From: Lee Corbin (lcorbin@tsoft.com)
Date: Tue Feb 04 2003 - 23:55:52 MST
Matt had written
> Government spending is a (very big) issue that is separate from the
> issue of how best to raise the money to run government. Would you be
> better or worse off if your oil heating bill increased by $200 next
> winter AND you also got an additional $200 in your tax rebate check?
> That is the question I am asking.
and Rafal replies
> ### For me the answer would be easy - I'll take the tax rebate, and use it
> to upgrade my furnace. Next year I would still get the tax rebate, but the
> heating bill would be no longer 200$ higher.
Doesn't this miss the point of the question? The idea is that you
are financially no better off---the effects precisely cancel each
other. Therefore, if it would be wise for you to invest in upgrading
your furnace, it would also be if you had simply had to pay the same
the other way.
I consider Matt's question perplexing. I infer that Matt expects the
government to get the $200 from the oil producers by placing a tariff
on oil. I don't see how this directly relates to his earlier scheme:
> 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 (*)
That is, if everyone were to obtain such a rebate from the government,
then no part of his scheme would actually be placed into operation;
though everyone would pay more for oil, it would be exactly canceled
by the rebate. So instead, where he must be going is that the $200
is not *directly* related---rather it is some general dividend from
the government that would *not* depend on how much oil you used.
All right, so trying to follow what would transpire, his steps (ii)
and (iii) kick in. People would start to use less oil, encouraging
the processes of (iii) and (iv). But hold it! Once less oil is
consumed, the revenue from the tariff falls, and so does the (in
effect) $200 per capita rebate.
I'm just guessing, but it still seems like people are getting their
ends accomplished in a more expensive way. That is, oil is cheaper
that the alternatives, and what the scheme does is to make it *appear*
more expensive. No matter how you slice it, it seems that the society
gets less mileage for its buck.
To use the argumentum ad absurdum (or in this case, perhaps a better
phrase would be "taking the argument to an extreme) to illustrate,
the government could place such a high tariff on the oil that
practically none of it was purchased. Then the whole society
just has to make due with more costly substitutes, lowering the
whole standard of living. This whole discussion may be nothing
more than an illustration of TANSTAAFL.
Lee
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