Ambrya wrote:
gbaji wrote:
Can we all at least agree that "raising taxes on the oil industry so we can fund alternatives" will do *nothing* to lower prices at the pump? And will arguably increase them over time, and perhaps lead to gas shortages like we had in the late 70s?
The shortages in the 70s were caused by the price capping on gasoline, not taxation on the oil companies. That's the way economics works--price ceilings result in shortages, price floors result in surplus. Trying to intimate that a tax on the oil industry would result in shortages indicates a complete ignorance of basic high-school level economics.
I'll answer Joph's challenge by addressing this point.
You're showing a nice academic understanding, but aren't looking beyond the textbook answers. Ask yourself *why* a price ceiling leads to shortages and price floors lead to surplus? The answer is simple: profit potential. If an industry believes that they can make more money by increasing supply of their product, they'll do it. If they believe that they wont (or will lose money in the long term), they'll reduce supply.
It's the profitability of the product that determines how actively an industry generates supply. The price floor/ceiling dynamic just happens to artificially cause those effects, but they don't themselves make the supply greater. They simply create the conditions in which a greater supply is beneficial to the industry.
When you tax a good heavily you *also* will ultimately reduce supply. Because the overhead cost to make (refine and ship in this case) the good is the same, but the profit per unit is lower (as a percentage of cost). Thus, the producers of said good have less incentive to increase production to meet demand. They'll do it to a point, and then stop. Obviously, if the good is particularly inflexible, they'll continue to increase supply and simply pass the cost on to consumers.
My point (and why I said "perhaps lead to a gas shortage") is that we can guarantee that the first response of the oil companies to such a windfall tax will be to raise prices. They have to in order to maintain their profit ratio. That's automatic. I don't think anyone's debating that. And if the flexibility of gasoline ensures that the consumers keep buying at approximately the same rate, that's all that will happen. However, if we hit the point at which consumers will decrease their usages of gas (which, oddly, is exactly what the Dems are hoping to accomplish) that signals to the producers of gasoline that they will reach a point of diminishing returns if they keep increasing the price of gas. The result of which is that they'll start moderating the supply in order to maximize profits.
It's one of the more esoteric components of the supply/demand dynamic, but one that's pretty obvious once you think about it. Once that balance point at which the increased cost of a good is offset by decreased demand (accounting for increased production costs per unit as total volume increases of course), you hit a point where the industry stops producing more of their product. If that value is lower then what is "needed" (in the case of a commodity like gasoline), this can lead to shortages. Because while the industry will react to the "average" need for their product, not every region and every day or month is exactly "average", so shortages may occur for periods of time.
It's a cost effective issue. If the break even point is even close to the shortage point, we may hit brief periods of shortage. I certainly can't say this will happen, but it's a possibility that can occur as a result of high enough taxes on the industry. Especially taxes aimed to punish the industry.
The main issue is that this is just a really bad idea all the way around. There's no positive reason for imposing these taxes, yet that seems to be all the Dems can talk about lately. It's baffling really, both because they say this, and because so many people out there don't realize how horrible of an idea it is...