Let’s take this column from Tom Friedman on how to defeat ISIS as a point of departure:
The way you defeat such an enemy is by being “crazy like a fox,†says Andy Karsner, the former assistant energy secretary in the last Bush administration and now the C.E.O. of Manifest Energy. “We have one bullet that hits both of them: bring down the price of oil. It’s not like they can suddenly shift to making iWatches.†We are generating more oil and gas than ever, added Karsner, and it’s a global market. Absurdly, he said, the U.S. government bans the export of our crude oil. “It’s as if we own the world’s biggest bank vault but misplaced the key,†added Karsner. “Let’s lift that export ban and have America shaping the market price in our own interest.â€
But that must be accompanied by tax reform that puts a predictable premium on carbon, ensuring that we unite to consistently invest in clean energies that take us beyond fossil fuels, increase efficiency and address climate change. Draining our enemies’ coffers, enhancing security, taxing environmental degradation — what’s not to like? And if we shift tax revenue to money collected from a carbon tax, we can slash income, payroll and corporate taxes, incentivize investment and hiring and unleash our economic competitiveness. That is a strategy hawks and doves, greens and big oil could all support.
which invites a little thought experiment. How high a tax on oil would you need to impose to put pressure on Russia, Iran, and other nogoodnik oil exporters? What would the implications of such a tax be?
I think the first question has several components. As I understand it the price elasticity of demand for oil, that is the degree to which the demand for oil responds to increases in price, is generally thought to be quite small but not nonexistent. IIRC the short term price elasticity of gasoline is around -.09 and the long term is around -.3. In other words in the short term if you doubled the price of gasoline demand would decrease around 9% and in the long term around 30%.
Right now the price for WTI is around $95 a barrel. For an oil-based strategy to work you’d need to lower the net price of oil worldwide to $75 a barrel or below.
I submit that a tax on oil in the United States would have no impact whatever on the worldwide consumption of oil because Europe and North America aren’t the only major markets any more. There is a global market for oil and it is incredibly efficient with changes in behavior reflected in the markets everywhere practically instantaneously. China is a major consumer. So is India. If whatever we do actually lowers consumption, they’ll just step in to fill up the loss of demand. For such a tactic to work it would require the cooperation of all of the major consumers. In other words, I think it’s a futile tactic. It’s perfectly suited to the world as it was 35 years ago.
But let’s keep thinking about it, anyway. In the U. S. (just talking about at the federal level), people in the lower half of income earners pay FICA (payroll tax) and excise taxes (mostly the gas tax). People in the next 45 or so percentages in income pay FICA, excise taxes, and income taxes while people in the top 5% or so pay excise taxes and income taxes. Most of their income isn’t subject to FICA because of FICA max. In other words FICA and excise taxes are very regressive and while the income tax is mildly progressive.
The only tax you can lower without making our system even more regressive is the payroll tax. IMO it was obviously foolish to reinstate the tax once it had been suspended. How much of FICA actually falls on the bottom 50% of income earners? Not much as it turns out. I’ll have to dredge up the numbers but since FICA is a percentage of income and the lower 50% of earners don’t have that much income you’re limited to about 8% of that.
All of this is a formula for a tax increase on the poor and a tax cut for the rich. Like banks, it’s where the money is.
It doesn’t take a lot of that before commuting to work stops making sense. Or, said another way, we won’t stop until the last job is wrung out of the economy.
Update
If we really wanted to cut the price of oil, the best strategy we have for that not on the demand side but on the supply side. If that’s what we wanted to do, we should be producing a lot more oil.
Nice thought experiment, but if, and it is a big if, we can produce enough oil to meet all of our needs and then export it, it will take many years to accomplish. The other oil producers also have a say in that they can adjust their production. If we could accomplish this in 20-30 years, it will be long past the point where ISIS should have been solved.
The bigger question about oil is what happens if ISIS, as Lang suggests, heads to Saudi Arabia. If oil prices then skyrocket, Russia is happy, China (and maybe Japan) face recession and we face at least a slowdown. Where does that leave us? I have to think that would leave them very susceptible to air attacks, but Lang postulates that they will drag along hostages.
Steve
I think that Pat’s take on what ISIS is doing is right on the money: they’re consolidating the areas they’ve already taken in preparation for an assault on Baghdad. Air assaults against them are basically futile because they can just disperse and wait them out.
Tax the poor, reward the rich, at the expense of jobs for the blue collar & service workers. So more of the same. Friedman’s proposal has nothing to do with geopolitical concerns, and everything to do with the continuing quest of the elite to turn this into a third world country for their looting pleasure.
If ISIS were to move into the oil fields they wouldn’t need hostages. The infrastructure in the fields would be the hostages.
Doubt that would work out well for them, though. As in 1991, we would send in the Sardaukar, since the spice must flow.
The update addresses my main issue of conern, the U.S. currently produces 84% of its energy demand, importing the remainder primarily petroleum.
Increasing exports would make sense to K-Street firms like Manifest Energy, because of more opportunities to sell to expanding markets. That is where oil demand is growing, not in OECD countries (consumption up about 10% since 1973), but in non-OECD countries (up about 55% since 1973). Friedman can propose whatever enlightened energy policies he may want for the U.S., but if the purpose is to make U.S. oil more available on the global market, then the policy that matters is that of China, India, etc., the recipients of U.S. oil.
It’s the carbon tax, stupid. He is desperate, and he is willing to trade anything to get some anti-climate change measure in place.
Regarding the Russians, they have an inferiority complex in their genes. Friedman cannot understand the world except through his safe living room on his comfortable sofa, and he must formulate new theories as the old ones collapse.
Friedman cannot fathom that ISIS may just want to kill people for the joy of killing them, or they are not interested in negotiating. He assumes that everybody wants a safe living room with a comfortable sofa, and those who do not must have a psychological problem.
Kind of incoherent for Friedman to call for both energy independence and oil exports. How will energy security improve if we hand it over to foreigners in exchange for electronic deposits in the accounts of ExxonMobil?
Other than patronage, how does this man keep his job?
He is desperate, and he is willing to trade anything to get some
anti-climate changeanti-middle-class measure in place.FIFY
Friedman cannot understand the world except through his safe living room on his comfortable sofa….
That sounds disgustingly middle class for a wealthy luminary like Thomas Friedman. I’m sure he’d call for drone strikes to kill you for suggesting that, TB.
How will energy security improve if we hand it over to foreigners in exchange for electronic deposits in the accounts of ExxonMobil?
Other than patronage, how does this man keep his job?
Your kidding, right? Your first question answers the second question.
@Icepick
Killing is too icky for the elites. He would sue, zone, regulate, or declare insane. Since he controls the government, he can control my life in numerous ways, but I suspect you know this feeling.
I think he is more pro-elite than anti-middle class, and he is pro-middle class as long as the middle class act as good little playthings. The elites love those below them as long as they are well behaved, but when they act up, they will unhesitantly crush them.
The truth is that a lot of the elites are not as elite as they think they are, and deep down, they know it. They are not that smart. They are not that rich. They are not that powerful.
I think he is more pro-elite than anti-middle class, and he is pro-middle class as long as the middle class act as good little playthings.
That’s a distinction without meaning to me, TB.