Massage oil

big oil, that is.

Both J. McCain and H. Clinton are proposing to cut the (actually already miniscule) federal tax on gasoline for the summer. To give her a smidgen of credit, Clinton is also suggesting a windfall tax on oil company profits to compensate the lost revenue, but this is a minor point.

The problem here is one of basic economics: the supply of gasoline is essentially inelastic: this means that if the customer were willing to pay double, it would not increase the quantity supplied very much at all. Part of the problem is a supply chain problem --- gas takes a while to produce, refineries have to plan what to refine to what, etc. Part of it is a "how much oil is pumped from the ground this year" problem.

Anyway, it is a basic fact of economics that when you take a product with inelastic supply, and cut the tax on it, what will happen is that the price will rise again until it stabilizes at the level at which customer demand meets corporate supply. In this case, the price is likely to be just about the same as the price we are paying already -- meaning that the 18 cent cut in gasoline taxes becomes an 18 cent per gallon subsidy to Exxon, Shell, et al.

In fact, what we should be doing right now is much more along the lines of taxing gasoline at a higher level --- as a windfall tax if you wish, or just making the 18 cent gas tax from ten years ago into a 90 cent gas tax now (as a proportion of the cost of a gallon, rather than as a flat rate per gallon regardless of price).

Given that the oil companies are making obscene profits right now -- I believe I heard yesterday that one company just posted the largest ever profits by any company anywhere ever --- we don't need to be pandering to the public and giving big oil a kissy-kissy tax break.

Yours, pouring water on troubled oil,
N.