Economic Suicide

BusinessWeek is a fine magazine, and many of its articles are useful discussions and analyses of significant business trends and issues. They do, however, sometimes play too much to one point of view, and this was the case in a recent book review. In their review of Iain Carson and Vijay Vaitheeswaran’s screeding “Zoom”, BW properly notes the stridently leftist tone of the book, but fails to challenge the over-riding assumptions of the Eco-Left. In so doing, BusinessWeek shows its own bias on the issue. What I found surprising, is that people so well-grounded in business should be so unrealistic about what causes the present condition, and what will be needed to resolve it.

Let’s start with one of the pet assumptions of the Eco-Left; that to improve things environmentally, it is necessary and overdue for the United States government to levy hefty taxes on oil products in the same way that Europe does. At this point I direct the reader to observe the names of Zoom’s authors; rather European, which is to say that they have the myopic focus of the European. If it makes sense to challenge American bias when addressing global issues, as I think is correct, then it just makes sense to be wary of assuming that the Euros have it right. I do not, in fact, see anything to indicate that high gas taxes have done anything – at all – to improve ecology or business conditions in Europe. And I see compelling reasons why such a move here in the United States would be catastrophic.

You see, the conventional wisdom for many years, was that Americans were in love with cheap gas and would not tolerate a rise in price above a certain level. For many years, it was assumed that if gas crossed a dollar a gallon, we would demand alternative sources. Then it was two dollars, then three … now gas goes as high as four bucks a gallon in certain places and times, and demand remains very high. Sales of SUVs and trucks remain strong, with no sign that anyone plans to give up their way of life in order to save a little bit. So, on the evidence from history, a tax on gas will not encourage people to support different energy sources. More on that in a bit, but for now it’s important to know that anyone pushing a tax is doing so for reasons that have nothing to do with the environment or a responsible government. Next, it must be understood that whenever a tax is assessed and collected, the money from that tax goes into the general revenues, and will always be so. Therefore, any politician who tells you that a gas tax will be used to fund ecological programs or alternative energy sources is lying to you. Even if such programs are set up and funded by the government, they will be paid from general funds, and there is no direct connection between the tax collected on gasoline and the programs enacted by Congress. Again, history shows us that Congress spends money exactly as it pleases, and programs will be funded or neglected without regard to how much is being taken at the pump from the people.

It must also be understood, that if Congress sets up additional taxes on gasoline, that Congress will have no interest whatsoever on reducing demand on gasoline, because reducing demand would have the effect of reducing revenues, and if that happens you can be sure Congress’ appetite for that revenue would drive it to seek that money from somewhere else. Look at the taxes on cigarettes, as an example. The sole effect of an additional tax on gasoline that you can count on, is that this tax would become permanent, and if gasoline consumption were reduced, the tax would expand to collect money from some other activity, regardless of the nature of that activity. The reader will note that the United States government has never reduced, let alone abolished, the federal tax on gasoline that already exists, even in times of crisis, so there is no chance whatsoever that a higher tax would be temporary or limited to gasoline only.

It should embarrassing enough to BW that their staff ignored the evidence of History, but they even display an appalling ignorance of Economics. It is an inexorable law of Economics that a tax on a commodity makes that commodity more expensive, without adding anything to the value or supply of that commodity, which therefore increases costs across the spectrum, lowering productivity and economic strength in every sector of the nation’s economy. Given the ubiquitous presence of petroleum products in every industry and business type in the United States, a heightened national tax on gasoline would undeniably and immediately be inflationary, lower productivity and consumer confidence, and inevitably create recessionary conditions, as companies scaled back on expenditures to adjust for the increased costs of operations. This in turn slows down hiring and lowers expectations, as capital expenditures would drop precipitously and the sharp fall in consumer confidence would kill demand. How do I know this? Because this is exactly what happened during the Carter Administration, when similar efforts were undertaken; conditions came to exist which had never existed before or since, including double-digit Inflation rates at the same times as double-digit Unemployment. It would be, to put things bluntly, the worst possible economic decision the Congress could make, with utterly disastrous implications for future economic opportunities. It is a decision which no sane steward of the public trust could countenance.

There may yet be a few naïve EcoLeftists crying in favor of these draconian measures, crying out like Chicken Little that the sky is falling, that we must abandon oil even at these horrendous costs in order to save our future. But such claims, once again, fail to stand up to scrutiny. In the first place, those critics of American policy often complain that Americans fail to think about the rest of the world, but the notion that an American gas tax will do anything for the world at large shows an even more U.S.-centric fallacy. There is no chance, at all, that any industrial nation will lower its own consumption in response to a U.S. tax on gasoline. If such a tax were actually to lower U.S. consumption, there would be an inevitable rise in consumption by India, China, and even some of those much-idolized European nations, as the thirst for Oil is in no way abated by a tax. Second, just as the Kyoto accords were in reality nothing more than an extortion attempt, to cripple the United States’ economy so rival nations could gain on them, so too a higher U.S. gas tax would only benefit foreign rivals, many of whom have far lower standards on emissions and fuel economy than does the United States.

But in the end, the Eco-Left simply does not understand what is necessary for Progress to occur. It is unfashionable these days to ever say anything good about Oil, but if you go back far enough, you will find that Oil was the solution once to a serious global problem. That problem was a world which ran on coal. Coal was inexpensive, easy to use, and everywhere. Trouble is, coal was dirty, and many cities found their buildings coated in soot and their people choking on coal dust. Oil was the solution, because engineers found a way to make petroleum cheap for consumers, easier to use in engines and machinery, and it burned cleaner than coal. That’s right, there was a time when Oil was the ecological choice!

My point is simple. Oil will remain the fuel of choice, not until someone makes people feel guilty enough about using it, or punishes folks for using it, but until something is made which is cheaper, easier, and cleaner. Possibilities are under development and some of them are exciting, but lies and threats from the Eco-Left are part of the problem, not the solution.