From: Lee Corbin (lcorbin@tsoft.com)
Date: Thu Jan 30 2003 - 21:06:00 MST
Matthew writes
> I have just joined extropians and I'm pleasantly surprised
> by the range of topics here.
Welcome!
> I hope I'm not too off topic by contributing to this thread but
> this is one of my favorite subjects...
Hardly. This is so totally "on-thread" I can't believe it.
> Anyhow, about the price of oil, one big factor in price is taxes. No surprise
> there. However I suggest that the relationship might be a little different
> than one might first assume. Huh? Surely if you tax oil, the price goes up.
> Perhaps, perhaps not. Here is my reasoning:
>
> i. Tax oil *at the barrel* (i.e. not at the pump)
> ii. Prices of oil based products; fuel, plastics, etc. naturally rise.
> 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 (*)
> (*) Of course they could increase prices but remember there
> really is a free market at work in the oil arena. If one
> producer increases price they are likely to see market share fall.
That sounds how the equilibrium should work, theoretically.
One has to ask, why didn't they drop the prices a little to
begin with, and sell more? The answer should be, "because
it would have been slightly less profitable."
Okay, so far you have increased the tax on oil, but the
key has to be in your step (vi). It's not clear that
the oil producers *can* maintain the same revenue. Consider
the reductio ad absurdum: if an incredibly heavy tax were
applied, then production would have to stop altogether.
So I don't understand (vi), because I don't see why the oil
producers wouldn't have increased production in the first place,
given that they do have at their disposal your option (vi) of
maintaining the same revenue at lower price.
> Now, assume for a minute that the increased tax revenues taken
> in by taxing the oil are used to displace some other tax burden
> (yes, yes, an unlikely scenario). Then:
>
> a. The nation sees no net change in the tax burden
> b. The nation sees a net decrease in the price of oil
> c. The oil producing country has a little less income from oil
Now you are saying that the "oil producing country" is
not the same as the hypothetical country taxing and
consuming the oil. But if we are talking pure economics
here, why should that matter? You have also, by taking
this route, introduced the possibility of international
competition: by taxing the incoming oil, the consuming
country's products may be less competitive over all.
In short, I've gotten very confused! ;-) Mind starting
over?
> The net effect: a reduction in the price of oil from
> the nation's perspective. I.e. by taxing crude oil
> an oil-importing country can trim some of the
> windfall profits from the oil exporting country.
"Windfall profits *going* to the oil exporting country"
I take you to mean. But "windfall profits" don't
theoretically take place because:
> For the above reasoning I am not considering transient effects. Transient
> effects and unintended consequences might include things like decreased
> economic activity, political unrest, me having to sell my beloved gas
> guzzling SUV etc...
>
> A fun thought experiment eh?
Yes, quite. Such thought experiments may allow me to know
how all this works! Thanks.
> The best evidence in support of this argument are some of
> the strong statements the oil producing countries (especially
> OPEC) make against consumer countries taxing oil.
>
> Matt
Yes, of course they would make such statements. But isn't
the reductio argument above enough to see why? Western
governments *could* simply tax incoming oil so greatly
that it can't be imported at all except for those industries
that use it in only very small quantities.
Lee
This archive was generated by hypermail 2.1.5 : Sun Feb 02 2003 - 21:26:04 MST