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Why we need to keep gas above $4

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Why we need to keep gas above $4

by Vlad Yazvinski

A new gasoline tax that ensured high prices would accelerate the move toward fuel-efficient vehicles and provide enough revenue to allow a cut in corporate taxes.

An addiction that can be broken

Many economists have argued for years that even a doubling or tripling of oil prices would have little effect on demand because of that demand's inelasticity. U.S. consumers are supposedly so addicted to gas-guzzling trucks and SUVs that pretty much every politician and economist out there has ridiculed suggestions that demand could decline.

One might argue that this notion was supported by hard data. Even when oil prices doubled and tripled from their multiyear lows of the early 2000s, the growth in demand did not really slow. But contrary to the conventional beliefs, the "unthinkable" finally happened this year: Sales of cars overtook truck and SUV sales, and gasoline demand faltered.

According to the data from the Energy Information Administration, gasoline demand in the U.S. has been running consistently below last year's levels. Though it is difficult to pinpoint the exact price level that triggered this seismic change, the demand for the supposedly inelastic product started to decline somewhere around $4 a gallon.

One might say it wasn't just the price at the pump but rather combination of several economic woes that has led consumers to cut back. I agree, but only to a point. I don't think it was by accident that the sectors that have declined the most recently -- auto manufacturers, airlines, convenience stores, casinos, hotels, car rental companies, restaurants, etc. -- have one ingredient in common: They are particularly affected by high energy prices.

So instead of debating the causes of today's oil prices -- peak oil supply, demand in China or whatever -- we should thank Wall Street and Ben Bernanke and company at the Federal Reserve for finally showing us how this oil dilemma could be solved.

I think it could be accomplished only by making sure the prices for the most widely used petroleum product, gasoline, never again decline below the level that seems to have triggered change, somewhere around $4 a gallon. Raising fuel taxes would likely make things better, not worse. Before sending me an "I hate taxes" e-mail, consider instead sending a letter to your politician asking him or her to raise taxes.

Take a look at the facts: Damage to the most energy-sensitive sectors has been done already, and Americans are already paying a hidden oil tax. But instead sending of our money to Washington, we are now sending it to the other governments around the world, and it's not a small bill. In 2007, the U.S. petroleum import bill came to an astounding $331 billion. In the first five months of 2008, the total was $191 billion.

The upside of a higher gas tax

Yes, even though I believe government intervention is usually a bad thing, establishing a variable gasoline tax that ensured gasoline never declined below $4 a gallon could alter the dynamics of the global economy and help the U.S. maintain its economic leadership status for years to come.

Economist Gregory Mankiw has estimated a $1 tax increase on gasoline could raise $100 billion in revenue that could (and should) be used to reduce the ridiculously high U.S. corporate tax rate. That, in turn, could lead to more jobs and better pay in virtually all domestic industries.

A variable tax on gasoline would accomplish another important objective: Knowing for certain that gas prices would never drop back to $2 a gallon, consumers and manufacturers would rapidly accelerate the shift to more-fuel-efficient vehicles. This would reduce long-term gasoline-demand expectations and could lead to lower short-term energy prices for the struggling energy-sensitive sectors of the U.S. economy.

During this election year, I don't expect any politicians will have enough courage to propose raising gas taxes. But maybe if plenty of us ask, they'll at least listen.

http://articles.moneycentral.msn.com/Inves...al20080722.aspx


"Credibility in immigration policy can be summed up in one sentence: Those who should get in, get in; those who should be kept out, are kept out; and those who should not be here will be required to leave."

"...for the system to be credible, people actually have to be deported at the end of the process."

US Congresswoman Barbara Jordan (D-TX)

Testimony to the House Immigration Subcommittee, February 24, 1995

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Who are you and what have you done to peejay? :o

I'll be comfortably retired well before my job in the US oil industry is obsolete. A cut in US energy consumpsion just cuts the billions of US dollars that wind up in overseas economies and in the hands of people that hate us. Not to mention we would no longer have to meddle in volitile foreign oil producing regions to protect our vital interests. Do you really think we are in Iraq to defend "freedom and democracy"? You aren't that naive are you?

Who are you and what have you done to peejay? :o

T. Boone Pickens bought his VJ account? :o

I used to work for T. Boone for many years while employed at Mesa Petroleum. He's a swell guy.


"Credibility in immigration policy can be summed up in one sentence: Those who should get in, get in; those who should be kept out, are kept out; and those who should not be here will be required to leave."

"...for the system to be credible, people actually have to be deported at the end of the process."

US Congresswoman Barbara Jordan (D-TX)

Testimony to the House Immigration Subcommittee, February 24, 1995

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T. Boone Pickens bought his VJ account? :o

I used to work for T. Boone for many years while employed at Mesa Petroleum. He's a swell guy.

Very cool. So...you think he's a nut for saying that we can't drill ourselves out of this?

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T. Boone Pickens bought his VJ account? :o

I used to work for T. Boone for many years while employed at Mesa Petroleum. He's a swell guy.

Very cool. So...you think he's a nut for saying that we can't drill ourselves out of this?

I've said the same thing in the past. But that doesn't mean the US should not drill for energy in our own country. Why keep sending billions and billions of dollars out of our economy?

High energy prices will continue whether we drill or not. What I stated in our last discussion is that the American people can decide if they want to ride around in Hummers, live in sprawling suburbs 100 miles from work, and bankrupt themselves. We don't need nanny government telling us what to do. It's called "freedom".

BTW my wife drives a Honda Civic and I drive a Subaru Forester. They get 38mpg and 29mpg highway mileage respectively. I made the choice a long time ago to drive the most fuel efficient vehicle to do what I need them to do. I don't need the government to tell me what to do.

If gas prices stay high enough other people will follow suit. They already are along with the vehicle manufacturers. All without government mandates.


"Credibility in immigration policy can be summed up in one sentence: Those who should get in, get in; those who should be kept out, are kept out; and those who should not be here will be required to leave."

"...for the system to be credible, people actually have to be deported at the end of the process."

US Congresswoman Barbara Jordan (D-TX)

Testimony to the House Immigration Subcommittee, February 24, 1995

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T. Boone Pickens bought his VJ account? :o

I used to work for T. Boone for many years while employed at Mesa Petroleum. He's a swell guy.

Very cool. So...you think he's a nut for saying that we can't drill ourselves out of this?

I've said the same thing in the past. But that doesn't mean the US should not drill for energy in our own country. Why keep sending billions and billions of dollars out of our economy?

High energy prices will continue whether we drill or not. What I stated in our last discussion is that the American people can decide if they want to ride around in Hummers, live in sprawling suburbs 100 miles from work, and bankrupt themselves. We don't need nanny government telling us what to do. It's called "freedom".

BTW my wife drives a Honda Civic and I drive a Subaru Forester. They get 38mpg and 29mpg highway mileage respectively. I made the choice a long time ago to drive the most fuel efficient vehicle to do what I need them to do. I don't need the government to tell me what to do.

If gas prices stay high enough other people will follow suit. They already are along with the vehicle manufacturers. All without government mandates.

If you think tighter regulations on the auto industry is taking away our freedoms than you are nuts.

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