TCS Daily


$100 Oil? Fuhghedaboudit!

By Pete Geddes - January 9, 2008 12:00 AM

Last week the price of a barrel of oil hit $100. This raised fears of an economic slowdown akin to the one in the 1970s when oil prices quadrupled almost overnight. That shock was largely responsible for the worst decade of global economic performance since the Great Depression. Today, however, the world is a much different place. While higher prices at the pump will reduce disposable income, they are unlikely to have the same economic impact that they did 30 years ago. Here's why.

Strong demand in China and India has the global energy system in transition.
Supplies of cheap and abundant "light sweet crude" (the oil that was easy to find and easy to refine) are waning. This drives fears that we'll suddenly "run out of oil." But there is no reason‹historical, economic, or technical‹to believe our transition to alternative energy sources will be either sudden or catastrophic. Humans seem hardwired to develop new technologies that either expand resources, lead to the discovery of substitutes, or both.

Higher prices are generating investment in all sorts of alternatives, from the oil sands in Canada and Venezuela to liquid synthetic fuels and wind and solar power. If oil prices stay high enough, long enough, these sources will become mainstream. (A key environmental challenge is to develop the technologies to reduce the carbon emissions from new fossil fuel sources.)

Higher gas prices provide consumers with incentives to prioritize consumption. At some point ($4, $6, $8 a gallon?) we decide (perhaps) that fueling our SUV is too costly. Hence, we select cars that get better (likely not maximum) gas mileage, drive less, carpool more, and fish instead of water-ski. The amount of oil we demand, whether for use as gasoline, fertilizer, or in plastics, depends on price. And not every use of petroleum is equally valuable. This is the market process at work.

Last week's $100 mark does not signal any geophysical limitation of oil. Indeed most of the world's oil regions are relatively unexplored. For example, over the last 20 years, more than 70 percent of global oil exploration has taken place in the United States and Canada. Together, these countries hold only a small percent of the world's proven reserves. Only 3 percent of exploration has taken place in the Middle East, a region that holds about 70 percent of proven reserves. Between 1995 and 2004, fewer than 100 new wells were drilled in the Persian Gulf. Over the same period 15,700 were drilled in the United States. And remember, 90 percent of the world's ocean floor is unexplored. Deepwater drilling used to be impossible; now it's just expensive. But with experience, costs decline.

OPEC countries and their national oil companies (which control nearly 80 percent of the world's crude reserves) worry about overproduction. They remember the mid-1980s when surpluses caused the price of crude to plummet below $10 per barrel. Hence, they have little interest in developing new fields. Their incentives are to pump only those fields already in production.

Since the nationalization movement of the 1970s, western oil companies have been largely excluded from the Middle East. This has starved the region of access to advanced exploration and production technologies. In Iraq, for example, three-dimensional seismic surveys and horizontal drilling, widely employed in the rest of the world since the 1980s, have never been used.

Over the last century, we've been steadily de-carbonizing our economy. It takes about half as many barrels of oil to produce each $1 of economic output today as it did 30 years ago. Since our Bicentennial, the U.S. economy has grown by 126 percent, while energy use has increased by only 30 percent. These gains come from a combination of advances in technology and an evolution in our economy. We've moved from energy-intensive manufacturing to services and information technology.

Our gains in energy efficiency over the last 40 years are in large part due to the high oil prices of the 1970s. This forced every part of our society to be more economical in their use of fuel. This same process is at work today, helping wean us from oil. And unless the government intervenes, we'll be evermore efficient tomorrow.

Pete Geddes is Executive Vice President of the Foundation for Research on Economics and the Environment (FREE), based in Bozeman, MT.

Categories:

115 Comments

The true cost of living
Consumers have become conditioned to looking to the Consumer Price Index to gauge how fast the cost of living is rising. So usually this figure is given less fuel and food costs, as they are rising so much faster than the ordinary manufactured items that comprise the typical basket of goods being surveyed.

Thus for November 2007 the rise is given as 0.1%, and the rise since the previous November as being 2.3% (not seasonally adjusted). Which sounds like an acceptable rate of dollar erosion.

But the basket not only does not include food or fuel, it also slights health care and professional services, and it omits insurance. So the actual rate at which prices are climbing and the dollar dropping in value is much higher-- and not covered in the data.

We do have a figure for the basket with food and fuel added. For November 2007 (NSA) it comes to 0.6% for the month and 4.6% for the past twelve. Not quite so good. In fact twice as expensive.

Plus, there are problems with the weighting. Auto fuel, for instance, is said to comprise 4.347 cents of every dollar spent. In my town I think you wouldn't find many people who were able to keep to that budget.

Other items are also suspect. Health care, for instance, is seen as rising only by 0.4% (last full month) or 5.0% (last twelve months). The true figure is quite a bit above that. Annual figures are in the 12% range by any other reckoning.

http://www.bls.gov/cpi/cpiri2006.pdf

Finally, urban wage earners are getting hit pretty hard. We're now seeing a true CPI increase of nearly ten percent annually, if present trends continue. And fuel prices plus medical costs are leading the way.

http://www.bls.gov/cpi/#tables

So things may be looking good so far as manufacturers are concerned, with their increases in productivity. They look even better if you consider their products are being sold to the world with the costs assessed in depreciating dollars. But for the American wage earner, with his cost of living now increasing by 0.8 or 0.9% per month, and rising while wages are stuck on flat, it doesn't quite look so cheeri-o.

$100 isn't what it used to be
Good article and we should also remember that the seemingly high price of 100 is in those badly abused and debased currency. So it's really not so expensive considering that.
In fact if it really goes much higher Americans might take it so seriously that they will even consider switching to the kinda cars that they ALREADY have in euroland that get about 80 or more mpg.
It might get so serious that tradesmen who never have to drive faster than about 40mph, will be able to get vans like the Toyota Hiace with a say, 1.9liter diesel, instead of the normal 5liter V8, or the 6.5liter diesel that they are restricted too. But I guess it won't get that drastic.

cost of living
If you 'average wage earners' are getting hit so hard as you say you are, why do you keep buying all those SUVs, and plama TVs, and whirpool bathtubs, and dish washing machines? Why not try to upgrade your skills so you can earn more? Why not take in borders? Why not let your kids walk or bicycle to the school and ballpark? There are many measures that can be taken instead of just complaining about being poor.

Why complain about being poor?
All good questions, Mr D. Let me answer them in turn. But first, I'm not complaining about being poor. Once again, I've reached the end of 2007 with a surplus of money in my cash account. So I've had to declare a dividend, donating a couple of thousand bucks to my favorite charities. This allows me to face 2008 with a clean slate and a fresh outlook.

Plus, I don't speak for all wage earners. In fact I haven't been a wage earner for a number of years. There are millions among them who really can't make ends meet, and they complain to one another. But their complaints don't reach your ears.

For the rest, they seem to be getting by and voting Republican without a squawk, availing themselves of our still cheap and abundant credit. On to the complaints you list:

"If you 'average wage earners' are getting hit so hard as you say you are, why do you keep buying all those SUVs, and plama TVs, and whirpool bathtubs, and dish washing machines?"

The most expensive things they buy are new houses (hardly any around here less than $180K) and Ford F-350s. Thus they're in terrible debt before they even go to the WalMart for grub. Fortunately lots of the money someone has already earned is looking for a return. So there will always be abundant, easy credit for them to use in making new purchases.

"Why not try to upgrade your skills so you can earn more? Why not take in borders?"

The skill sets I discuss below. Boarders? How quaintly 1920 that sounds. Modern houses don't have guest suites. However many relatives do tend to bunk together with family.

"Why not let your kids walk or bicycle to the school and ballpark?"

A great many mothers of pre-schoolers do just that, and we are blessed with good city parks. But in the public schools there isn't much in the way of what fossils like me used to call physical education. Lots of kids tend to get soft, pudgy and vulnerable to juvenile-onset diabetes. It's the soft drinks (still dispensed in the schools) and Game Boys that bear most of the responsibility.

You wouldn't let your child bicycle on a public road around here. Bicyclists get killed in traffic every day.

"There are many measures that can be taken instead of just complaining about being poor."

Indeed more and more of them are going to community colleges, ones that temper their courses to the requirements of the here and now. Here in Wake County we have one of the very best in terms of quality, and fastest growing systems in the country.

2 solutions
More supply or other sources.

Show me anywhere in the new energy bill where we are doing either? In fact, I am pleased to see prices rise to where domestic production is once again profitable.

SF wants to raise the gas tax another 10 cents. This election they are calling it a global warming fee. Once again government to the rescue.

Really want to see wages rise? Cut spending and taxes. Spain et al just dropped their corporate rates.

The Bush tax cuts need to be permanent and SSI/Medicare needs restructuring. Also the AMT needs to be altered or better yet eliminated.

Have you been paying attention?
It is happening right now. Many the old SUV's are being traded in for hybrids and other vehicles that get better mileage. Oh, the old Hummer isn't quite off the market yet, but the sales of all larger vehicles are "soft" and getting worse. This is one reason Ford dropped to #3 in U.S. auto sales this year.

LCD/Plasma TVs are cheaper to operate, thus a good investment. And it will get even better as the prices continue to drop. Not all that Many whirlpool baths out there; probably more hot-tubs and many are probably not using their hot-tubs and dishwashers as much as they used to.

Upgrading skills - many are also doing this; and some are finding there are only so many spots open for those higher paying jobs. Sorry D. not everyone can be a corporate CEO. Therefore, for some, it is an additional expense with no additional pay.

Depending on where you live, many are already having their kids walk-bike-scooter-skateboard to school or whatever.

Taking in borders? I suppose some families could remodel their over-priced and over-sized homes for this.

Generally, these are good ideas (except, perhaps, the borders and upgrading skills) and they are steadily being implemented wherever practical.

The problem, as I see roy's post, is the lie the public is swallowing. The actual rate of inflation is (and has been for nearly half a decade) closer to 10-15% than 2 or 3 percent. When wages are stagnant, a 2-3% increase can be absorbed with little effect; but double-digit inflation really bites. As always, those in the lower end feel the bite of fast rising necessity expenses much more than those at the upper end or even those in the middle.

I have sure noticed the rising cost of our total grocery store bill over the past five years!! Add to that the price at the pump (and I have a job where I have to drive about 300 miles a week on average), and it really bites the wallet. My total fuel expenses went from about $75 a month in 2003 to about $150 today. My grocery store bill hasn't quite doubled in that time, but it is over 50% higher. The cost to heat my home is also up noticably, in spite of several attempts to improve the insulation, windows and door seals. All-in-all my base "survival" costs are taking a much bigger bite of my income (and everyone elses) and wage increases wouldn't keep up even if I did get a job that paid me 25%-30% more.

In spite of that I don't hear too many folks on the street complaining. They are tightening the belt, working longer hours and doing what most Americans always do; gettin' 'er done.

The Story We Don't Hear
I don't think I would know of any of the things listed here if I did not read them. The real cause of high oil prices is not a combination of factors as Mr. Geddes pointed out. We also forget that we DO have a more energy efficient economy than we had in the 1970s. But that only means we start using more energy. And I would like to add that OPEC has no incentive for new exploration and extraction technologies. As long as demand remains the same regardless of price, they can get away with keeping their production so low. We still need to develop better energy resources, but we need to do it with common sense and without excessive government interference. Iowa needs to also realize that corn is better to fuel humans and livestock than cars.

Regional Differences
Be careful not to get caught in the in my area syndrome. Inflation figures are national averages and do not reflect microeconomics.

I agree with the work ethic.

Doom!
Just kidding. As someone said above, we will tighten our belts and keep working. Some would like to offer us stories of the "working poor" but most of those stories leave out the part that is filled with personal responsibility. Nevertheless, it is a solid fact that high oil prices are no longer a show stopper for a majority of the population.

The high prices of oil will create an environment for innovation and exploration. Our economy is in great shape but is going through a period of adjustment. Idiotic speculation and doomsayers are it's biggest enemies.

The facts are national
Where have general grocery prices gone down over the past 5 years? How about fuel, electricty, heating fuels (natural gas, fuel oil or even wood and wood pellets?) In fact, the trend is national and does exceed the double-digit threshhold for basics.

The only good news I've seen has been in some cheaper clothing items but they are pretty much all imports and will go up with the falling dollar. Housing prices are falling and the wage stagantion of the 80s and 90s is seeing an upward tick.

Odd, I said this would happen when fuel prices began skyrocketing a couple of years ago. A couple of people on this site slammed me down for saying it. My biggest worry then was that wages had been pretty stagnant in most cases (certainly not all) for a long time, and would be trying to play catch-up in an inflationary period; this was not true in the 70s.

Lo and behold, it is happening and some of the problems are being felt. It is easy to prognosticate when you know the history. What drove the double-digit inflation of the late 70s and early 80s? Could it have been energy prices?

But all is not "Doom and gloom". Actually, if the DOW will just cooperate and drop below 11,000, I think the future is as bright as ever (I love great buying oportunities). We are in a recession and it could become a minor depression, but it will probably not affect job markets much and, if the government doesn't try to do too much to fix it, we will rebound nicely in a couple more years.

good post
However, I like the idiotic speculation and doomsayers. They will drive prices down (eventually) and creat some great buying opportunities. Bring 'em on!

In spite of the "fat and lazy" rap, I find the vast majority of Americans are great people and work too hard. (Put down and shut off the cell phone, blackberry and iphone before you are even allowed to relax at my house. Hell, I unplug the house phone during Christmas, New Year's eve and the Super Bowl Party! Anyone who needs to get a hold of me can come over and join the fun or wait until Monday.)

Your proposed fixes
I actually agree with some of this.

As fuel prices rise we will see more supply. But pump prices can't fall below the limits imposed by production costs. These are the nonconventional sources-- oil shales, tar sands, liquid coal, etc, that are coming to comprise more of our total fuel consumption. And getting all the sand and grit out is expensive.

"Really want to see wages rise? Cut spending and taxes."

How does that follow? If corporate taxes are cut, the additional profit will just go to the shareholders. Businesses in EVERY instance only pay sufficient wages to keep those employees they can't do without. No one pays any employee a dime more than that, for any reason.

"The Bush tax cuts need to be permanent and SSI/Medicare needs restructuring."

Business was expanding just fine throughout the nineties, before any of the tax cuts. So the vigor of the business community is not dependent on either tax cuts or entitlement cutbacks. So your demand only exists to satisfy greed.

However Medicaid-Medicare does in fact need restructuring. It's highly unsustainable. Further, it hasn't wielded the power it in fact has in forcing medical costs downward. Inexplicably, the country's largest payer doesn't use its clout. (I wonder why?)

"Also the AMT needs to be altered or better yet eliminated."

Amen to that. Destroy the beast! Of course, revenue neutrality needs to be maintained. It could be eliminated in line with a return to normal taxation levels in the above $200K category.

No, business expanded starting in 1998 -- when the Republicans forced the Capital Gains tax cuts on
Before that, from 1992- the media kept calling the post-recession a 'jobless recovery', remember?

And what caused the recession? Papa Bush RAISING taxes.

Granny Flats
Most zoning laws prohibit what are called 'granny flats' -- small apartments in garages, basements and backyard cottages, etc. Those that allow them usually require public hearings that your neighbors can show up to and pull a NIMBY job on the whole project (and they do).

Some of the laws have been relaxed in recent years, but the problem still persists.

So, by 'borders', that means room mates in your house, for many. Here in the high priced SF Bay Area, its quite common for the old TV series "Full House" to be in play, minus the Olsen twins.

Here's an article on Granny Flats. A bit dated, but still tells you everything about the issue:

http://www.usatoday.com/news/nation/2004-01-05-granny-flats_x.htm

Those Greedy Shareholders
"How does that follow? If corporate taxes are cut, the additional profit will just go to the shareholders."

Like the millions who have retirement accounts invested like me?

The nineties are history. The Reagan Bush recovery Clinton inherited is over. This is a global economy and we now have virtually the highest corporate tax rate in the world.

In addition, the corporate tax is double taxation, both at the corporate level and the shareholder level.

"So the vigor of the business community is not dependent on either tax cuts or entitlement cutbacks."

This is just plain ignorance here. I did not hire a person this year due to taxes. Should we be the best and lead the world or are we just another nation of quiveling whiners who live off envy?

Increasing numbers want more from fewer
I don't believe $100 is a problem. It was only one person who deliberately accepted a loss on his trade for "bragging rights."

The real problem which was not addressed was that more and more people are demanding more and more "needs" from society. Society being effectively the government, financed mostly by the income tax.

The right to free or subsidized health care. The right to free or subsidized housing. The right to retirement funding. The right to public education at taxpayer expense. The other types of "EBT" support. EBT being electronic benefits transfer at most grocery store credit card swipe stations.

But who ultimately pays the bill for societies tolerance of the "underprivileged" and "unfortunate?" It is primarily the high wage earners, who pay most of the income taxes and it is income taxes which fund most of the Federal government.

The real question is not whether $100 or even $500 per barrel oil is problematic. The real question is whether we will be able to continually fund the increasing demands of an increasing number of Americans (citizen and otherwise) who are supported by a decreasing number of so-called "rich Americans" while they are being demagogued for not "paying their fair share."

FY 2006 showed the Federal government's "Gross Cost" of $3.127 Trillion with $1.846 Trillion of that (about 60%) derived from the individual income tax. For FY 2005 (assumed similar to '06), the percentage of taxpayers who covered the first 70% of the income tax was the top 10% of all taxpayers. That means that the top 10% of all US taxpayers covered about 40% of the cost of the Federal government.

Irrespective of whether the income tax is fair, progressive or confiscatory, one can argue that the most productive (income-wise) 10% of the taxpaying population supporting the other 90% is not a stable system one should depend upon for the long term financing of the government.

I had not claimed that prices fell
I simply stated that price INCREASES had regional variations.


As to the government, if we elect a Democrat I think you can count on damage. With no spine to reform SSI and Medicare, the push for socialist medicine and expiration of tax cuts PLUS increases on the producers of society to satisfy the guilt ridden left and nonproducers I think we can count on inflation and a rough ride.

Don't know if you remember Carter but he is a example of liberal democrat economic policy.

Other people's business
Right on target. When I was in the business I noticed that the demographics had changed. In the city, older homes had been built for large families. But now, anyone wanting to raise a family went out to the suburbs and bought new. All those big old homes had to be rented out to groups, either students or young single professionals.

I was surprised (this was in the 1980s) at the number of thirty somethings who were happy to live with a couple of friends, and had no plans to ever live any other way.

Naturally there were always irate neighbors who felt this would promote a drop in property values, and insisted I rent only to the ideal family they'd like to have next door-- not realizing or caring that such families no longer existed.

And they always liked using the existing statutes to tell other people how to live their lives. So I had to pay attention to topics like whether a given "mother-in-law suite" (what we called them) was legal and had an occupancy permit, and which ones were informal and subject to being turned in to the city by zealous neighbors.

Not how I remeber that era
Now that's really funny. What I recall is the day Bill Clinton took office the Dow was at 3200. And the day he handed the office over to Bush, it was above 11,500. Pundits like James Glassman (remember him?) were confidently predicting it would soar to 36,000.

http://en.wikipedia.org/wiki/Closing_milestones_of_the_Dow_Jones_Industrial_Average

http://www.amazon.com/Dow-36-000-Strategy-Profiting/dp/0609806998

I guess there's just no relationship between the strength of the stock market and the expansion of business. Right?

Are you always this full of crap?

Quiveling snivers
Reagan-Bush had a nice little run, and then it foundered. What Clinton inherited was the recession.

Then Clinton took the Dow from 3200 (the day he took office) to well over 11,500 the day he left it. And he left a recession for Bush to inherit.

That market advance of the 1990s was done when taxes were at quite an acceptable level for business to still make a profit. And for you to cash in quite nicely on your investments.

You have no complaint, if the country needs some of that cash to pay bills. And now that I'm retired and living on my investments as well, neither do I.

Snivel me quimbers, laddy! Pull your britches up and help paddle. We're drowning in a sea of debt, and those most fortunate among us are shouldering the least of the burden.

I didn't hear you
You say "The real cause of high oil prices is not a combination of factors as Mr. Geddes pointed out."

I'm curious. What then is the real cause? The sinking dollar? Increasing global demand? Population increase? Market maneuvering?

Or is it the fact that we took Iraqi production off-line back in 2003, neatly doing away with the world's number three producer? Wasn't that about the time prices started going up?

My mistake
To roy_bean, I should have said it IS a combination of factors. I put in the the 'not' by mistake and must not have been thinking. Thank you for pointing that out. And you brought up other things too. Thank you.

9 out of 10 getting a free ride?
You miss the larger point, which is that people demand of their government that they be able to make ends meet with the incomes they're earning. They think it's not too much to ask that id you work hard, keep your nose clean and pay your bills, you be able to afford housing, medical care and a rasonably good standard of living for your family. And increasingly, for many people that's not possible.

Your picture of the nation is a tiny number of responsible wage earners like yourself, supporting an increasingly huge family of lazy payabouts, not even looking for work. That's impossibly dumb.

We all realize that you hsvr to pay a portion of your income in to Uncle Sam, so he can pay his bills and allocate some of the money toward benefits. We're not that dumb. But what we see is the middle paying out in good faith while the fortunate ones (those making above $200K) getting a free ride. Or more specifically, getting to pay half fare for their ticket, with the disparity between capital gains rates and ordinary income rates. And that chews us, because we see they're getting off light while being able to afford lobbyists to see the country run THEIR way.

You're not supporting us. We're supporting you, by paying extra to make up for the money you're saving.

All income should be taxed at the same rate regardless of source. And progressivity should be maintained because the more fortunate among us both get more from the government and can afford to pay more into it.

And corporations, as they are considered to be the legal equivalent of people, should pay out at the same rate as other people.

complaing re poor
Oh pardon me, you're not actually poor, but you're talking about other people who might be. But still, they should buy those houses if they can't afford them. And if they made a mistake, then they can use some of those rooms to take in people, even if you call them roomers, and not borders. Like some mention below, many students etc. just rent a single room, maybe $300 or so a month, and this would help out the poor people.
But why a Ford 350, why not 150, or why not a toyota echo? And if all those poor ones used bikes there would be pressure to accomodate them better. They might even get as advanced as places like german and holland and denmark where for decades they've had special paths for them.

granny flats and roomers
If you say that granny flats are not allowed, then I will say that's just more government repression. It should be none of their business if people try to share expenses and live cheaper. But cities would rather have urban sprawl because then they can get more land taxes from all those extra houses, and..... spend it on their little empires.

what about my car and van example then?
So why aren't they getting the euro cars, and all sorts of foreign vehicles with small diesel motors and get great milage, and the US already has low sulpher dieslel? Don't tell me they don't pass safety standars because they have them in german and switzerland and sweden.

taxed at the same rate.
Finally we agree on this one! But the only diffence is that you probably are closer to Michael Moore who I heard saying in an interview that the rate should be about 70%, and I would more agree with Ron Paul who says it should be the same rate of 0%. The only problem with that is then the government would be able to dole it out to special interest groups, to pork barreling, to the agric. subsidies, to fight overseas wars all over, etc. But what would all the tax lawyers do? And all the lobbysists?
And where would all the black people live if the government didn't act as a slumlord with their crappy 'project ghettoes'?

1 out of 2
@roy_bean:

"All income should be taxed at the same rate regardless of source."

ABSOLUTELY!

"And progressivity should be maintained because the more fortunate among us both get more from the government and can afford to pay more into it."

ABSOLUTELY NOT!

I can't argue about that
Carter was a bumbler in every way.

Knowing the history
It is a fact that by the middle 1970s, the affluent class in American was increasing while the middle class was shrinking--because more of it was turning into the affluent class.

This fact became noticeable by 1978, as some economists all the way back then pointed out after due research.

One of the biggest factors driving the ever-rising size of the affluent class in America has nothing to do with wages and is independent of them. As they will tell you in the financial advisory world, "nobody ever got rich just by collecting his paycheck". (Of course, we can all name some exceptions to that rule, but it's overwhelmingly correct as a proverb to be followed.) I speak of knowing how to invest money. Knowledge of the power of and the right ways of investing money has grown by leaps and bounds since the 1980s and it really accelerated in the mid-90s.

Incidentally, those who really know how to invest money just laugh at the Dow, no matter what the hell it does. It could cease to exist tomorrow for all they care, and they'd never miss it nor be affected by it.

You must have been indulging in even more absinthe then, Beanie Baby,
than you obviously are now.

LAY OFF THE ABSINTHE, BEANIE BABY
Altough I must say I do appreciate the free comedy routine that you put on.

A Sea of Debt? How about a budget cut?
The deficit is 1.86% of GDP while expiring the tax cuts amounts to close to 13%.

I see a better solution, how about for the first time in US history a budget cut? In fact, how about a freeze? Even if we held it to inflation it would be a plus. Do we really need 2 trillion in Federal Government? Nope, never a option is it Roy? In fact, now we have both parties trying to create a entire new entitlement called Universal Care when we cannot even take care of the ones we already have so now lets add another 1/7th of the economy.


Additionally, the Treasury took in record revenues this year. In light of that why do we need increases? I know, why don't we just let them do everything for us and give them 100%.

As to Clinton "taking" the DOW to 11000 exactly WHICH Clinton Policy did so?

$100 oil
While I agree with many points in the article, I am tempted to make the following comments:
1. OK. Economy was suffering in the 70s. But from the distance of time, I can not recall being less happy in the 70s compared to any other period I had the pleasure of experiencing. Why that fixation on economic growth?
2. It is true that 90% of the ocean floor is not explored for oil. I am quite convinced that it will never be. The reason - most of the ocean floor is covered by basalt - a volcanic rock that has no oil generating potential.
3. In the last 30 years 1$ of wealth was produced using only 1/2 the amount of oil used previously. My question: how much of that effect is due to the inflation of the $? If 1$ in 2007 buys us only 1/2 of what a 1970s dollar would, then I do not see the progress.

The instability of depending upon a small tax base
...in California is the primary reason why the state is facing so many budget crisis, given the high state income tax and number of high-income people that reside there.

When the tech boom hit, a lot of that revenue just dried up. Same thing is happening now because of the housing bubble bursting.

Its not a smart way to manage revenue supply.

The Logical Fallacies of Roy Bean
Roy's Logical fallacy #1:

"people demand of their government that they be able to make ends meet with the incomes they're earning. They think it's not too much to ask that id you work hard, keep your nose clean and pay your bills, you be able to afford housing, medical care and a reasonably good standard of living for your family."

Perhaps that is rational in a command-and-control society, but not in a free market one. So, they can 'demand' all they want just like I can 'demand' that Jessica Alba share my bed with me every night. Reality though dictates neither demand is rational.

Roy's Logical Fallacy #2:

"Your picture of the nation is a tiny number of responsible wage earners like yourself, supporting an increasingly huge family of lazy payabouts, not even looking for work. That's impossibly dumb."

That 'picture' is an accurate statement of actual reality as it is, however you don't like to admit that.
And that last part where you (and it is YOU and not our anonymous poster who says this) assume that there's some link where the rich pay because whose who don't are lazy payabouts. Its a straw man because whether or not those who are not contributing the most are lazy, working or whatever, the fact remains that they are not contributing the most or even a large fraction. That is quite true, not impossibly dumb, to observe.

Roy's Logical Fallacy #3:

"But what we see is the middle paying out in good faith while the fortunate ones (those making above $200K) getting a free ride"

Those making $200k are NOT getting a free ride. If anything, they are paying far more than they get back in return in the form of government services as compared to those who pay little or not taxes. It's a straight ROI calculation involving logic and not ideology, Roy.

Roy's Logical Fallacy #4:

"Or more specifically, getting to pay half fare for their ticket, with the disparity between capital gains rates and ordinary income rates. And that chews us, because we see they're getting off light while being able to afford lobbyists to see the country run THEIR way."

Oh PULEEEZE. If they got their 'own way' there would even be any capital gains taxes, to just name that one.
It would be like when the Republic was initially formed -- only landowners or business owners of a certain net worth were even allowed to vote.

Roy's Logical Fallacy #5:

"You're not supporting us. We're supporting you, by paying extra to make up for the money you're saving"

Now THAT one was the most removed from Planet Earth. To paraphrase a quote from Arnold Kling, "I'd just like to see 2+2=4". The top 10% high-income earners forked over (depending upon whose stats you use) between 60%-70% of the total income tax revenue last year. They are supporting YOU, not the other way around.

Roy's Logical Fallacy #6:

"All income should be taxed at the same rate regardless of source." & "And progressivity should be maintained because the more fortunate among us both get more from the government and can afford to pay more into it"

First, the first sentence is immediately contradicted by the second sentence. Second, prove that the 'more fortunate' gets more from the government than the least fortunate. Warren Buffet gets the same benefit from Clean Air Act regulations that you and I do, no more. If terrorists get caught trying to detonate a nuke in my city, all the rich dudes living in my city get the same benefit (their lives are saved) that I and mine got. When I drive my car on the road, I get the same benefit or hit the same potholes that the millionaire next door does. Meanwhile, the millionaire next door doesn't get Medicaid or his children don't get the Pell grants or student loans or housing assistance that the other neighbor of mine who is poor does. So, please cut the "woah the world isn't fair because the rich benefit more from government revenues and services" crap and get in touch with reality.

Roy's Logical Fallacy #7:

"And corporations, as they are considered to be the legal equivalent of people, should pay out at the same rate as other people."

Uh-huh, that means DOUBLE taxation of investment profits that individuals end up paying. What happened to your stance about income being taxed equally regardless of source? (See Roy's Logical Fallacy #6). You should amend that to say, "All income should be taxed equally regardless of source EXCEPT when the government can find a way to SCREW INVESTORS in order to reflect more intellectual honesty.

And the best way to make ends meet is lower taxes
Unless of course you think the government is there to support you.

As to the more fortunate, what a typical point. In the first place, if I work really hard and succeed how does that make me more fortunate? In reality it means I worked really hard and made wise choices. Fortunate is winning the lottery, which is how you lefites think anyone with money made it apparently.

You have made some salient points in the past Roy BUT exactly how does having more income or assets mean I benfit more from government? In fact, quite the opposite. We all benfit from roads, et al but beyond infrastructure I have no clue what you are refering to.

Wow I didn't know I was getting a free ride.
Amazing, I did not hire another employee this year due to taxes but I am getting a free ride.

Oh man, pleeaseeeeeeeeee
"But what we see is the middle paying out in good faith while the fortunate ones (those making above $200K) getting a free ride."

What utter dribble. How do you figure Roy?

Trust me Roy, they pay MORE than their share.

Are you always full of crap?
You only prove that the DOW went up, that is all. And, it is just another Straw Man argument of yours.

But, since you want to live by the Straw Man you get to die by the Straw Man, too:

The bulk of the Clinton boom did not happen until after the 1997 Capital Gains tax cut was forced upon Clinton by Republicans who understood economics (they also forced Clinton to balance the budget, not the other way around).

- The Dow went from 7,000 - 10,000 and NASDAQ went up from 2,400 to 5,000 in just the next three years alone.
Prior to that, the DOW had recovered from the recession as expected, but did not grow much beyond that.

- Capital gains tax revenues climbed from $62 billion to $110 billion from 1996–1999.

- Venture capital funding soared from $10 billion in 1996 to $53 billion in 1999. The number
of firms receiving venture capital funding climbed from 2,004 to 5,450 over this period.

- The GDP growth rate following the 1997 capital gains cut rose to an average of 4% per year
from 1997–2000.

Unemployment took a nose dive and incomes went up. If you want to go by how individual's 'remember' that era, I remember that happening quite clearly even if you don't.

THANK you, dbt3481!
...for pointing out something even MORE important:

You provide proof positive another fallacy of our 'progressive' tax system: That is more important that the Roys of the world feel like they are soaking the productive than it is to actually advocate tax policies that help the little guy -- like making it super-easy for you to hire more employees as opposed to making it super-hard.

In other words, Roy would rather deny people more employment opportunities just to make sure YOU pay your 'fair share', while claiming otherwise.

Disagree with your opinion of my beliefs
"...people demand of their government that they be able to make ends meet with the incomes they're earning."

I hit the point exactly. The people "demand X, Y & Z" from their government. They don't give a fig about the costs to their neighbor. They WANT but are ignorant of or indifferent to cost.

Contrary to public belief, nobody is entitled to housing, medical, gasoline etc. People want those things to be "affordable" meaning that they can purchase them. However, economics 101 will tell you cost's go up when government mandates coverages (which they do) or demand goes up (which it does due to our 3rd party payment system).

"Your picture of the nation is a tiny number of responsible wage earners like yourself, supporting an increasingly huge family of lazy payabouts, not even looking for work. That's impossibly dumb."

I think you weaken your argument considerably when you imply that I am dumb or my argument is dumb. And I wish I was in that 200K income class. Maybe after I have been at my current job for 25 years.

Based upon your post, I'll conclude you were rushed for time and unable to make a cogent argument.

To reiterate, from a system's standpoint (yes, I am in in some sense, a system's expert), it is not long term stable. That means either benefits will have to decrease to maintain stability or more high wage earners will need to be tapped. Given our skewed immigration policy of importing poverty from Mexico and not PhDs from China, I don't see that later option as realistic.

"...we see is the middle paying out in good faith while the fortunate ones (those making above $200K) getting a free ride."

Perception, in this case emotional perception is not reality. Look at the numbers. 10% covers about half of the cost. Which means the other 90% covers the other half. Good faith has a nice ring to it, but the evidence speaks truth to ignorance (hat tip to Al Gore).

"...And that chews us, because we see they're getting off light while being able to afford lobbyists to see the country run THEIR way."

It would appear that your arguments are not based upon logic. Rather, they is an appeal to envy, jealousy, and hoped for thievery: "And that chews us." Like you, I've always worked for rich men and women. I have never worked for a poor one.

"All income should be taxed at the same rate regardless of source. And progressivity should be maintained because the more fortunate among us both get more from the government and can afford to pay more into it."

And there it is. A dollar earned by Joe 6pack is worth more than a dollar earned by Gordon Gekko. Somehow, Gordon is "fortunate" translation: "lucky." He should therefore be forced by the government, under threat of physical violence and incarceration, to give up more of his dollar earned than Joe because Joe was unlucky and we need to make it all fair.

Tim Stevens
(sometimes my name doesn't appear on the "by line")

Maybe Joe decided to drink away his childhood while Gordon either chose to or was forced by his parents to stay in school. Or maybe Gordon got his MBA through the GI bill. Or maybe he took out lots of school loans while he worked at McDonalds 40 hours a week and took a full college class load.

The thought that somehow Joe is entitled to Gordon's income, "Gordon's slice of the pie" just because Gordon has more is pure jealousy and envy maybe bordering on hate.

and that is why I love the AMT (TS)
Think about it. It is the perfect anti-liberal tax.

Liberals (I include socialists, communists, totalitarians and all those other "we know what is best for you comrade" types) tend to live in high income tax states with high property tax rates. Those states have large demands for social programs and taxes which fund them are correspondingly high.

But, the deductibility of income taxes and property taxes is limited under the AMT. So rather than the regular income tax's indirect subsidy of allowing their partial deduction, the AMT effectively hits the liberal-based state's taxpayers harder than the non-liberal states.

Its no wonder that Congressional Democrats are so insistent that the AMT be terminated or at least modified so that the "middle class" is not ensnared by it. But truth be told, it was primarily Congressional Democrats who created the thing and it was signed into law by (wage and price controls) Nixon as I recall.

Moreover, the Congress proposed its repeal in 1999. But Clinton labeled it as "a risky tax cut" and so it remains to this day, a created-by-Democrats and protected-by-Democrats tax levied heavily on tax loving Liberals.

Tim Stevens

I agree but disagree
The great expansion of wealth has been invented by the possibility for anyone to create a business. In the past businesses were usually confined to locality and limited in scope. Now days a living room operation can be a global enterprise.

How can I know? Because I am one who started in the living room and now had to hire and expand. This option, of a global living room operation, simply was not possible until the internet age.

Affluence is the result of innovation.

Investing is a art. Never invest in that which you do not understand.

Sounds good
I like your idea. We should cut the fat from the budget.

We can't cut the entitlements though. That's money we have promised to ourselves. I wouldn't want to be the politican, running for re-election on the platform that he intended to cut Social Security benefits.

The easy stuff is in discretionary spending. Huge amounts can be excised from weapons systems research, We're so far ahead of whoever's in second place we can slow down on the space-based weapons platforms. And we have so many instruments of death already that we have to find new countries to invade, just to have the excuse for making them. So I'd decimate the systems that address enemies we don't have, with thousands of tanks at their disposal.

I'd still fund systems to thwart the enemies we do have. We need better interdiction, for instance, in port security. We need to realize our actual enemies are small numbers of low-tech conspirators with box cutters, not mighty armies on the plain of battle.

I'd also scrap the prescription drug benefit. This was about the dumbest, most poorly thought out approach to providing affordable drugs that could be imagined. It makes one think they designed it that way just so it would wreck Medicare-Medicaid.

And I'd also change the rules for Congress, so pork could be trimmed from those omnibus spending bills.

Oh, it is even MORE targeted to liberals than that...
...because one of the triggers that forces one to do the actual AMT calculation is high state income and property taxes that you pay in the first place.

But for me, I live in California and was sweating it until a month ago (when Congress 'fixed it' again). As much as I love the idiot liberals I am surrounded by getting nailed, I get caught in the crossfire.

I'll go with that
1. I guess we're making progress. So you would agree then that a dollar gained should be taxed at the same rate whether it is from wages earned, from a capital gain, from a corporation's profit or from an inheritance?

That's very good. We're on the same page.

2. If investors and business people feel that they are getting a better deal over in Ireland, where tax rates are lower and the government is amenable to capitalism, they should be moving there in droves. Yet they don't.

The fact that they choose to remain here in the USA tends to support my argument that they're actually getting a better deal here. And to the extent that they're getting preferential treatment by our government they should have to pay a premium for it.

They can afford it-- they paid a little more back in the 1990s and still managed to create a huge and impressive boom. And we need the revenue to pay bills.

A childish jibe
I'd be more appreciative of your profoundly humorless wit if you could put forth a coherent argument.

You disagree with me. Fine. Can you put that into words?

Evidence, please
The demand that our government create the basis for a general welfare may be, in your words, irrational. But it is an effective one. Because we get to vote on how well our leaders provide such a playing field.

Here in the USA, governments don't tend to fall. They get replaced by governments only marginally different than the ones they succeeded. Why? Because they are all to some degree attentive to the need to satisfy their customers.

As for your second "fallacy", please give evidence that we are surrounded by a gaggle of layabouts doing nothing to support themselves.

Otherwise they're out of business.

So I will go with the following statement, as being both true and appropriate:

"people demand of their government that they be able to make ends meet with the incomes they're earning. They think it's not too much to ask that if you work hard, keep your nose clean and pay your bills, you be able to afford housing, medical care and a reasonably good standard of living for your family."

Contributing to society
You suffer from the conceit that those who are profiting most from society are somehow contributing to it. They are not.

They're not making a contribution, they're making a withdrawal. It's the working poor who are profiting the least from their contribution. They do the actual work of society, and are repaid the least for their efforts. The value of their labor is transferred to the pockets of others, in the form of profit.

TCS Daily Archives