Raise Gasoline Taxes Now? Posner's Comment

I agree with Becker that it would be a mistake to raise gasoline taxes. We're in the midst of a depression and threatened with deflation, which would be an especially ominous development. Deflation occurs when the price level falls, as can happen--as may be happening now--when demand falls so far that sellers, to avoid complete ruination, slash the prices of their goods by extreme percentages, such as 50 or 75 percent. With prices depressed, a given amount of dollars buys more goods--money thus is more valuable. Credit tends to dry up, since even if the nominal interest rate is zero, the real interest rate may be very high. Imagine, to take an extreme case, that a dollar will buy you a loaf of bread today but two loaves of bread in a year. Then to borrow a dollar today for repayment in a year at a nominal interest rate of zero amounts to borrowing at a real interest rate of 100 percent, because to have the loaf of bread today you will have to give up two loaves in a year. When there is a danger of deflation, raising taxes increases the danger by reducing the demand for goods and services, in the present instance for gasoline and therefore also for cars, in particular cars made by the Detroit automakers because the gas mileage of their cars is inferior to that of the foreign cars. As demand falls, discounts will increase, so prices will continue to fall. Output will be falling too, but prices can fall faster than output, especially if sellers have swollen inventories because they did not anticipate a depression. It is true that many "foreign" cars are actually manufactured in the United States. A mere substitution of those cars for Detroit-made cars would not reduce demand. Nor for that matter would a substitution of cars manufactured abroad, though by reducing employment in the United States such a substitution would deepen our depression. But the foreign cars (wherever actually made) would be sold at a discount too, in order to compete with the Detroit-made cars. If gasoline taxes were raised to a very high level, there might actually be an increase in overall demand for cars if there are new cars that are enormously more fuel-efficient than existing ones. But the effect on the economy would still be negative, because people would have much less money to spend on other products. Becker points to the possibility of a double whammy: raising gasoline taxes would not only reduce the demand for cars but by doing so it would increase the cost of the auto bailout. I am inclined to disagree if the bailout is understood as I hope it will be as intended simply to postpone the bankruptcy of the three Detroit automakers until the overall economic picture clarifies, rather than to reform and revitalize them. I don't think there would be any social benefit from saving the companies once the economy can absorb their disappearance or radical shrinkage without serious macroeconomic consequences. At that point, it should be sink or swim for them. To preserve them beyond that point by means of continuing federal grants would be merely to subsidize the United Auto Workers and the blue-collar workers whom the union represents, plus automobile dealers, the companies' managerial and white-collar employees, and the companies' stockholders and bondholders. I hope that after the depression ends, however, serious consideration will be given to four types of tax (broadly defined), none a gasoline tax as such, that would reduce the demand for motor vehicles. One would be a tax on carbon emissions. The second a tax on traffic congestion. The third a tax in the form of highway tolls, to pay for the infrastructure projects that are part of the Obama Administration's "stimulus" (i.e., Keynesian--deficit spending) program. The fourth would be a tax on petroleum, designed to reduce our dependence on foreign oil and (relatedly) the income of the oil-exporting nations.

Comments

[Jack]

Ralph! Ha! a bit of nostalgia! Since those Fords had centrifical weights on the clutch you could wind it up in low and with the right timing chirp the tires going into 2nd. Right?

And agreed on the SUV's.......... gawd, though an Alaskan, I'm in Tulsa just now and you'd THINK those driving 5,000 pounds would try to time the lights, but it's race to the light and slam the brakes on as if there were prizes for how long one sat at the next light. It's nuts really isn't it? A payload of one woman with a cell phone glued to her ear wheeling these pigs around like go-karts.

I looked up the curb weight of my 56 Chev of 3200 pounds, and wonder a bit how cars in that size range gained a 1,000 pounds despite having lighter V-6 and lot's of plastic or aluminum parts. Perhaps a bit of a tonnage tax is in order!

[Jeff]

Two things,
One-we are not in a depression.

Second, I just had to buy a car. I bought a new SUV, because that's the best choice for my family. It happens to be a diesel though, and gets 28 MPG on the highway. It is a foreign car, and is greener than any gasoline powered vehicle.

[Nick Miller]

Personally I am in favor of higher gasoline taxes as long as the government rev

[Nick Miller]

Sorry about my last post, my computer sent it prematurely. Personally I am in favor of higher gasoline taxes as long as the government revenue would be used to fund green energy causes. With oil infrastructure being as prevalent as it is it would be extremely difficult for a new eco-friendly energy source to make an entrance into the market.

[Jack]

Jeff, Great! Is it a VW? They seem to be leading the way with smaller, mass produced diesels that will comply with our air quality stds. "Detroit" has been relying on Cummins and other lower volume general purpose diesels for their P/U's and really should get on with a flexible, mass produced diesel to power their large cars, SUV's and P/U's.

Perhaps a GM, Chrysler combo could lead to such a product........ though with diesel now commanding a premium roughly equivalent to its increased efficiency, I suppose most buyers will not want to pay much of a diesel engine premium.

With your diesel likely to be on the road for 300,000 miles it has the additional green aspect of not having to be "recycled" via the junkyard for a long time, but that's not happy-making for your car dealer!!

As for not being in a "depression" I know the "economists" have a precise, fairly useless, rearward looking definition of -------- two quarters of no growth? but I don't know if they a "depression" criteria......... after all we have them so rarely these days.

Nick: "With oil infrastructure being as prevalent as it is it would be extremely difficult for a new eco-friendly energy source to make an entrance into the market."

.......... this surely brings up the topic of when "government" (Us and OUR? democracy?) should intervene in "The Market" leading the lemmings off a cliff that we've hardly been allowed to discuss for the last 25 years. Interestingly, to me! Scandi and other nations with fewer resources and and prospects for farming etc have been able to provide a standard of living close to that of the US by taking more control of the direction of their direction than the US.

Spending nearly double what they spend on H/C and three times what they spend on prescription drugs, many of which are made here, is surely an indicator that "the market" and accompanied by the lobbyists they can afford, is not in the best interests of the majority of our citizens.

[Hugo Pottisch]

I like Posner's suggestions.

1 tax on carbon emissions.
2 tax on traffic congestion.
3 tax in the form of infrastructure e.g. highway tolls
4 foreign oil tax

These steps make sense and can be implemented in the real world except for #4 (explain this to the WTO). However - they should not wait till after the depression. They should be used to balance stimulus spending here and now (provided we tax the bad aka GM and support the good aka renewable energy and NOT the other way around).

Google CEO Eric Schmidt has made the economic calculation and reckons that the economy can make an overall profit and save about 800 billion in 22 years if we... Watch it - he talked in front of the Commonwealth Club a few weeks ago- Subject: Where would Google drill?:
http://fora.tv/2008/10/01/Eric_Schmidt_Where_Would_Google_Drill

The sooner we start supporting the "good" and taxing the "bad" - the better. E.g. Currently - millionaire farmers (who cause the most ecological damage via unsustainable 5 year plan-ecologics) have been receiving about $28 billion in subzidies per year. Livestock farming for example causes more CO2 than all cars, trucks and airplanes combines says the UN:
http://www.fao.org/newsroom/en/news/2006/1000448/

No need and time to wait until AFTER the depression... tax the bad - subsidize the good... or do nothing! Especially during a recession with a potential d-word looming...

[neilehat]

NEWS FLASH! Technology breakthrough of the millenium by "Stanley Steamer Corp." obsoletes Internal Combustion Engines and the need for hydrocarbon fuel. So much for the need for a Gas Tax. What's the technology? Closed Loop Mini-Nukes powering steam turbines, reactor containment capable of withstanding 250mph impacts and collisions.

Oh! That's right, Nukes are off limits. Forget about it, Sorry!

[Jake]

It is hilarious to read the comments above. None of the commenters, I would wager, has ever produced a bushel of wheat or a barrel of oil, yet they inveigh against those who would produce such valuable goods. None, I would bet, has ever produced a damn thing beyond whatever their clever little fingers can tease from a computer keyboard. Who among them is John Galt?

[Jack]

Neil....... It's interesting that Cheney came on strong for nukes eight years ago but none have been built. (Have I missed one?) I'm hearing that they are not cost competitive here. Costly to build and have a product life of a few decades? Don't really know.

Hugo sez:
The sooner we start supporting the "good" and taxing the "bad" - the better. E.g. Currently - millionaire farmers (who cause the most ecological damage via unsustainable 5 year plan-ecologics) have been receiving about $28 billion in subzidies per year.

........... Ha! frustrating eh? Mexico grows a lot of sugar which due to NAFTA-WTO or other is not salable. It would seem we'd kill several birds with a single stone by buying ethanol from Mex (8 times better feedstock than corn) providing some employment for them and a bargain for us. But then there is Archer Daniels army of lobbyists feeding both parties.

But now with oil so much lower I guess the bottom has dropped out of corn prices and after luring them into the SUV feeding biz, it's hard to give them a kick while they're down.......... and so it goes?

Jake: I have. For quite some time I "produced" the best and most healthful protein. The biz in recent years though has been "globalized" ie "gored" as have many other food production biz.

I'm hardly John Galt but did withdraw my meager talents from the corpies for somewhat similar reasons. I plowed through Atlas and most of Fountain many years ago when she appeared on black and white TV from time to time. Guess Gspan used to sip a a glass of wine with her while developing his paradigm which he admits to have been a bit flawed in terms of expecting "the market" to check itself.

Seems he and many others were surprised that today Moody's, S&P, and AM Best would sell off reputations that took a century to build to the highest bidder or that "investment bankers" thought they'd found the Grail and could lend at an asset/debt ratio of 1/30 plus, up from 1/5 or so. But I stray........ sort of; as Hugo and Schmidt suggest can we get back from the precipice and run what's left of our country with ethics, common sense, and harnessing the power of capitalism w/o crushing our people and community?

[Hugo Pottisch]

Yes, I am with you too Jack. At the moment - I'd rather decrease the payroll or income tax and introduce a CO2 tax - than doing nothing. The combination would be perfect at the moment. You increase disposable income for consumers while making sure they invest it sustainably and without regulating them. But only one of the two (income tax decrease, CO2 increase) is not enough.

Having gone through an expensive war, a decline in equity/assets and an expensive bail-out - we need to balance the additional stimulus policies somehow. We have no reserves left from the good days and cannot/should not borrow internationally.

Current subsidize that do not aid consumers and job creation should be decreased as much as possible. Current agricultural and oil subsidies do not aid Obama's main goal of job creation anyway. Farming has lost almost all its jobs and I am not sure how many jobs are created in Saudi Arabia for drilling etc.

[Jack]

Hugo; agreed. It feels like playing chess when out of position and down a couple of pieces; to prevail each move has to be very very efficient. Perhaps a stab at the core issues.....

Efficiency itself: At the cellular level much of our economy is stunningly efficient in areas such as developing I-phones or putting a Dell computer on the desk for $500. But at the overall level there's an institutionalized bloat exemplified by an "information economy" only now making plans for "broadband" use of electronic information in medical care. As for the "information economy" itself that is no longer setting world records in education, research, engineering and manufacturing, what are we "finding out?"

Income inequality: It's not a "class" issue but a structural problem. Overall productivity has doubled in the same 25 years that median income has been flat. Average income has risen with higher wages at the above average levels and much more at the top levels. A "rising tide" did not lift all the boats.

In the housing mess, one aspect among many, was that of the median home price outpacing its historical relationship with median income. Home prices topped out at median $250k while median income points to $170k median home price. Mechanical failure. And more of the same for median households chasing soaring college and medical costs. We can "try" to drive those costs down to affordability for a median income left behind, but! we'll fail. Unit costs will be very difficult to achieve in areas dominated by high wages and where mass production is nearly impossible. Median and lower wage have to rise; somehow.

Corruption, incompetence and the whopping ignorance of our leaders and the yakking class: For decades the fundamentals of this "unexpected" meltdown have been face up on the table though we might not have predicted that housing would go first or exactly how it would all occur. At least 10's of thousands of Americans had the data to see the cracks developing, including those charged with studying the system and providing oversight. Those few ringing the warning bell were muzzled or fired, while the rest continued to profit and others were negligent.

Somehow, (post Nixon??) "it's not against the law" "it's good enough" "and get a piece while you can" seems to have replaced "ya gotta make it right for the guy" often heard in the crafts when a shortcut is dismissed. From the top of our government, CEO's, down to street level we'll not prevail until "ya gotta make it right for the guy" and a sense of building a community, again, prevails.

[Anonymous]

دردشة صوتية

[حبي]

شات حبي

[حبي]

شات صوتي

[حبي]

ÿØÿ±ÿØÿ¥ÿ©

[Allison]

Badly need your help. Facts do not cease to exist because they are ignored.
I am from Tajikistan and , too, and now am writing in English, give please true I wrote the following sentence: "Get insider tips on how you can get the cheapest airline tickets possible."

Best regards :P, Allison.

[Ralph Deeds]

http://hubpages.com/hub/How-to-Reduce-CO2-Emissions-from-Non-commercial-Motor-Vehicles

[Ralph Deeds]

Let me try another link to a web page which suggests a gross weight tax on private motor vehicles (with a credit for the weight of the batteries in electric and hybrid cars).
http://hubpages.com/hub/How-to-Reduce-CO2-Emissions-from-Non-commercial-Motor-Vehicles
How to reduce CO2 emissions from non commercial vehicles

[plastic injection molding]

thanks admin!

[ÿØÿ±ÿØÿ¥ÿ©]

دردشة كتابية

[ÿ¥ÿßÿ™]

شات كتابي

[شات حبي]

دردشة صوتية

[ds]

ÿ¥ÿßÿ™
ÿ¥ÿßÿ™

[da]

شات صوتي
دردشه صوتيه

[injection molding]

thanks!