<Interesting Economics The Oil Drum DrumBeat: July 3, 2006>
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158 comments on DrumBeat: July 2, 2006

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westexas on July 2, 2006 - 2:30pm Permalink | Subthread | Parent | Comments top
I think that we need to offset an energy consumption tax by abolishing the Payroll Tax.  The faster than we adjust to more expensive energy the better off we will be.
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TechGuy on July 2, 2006 - 3:46pm Permalink | Subthread | Parent | Comments top
>The faster than we adjust to more expensive energy the better off we will be.

Raising Interest rates would be the fastest way to make energy more expensive. It makes everything more expensive and prevents inflation. It wasn't until the 80's after the interest rates shot up that efficiency of US cars began to rise. During the 1970s when the gasoline tax was enacted it did nothing to curb demand.

>I think that we need to offset an energy consumption tax by abolishing the Payroll Tax

That won't happen. What do you believe abolishment the payroll tax will accomplish?

FWIW: I think your interpretation of future Oil production is right on the money.

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SqueakyRat on July 2, 2006 - 5:01pm Permalink | Subthread | Parent | Comments top
It makes everything more expensive and prevents inflation.

Hmm. Just a second, let me get that.

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TechGuy on July 2, 2006 - 6:10pm Permalink | Subthread | Parent | Comments top
>>It makes everything more expensive and prevents inflation.
>Hmm. Just a second, let me get that.

Nice oxymoron! I apologize. I definately should have done a better job writing that statement:

Higher interests rates raises borrowing costs which makes it more expensive for consumers to purchase goods and services on credit. Because consumers spend less, business lose the ability to raise prices which lowers or stops inflation. If interest rates rise too high it causes deflation, as businesses are forced to reduce prices and must reduce costs. Cost reduction can be accomplised by improving efficiency or reducing production to meet the decline in demand. Either way, the results is decreased energy consumption.

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Nagorak on July 2, 2006 - 7:13pm Permalink | Subthread | Parent | Comments top
And what, the next Great Depression?  We're in a pretty big fix at the moment.  Thanks to lowering interest rates too much we've ended up with a negative savings rate.  The next recession is going to be brutal because most people will not have the assets to weather the downturn.  

Don't get me wrong, the Federal Reserve needs to raise rates and they will, but I don't see the correlation with energy consumption.  Yes, a recession may cause a drop in consumption, but higher energy prices in itself should also cause a drop in consumption and a move to more efficient use of energy.  

I don't know how many friends I have who leave their computers running 24/7 (because waiting 30 seconds to turn it on is so inconvenient), and drive like maniacs (because getting some place 2 minutes earlier is so important).  Most people don't even need to buy anything new or more efficient, they can make drastic changes by altering their own lifestyle.  Eventually if costs keep going up, they're going to realize the need to do so.  

Anyway, I don't really see the benefit of the Federal Reserve meddling directly in the oil market by essentially purposely causing a recession.  That's not their mandate (in fact it runs counter to it) and they're not going to do it.  They will cause recessions, but not a long drawn out, perpetual one like what you are suggesting.  

We can't worry about world oil consumption, we need to solve our own problems and improve our own efficiency before worrying about others.  We have the most room for improvement, and thus the most need to improve, as we will be hit hardest when energy becomes scarcer.  I just don't see how having the Federal Reserve try to solve the proble is anything other than a shotgun approach (even if they would do what you suggest and they won't).  

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entropy on July 2, 2006 - 7:22pm Permalink | Subthread | Parent | Comments top
I think auto efficiency rose mainly because of higher gas prices and high fuel efficiency requirements forced on automakers.  I kind of doubt that increasing interest rates directly resulted in increased fuel efficency. (It probably reduced fuel consumption by putting alot of people out of work, though).

I think taxation is a question of incentives.  Taxing labor encourages people to work less (at least work that is taxed).  Taxing non-renewable energy consumption encourges conservation and development of alternative energy sources.

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158 comments on DrumBeat: July 2, 2006

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