And...a little bit ago our Energy Secretary was advocating euro level gas prices to force alternative energy acceptance (of course, cynic that I am..."at what cost" is my instinctive response..)

http://news.yahoo.com/steven-chu-backpedals-advocacy-european-level-gas-prices-160100594.html

Anonymized FB'r: Obviously shocking the economy with doubled gas prices (Euro equivalent) but phasing out the subsidies seems good. I'd take a measured approach. Now what would be really keen would be to phase them our and *not* re-spend the money. Lower our taxes instead. But, fat chance of that happening either :)

Le Sigh. Progress, I suppose.