It’s So Maddening to Bruce

Public policy should try to make prices of goods and services equal their social cost, especially at the margin.  If production of energy pay its entire social cost in for example environmental degradation, then its output should be taxed to drive the costs to producers to equal the social cost.  Monopolies should be broken up to do  the same thing.  Do our politicians seem to do that?

You be the judge from this recent event:  The Reaction of Washington to Rising Gas Prices.

Here’s what President Obama’s up to:

Obama’s lead pollster and senior strategist Joel Benenson told reporters Thursday that to appeal to voters who believe they’ve been especially hurt during the recession, the president needs to tie Republicans to lucrative benefits for the oil industry, and advocate for tax fairness and new investments in manufacturing and high-tech jobs…Although White House officials conceded early this month that there is no direct and immediate linkage between ending oil company tax subsidies and reducing gasoline prices, the president nonetheless tried to blend company profits, petroleum market speculation, and pump prices into the same populist message.

It seems the main thing the President is up to is trying to accomplish is to divert voter’s ire from himself, by having them believe that’s he trying to avoid profits for big oil, even that will do nothing to help those who buy gas.  There no apparent interest in equating the costs of producing oil with its price.

Tax policy for the oil industry should be to avoid wedges between social and private costs, not to serve some wave of outrage about profits in production of a good.

Are Republicans any better?

Take it away Senator Mitch McConnel (Republican leader in the Senate):

Senate Minority Leader Mitch McConnell, in a statement, denounced the president’s efforts to pass a version of a measure previously defeated by the Senate in 2011. Suggesting the president’s interest in repealing oil company tax breaks was an election-year gambit, the senator said he opposed the bill because it did little to lower $4-a-gallon gas and would instead “raise taxes on energy manufacturers.”

Republicans aren’t interested in letting prices rise if needed to reflect increasing scarcity of oil as an exhaustible resources.  In the end Republicans are not pro-market; they’re pro business.  It’s not good policy.

I’m not familiar with the tax policy of the oil industry that much.  If the tax changes proposed end subsidies for oil production that keep oil prices and product price below their social costs they should be repealed, as the the President has proposed.  If the tax changes proposed drive cost of oil production above or further above the social cost of its production, the Republicans are right and the tax policy should be kept unchanged.  This may be true to the extent that oil tax policy lets costs of oil production be reflected in calculated oil profits.

It does feel like our leaders are using a rational anything like this.


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