Tuesday, April 15, 2008

McCain "Economy, shemconomy"

John McCain has released a few of his planned economic policies this week. As reflective of his previous statement "I know a lot less about economics than I do about military issues," these changes will do a lot of harm our economy, especially long term. His policies are - update the tax code to something simpler, but leave the old tax code in place if you would prefer to use it; create a "gas tax holiday" for the entire summer; and offer government backed 30 year mortgages to at risk borrowers, with applications available at the post office.

That last one may be something helpful, he is vague on the details though so I can't say for sure. We do need real help on the mortgage front, but I am wary about the government arbitrarily buying back mortgages. I need to look at this proposal more closely, should more details be released, and compare them with the other candidates' before I can make more detailed remarks.

The gas tax holiday has to be the most ridiculous proposal I have heard in a while. The problem with fuel prices isn't the $0.18 added to unleaded to pay for road repairs. Repairs that are used (or should be) to keep bridges from collapsing for example. This will save the average driver less than the cost of one tank of gas over the three months he is proposing (3 months, 15 gallons per week, $3.50 per gallon). The problem is the $1.00+ hike created by an oil man's war in the Middle East. The instability we created there reduced output and encouraged speculators. Meanwhile, encouraged to "keep spending" here, our consumption has gone up. Bush's unwillingness to push for tougher CAFE standards until Congress just recently acted, plus his unwillingness to encourage funding in new energy sources has also helped raise demand. The last thing we need to deal with $114 oil is an 18 cent per gallon encouragement to use more. What we need is real encouragement to consume less or at the very least, more wisely. We need to stop using oil and natural gas for electricity when infinite (at least for the next several million years) energy is beamed to us 11-13 hours a day. But pushing a policy like that could hurt the Exxon's of the world who are making $41 billion off of $100+ oil.

The change to the tax code has to be almost as idiotic. So now, should his plan go through, not only would we have the convoluted craziness of the current tax code, where someone making billions of dollars can pay less in taxes than his secretary making $30-$50k, but we will also have yet another (lets call it 1040EZ-R) form that may or may not allow us to pay less. In order to figure out which one is the best, we will still have to pay tax professionals hundreds of dollars while the tax code adds five more books. "Americans do not resent paying their rightful share of taxes -- what they do resent is being subjected to thousands of pages of needless and often irrational rules and demands." This is why we will offer one more random form for you to compare with the other arcane rules and demands.


btu said...

john j, the current price of oil should answer the prayers of people who want to see more high miles-per-gallon cars on the road.

If oil were $35 a barrel -- which it would be if there were no barriers to exploration & production -- drivers would have no incentive to think about the amount of gas guzzled by their vehicles. Now we do.

Surprise, surprise, Detroit and the other auto makers around the world are offering hybrids and high mpg cars. Why? Because a growing number of BUYERS want them.

CARE rules and regulations mean nothing. There is a huge used-car market in the US. If a gas-guzzler is unwanted, it will sell at a big discount in the used-car market.

The buyer asks himself whether it makes more sense to pay a HIGH up-front price to buy a Toyota Prius to save on gas, OR pay a LOW price to buy a car that uses more gas.

Which is more expensive to own and operate? Bad news for greenies. The low-priced gas-guzzler costs less overall.

Why is there squawking about high market prices of crude oil, and hence, gasoline, when for years lefty liberals have been screaming for high gas taxes to create the same experience at the gas pump?

Here's some news you can use:

The pump price of gasoline breaks down as follows:

Crude oil = 55%
Refining = 20%
Distribution & Marketing = 5%
Taxes = 20%

McCain's idea of a gas tax holiday is silly. Pump prices would not drop as a result. If federal taxes were suspended, the price might fall for a few days, but it would creep back to whatever level the market would bear. In fact, I'd say that suspending the federal tax would encourage traders to bid more for crude, which would boost the gasoline price, offsetting the wished-for tax savings. Meanwhile, there are federal excise taxes, state excise taxes and sales taxes included in the price of gasoline.

The path to lower gasoline prices requires two steps: Open up all US oil reserves to drillers AND build more refineries in the US.

Moreover, you have succumbed to the usual liberal orthodoxy when you claim:

"We need to stop using oil and natural gas for electricity when infinite (at least for the next several million years) energy is beamed to us 11-13 hours a day."

You imply that energy is free, which it never is. The same can be said about oil. It practically bubbles out of the ground in the middle east. Until 1960, when OPEC was formed, the cost of a barrel of oil was about $2. In other words, like sunlight, the raw form of the energy was practically free.

In the case of sunlight, it IS free. But by the time it's converted into usable electricity, it has become expensive.

Even if a fully competitive and commercially viable energy-conversion technology for solar existed, buyers of that technology would bid up the price to reflect all competitive factors.

Thus, no matter how efficient solar becomes, it will remain in a price war with combustion technologies. The solar people will seek top-dollar for their products, and the price will always reflect the price of alternative energy sources. Of course that means solar must actually reach a state of efficiency where it IS competitive with combustion. That has not happened -- yet.

John J. said...

Ok, it looks like you have three points with a bunch of unsubstantiated numbers thrown in for fun.
1)People don't conserve oil because it is still relatively inexpensive. I agree. However, especially when it comes to your characterizations of hybrids, you're tweaking the numbers falsely, which misleads many potential buyers. Although my driving habits may be a poor example, let's just use my fuel expenses for the past year. I get, on average, 26 mpg (advertised 32...) over the past year I spent about $1300. The Prius gets about 50 mpg. This means I could have saved around $600-$650 last year. Gas prices are steadily going up, which means that number will go up over the next year or two. All told, if I had a Prius, over the average life of ownership (5 years), I could save $3000 - $3500 on gas alone. The MSRP is around $22,000. This makes it, just based n these numbers, cheaper than all of the most popular vehicles and all but three of the top 10 most popular sedans. It's not cheaper than a crappy used car, no, but those have their own hidden expenses.

2) McCain's gas tax holiday is a bad idea. That's what I said; I couldn't agree more.

3) Solar is too expensive. True, but only in the short (1-2 year) term. Right now, with the technology we have, solar is $0.30/kWh - standard coal, because the plants already exist, is $0.05. Since coal is a finite resource (not to mention the oil used to transport it across the country), that price is guaranteed to go up. Meanwhile, as solar technology improves it's cost will go down, significantly if other tech products are any indication. In fact, in some states, solar already is cheaper than coal.

You also seem to be trying to imply that fossil fuels are effectively infinite. This is patently false. According to the USGS in 2000, we may have about 3 trillion barrels of oil available, with maybe another 3 trillion currently "unrecoverable". In 2007 alone, we used more than 82 million barrels per day. That number is going up at a pretty steep curve, especially with the growth of China and India.

Solar power, however, is effectively infinite. As long as the sun still shines (a couple billion years), we will have solar power . Once the technology is in place, the only expenses are maintenance. You don't have to buy more sunlight, you don't have to transport it, you don't have to refine it.

Batocchio said...

John J., you might enjoy this post, and more importantly, the piece it links.

John J. said...

Great link Batocchio, thanks for giving me the heads up.

btu said...

john j, you claim that the MSRP for a Prius is $22,000. They've been selling for well over MSRP.

Car dealers, like oil traders, sell their product for as much as possible. Some cars now sell for discounts. Others, like the Prius, for premiums.

In any case, even if Toyota devoted the whole company to producing the Prius, the number of cars produced would be unnoticed in the world's entire fleet of vehicles.

The key point remains, however. The price of the vehicle reflects its low gas consumption. Hence, buyers pay a premium up-front to avoid buying gas. But you want to pretend that something of value -- low gas consumption -- is available at no added cost. It's not.

If the