From: Lee Corbin (lcorbin@tsoft.com)
Date: Fri Jan 31 2003 - 23:32:04 MST
Matt writes
> i. Tax oil *at the barrel* (i.e. not at the pump)
All right, the picture you're painting is becoming a little clearer.
You suggest that the oil-importing company tax oil before it's
refined, on its way into the consuming country. (Let's say that
for the sake of argument, it's refined in the destination country.)
You also claim that the oil-producing countries enjoy "windfall
profits". I'll agree that Rafal's bananas weren't a very good
example, but to me, the only possibility of an "undeserved", or
"windfall" profit is one that obtains upon collusion, i.e., not
out of the action of a free market. Indeed, OPEC has tried to
obtain precisely these profits. So it's unclear to me whether
or not you agree on this restricted meaning of "windfall".
> We know windfall profits take place just by taking a look at
> the money being made by the oil producing nations from oil
> sales. That money is not the result of human labour: [Labor:
> Brain power and or muscle power applied to some productive end.]
It's evident that you see these profits as undeserved. But
capitalism and free markets, of course, aren't about that at
all. They're about sending signals: the signal here is "FIND
AND DEVELOP OIL OR CHEAP REPLACEMENTS!!". But maximal progress
always appears to be attended by maximal freedom: the oil
producers should have the soul motive of making as much money
as they can, up to but not including collusion. For example,
you'll probably agree that if oil had flowed to the world from
the Middle East the way it should have, our civilization would
be much progressed from what it is now.
But whatever; to understand the market mechanics, I'll continue
to follow your intriguing line of thought:
> ii. Prices of oil based products; fuel, plastics, etc. naturally rise.
So, though it's not directly relevant, the whole society is placed
on a slightly slower exponential growth curve.
> iii. Alternatives to oil based products appear a little
> cheaper. I.e. wood or metal instead of plastic, bicycling
> instead of driving etc.
> iv. Some consumption shifts away from oil to alternatives
> v. Demand for oil decreases slightly
> vi. To maintain revenues oil producers drop prices a little (*)
Yes, say that the tax increases were infinitesimal, and so your
price drop here is infinitesimal (by looking at the derivatives,
we might see the cause/effect relationship more easily). But
did you say what happened to the consuming economy? Does (vi)
result in as much oil as used previously or not? I guess that
either way, your point is that the oil producing countries get
less money.
Now if the *level* of oil consumption returns to its previous
level, then no economic harm has been done. Money has simply
gone out of the oil-producers' pockets into those of the taxing
government's. But I can't quite believe that the equilibrium
would work like that---it seems to me that an almost Le Chatelier's
effect kicks in here, and less oil would be consumed. That would
be bad, naturally.
[Note for people who don't understand the first thing about
economics: you decrease total wealth whenever you inhibit
the free flow of trade or capital.]
I must stop here to avoid too long a post.
Lee
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