Guest Post by Willis Eschenbach
Inspired (as I often am) by either the insights or the foolishness of a guest post at Judith Curry’s always-provocative blog, I decided to take a look at the relationship between fuel price and miles driven. My inspiration came from my amusement at the guest author’s use of the following graph to establish a relationship between fuel cost and how much people use their cars. I think a relationship exists, but the graph used by the author doesn’t show it. Figure 1 shows that graph:
Figure 1. Per capita fuel use, compared to the fuel price, for the OECD countries. SOURCE
Now, it certainly looks like there’s a clear relationship there, but that’s an illusion. My objection to the graph was, the countries divide into two groups. On the bottom right you have the European OECD countries, plus Japan. Plus one fish.
On the top left, you have the US, Australia, Canada, and New Zealand. What’s not to like?
Well, ignoring fuel price for the moment, who would you think would drive more miles—a citizen of the US, or a citizen of Japan? An Aussie, or a Belgian? A Canadian, or an Italian? So all the guest author has shown in that graph is that the folks in large countries, with miles and miles between cities, drive more than Europeans and Japanese.
But of course, I couldn’t leave it there, so I linked to the following lovely graph of automobile use in the US that I ran across during my research. It shows, year by year since 1956, how many miles Americans have driven, and what the gas price was during that year.
Figure 2. Miles driven compared to the fuel price. Click to embiggen. SOURCE
Now that shows some very interesting patterns. The main oddity I noticed is that there is what might be termed a price shock effect—in the year of a big jump in prices, for example 1974, the mileage driven drops compared to the previous year. But then look what happens from 1974 to 1978 … the price stays stable, but the number of miles driven each year goes up steadily, without reversal.
But of course, I couldn’t leave it there. I digitized the data, to see what kind of relationships I could understand and reveal through further analysis. And as usual, I was surprised by what I found.
First, taking the data as it is given, there is no statistically significant relationship between the two variables, pump price and miles driven. The R2 is only 0.03. (“R2” is a measure of the relationship between two datasets, where an R2 of 1.0 indicates a perfectly linear relationship between the two, and an R2 of 0.00 indicates no relationship. So an R2 of 0.03 is … well … pathetic. So as far as a direct relationship between prices and miles driven, not happening.
Once I saw that, I wondered, well, what if I include a temporal trend in the linear regression? The way that I usually do that is simply to include the date as a variable. And to my surprise, the R2 went from 0.03 up to 0.98 … Figure 3 shows an emulation (multiple linear regression result) of the number of miles that Americans drive, versus the value estimated based on year and pump price.
Figure 3. The emulation is a multiple linear regression, using the year and the pump price as independent variables, and the actual average miles driven by Americans as the dependent variable. R2 = 0.98
Dang, sez I … that’s pretty impressive.
But of course, I couldn’t leave it there. A fixed annual increment, a simple trend like I used, is just a way to understand the data. It’s not an explanation involving some plausible mechanism. And more to the point, I also didn’t like those two years up at the top right of Figure 3, which are 2009 and 2010. In those years, Americans drove about a thousand miles less than expected. So I though about why that might be, and even a bear of little brain would go “global financial meltdown, duh”. And that made sense overall as well, because how far I drive doesn’t just depend on the pump price. It also depends in part on how much money I have in my jeans. When I’m flush I drive more, and when times get hard, I drive less regardless of the price of gas.
So I thought that instead of using the year, I’d try using the per-capita GDP as the second independent variable. Figure 4 shows those results.
Figure 4. The emulation is a multiple linear regression, using the real per capita GDP and the pump price as independent variables, and the actual average miles driven by Americans as the dependent variable. R^2 = 0.98 GDP SOURCE
Yowzah! Now that’s what I call shaving with Occam’s razor. It turns out that pump price and per capita GDP do an excellent job of estimating the number of miles driven, with very little error.
So, what does the magic equation that gives us the excellent results shown in Figure 4 say about the relationship between miles driven on the one hand, and gas price and per capita GDP on the other?
Well, it says that for every twenty-five-cent increase in the pump price of gas, Americans drive about a hundred miles less. Gas price goes up, miles driven go down. Makes sense.
And it says that for every $430 increase in per capita GDP, Americans drive about a hundred miles more. Wealth goes up, miles driven goes up. Also makes sense.
Now, the “carbon taxes” I’ve seen discussed are on the order of $20-$30 per tonne of CO2. And by coincidence, $28 per tonne of CO2 emitted is equal to twenty-five cents per gallon of gasoline. So if a $28/tonne carbon tax is imposed on gasoline, how much less might Americans drive?
Well … a hundred miles less … wow, such a stupendous gain, be still, my beating heart …
And how much actual change in our driving habits is a hundred miles less per year?
Well … since Americans drive about 10,000 miles per year, it’s a gigantic, massive reduction in miles driven of one percent.
And that, dear friends, is all the bang you get for your twenty-five-cent per gallon carbon based energy tax. A one percent reduction in miles driven. One freaking percent, and they want to impoverish the poor for that? Grrrr ….
So … what does this mean for the debate on carbon-based energy taxes?
First, it means that in the American situation, there is no way that the benefits of energy taxes are worth the cost. Why? Because the effect of a typical CO2-based energy tax on miles driven is minuscule, only a 1% reduction for a $28 per tonne of CO2 energy tax.
Next, a very slight increase in per capita GDP will nullify the energy tax entirely. Also by coincidence, it turns out that if the current per capita GDP goes up by about 1% (~$430), that will increase the mileage driven by 100 miles … so a 1% increase in per capita GDP will completely nullify a $28 per tonne of CO2 energy tax. And the GDP goes up by one percent all the time …
Next, it means that in order to have more than a one-year effect, the tax will have to continually rise.
The problem with a carbon based energy tax can be seen by thinking back to Figure 2, where I noted the “shock effect”, and how after the slight reduction in miles driven as a result of the 1974 big jump in pump price, after that one-year reduction the miles driven went right back to increasing year after year, with no change in the gas price.
So a one-time jump in the price will make little difference, just a one-year reduction in the miles driven. But by the next year or two, assuming that the per-capita GDP continues to rise as it has in the past, the miles driven will be rising again.
Next, it means that a carbon-based gasoline tax is wildly regressive. To see why, let me start with a slight digression, by bringing in a concept from accounting, that of “fixed”, “variable”, and “semi-variable” costs.
Fixed costs are those costs you can’t do anything about. The amounts are fixed, you can’t reduce them, you just have to pay them.. Maybe rent. Taxes.
Variable costs are costs that are entirely optional. Think maybe eating at restaurants. You don’t have to spend a penny on that if you don’t want to.
Semi-variable costs are costs that you can change, but you can’t eliminate entirely. These would be things like food costs. You can run them up or down, but you can’t eliminate them.
Now, think about the corresponding concepts as applied to the subject at hand—fixed, variable, and semi-variable miles driven.
Fixed miles are things like a commute to work. Short of changing your job or your residence, you can’t change that. You just rack up those miles every year.
Variable miles are things on the order of visiting Grandma in Arizona. You love to do it, but you don’t have to go.
Semi-variable miles are things like going to the post office to get your mail. You can cut the trips down, but not to zero.
What this graph shows me is that any energy tax on gasoline will hit the hardest on the poorest, the people who mostly use their car to get to work. The problem is not just that more of the wages of the poor go to energy, although that is also a problem.
But in addition to the higher percentage of their wages going to energy, the majority of their miles are fixed miles, so they can’t cut back on them. They have to drive them, so they have to pay the tax.
For the wealthy, on the other hand, lots of their miles driven are variable or semi-variable, so they can just scale down a bit. The energy tax means nothing to them. But for the poor, it can be a budget-buster.
This is one of the many reason why energy taxes are so regressive—because for the poor, fixed costs for everything squeeze them all the time, not just fixed fuel costs but also the other bills they have to pay every month. So when energy prices go up, Al Gore and James Hansen just cut back on visiting the grandchildren they love to talk about, no problem for them.
But the single mom whose gas budget barely covers getting to work, she can’t cut back on her gas use, it’s already cut to the bone. So when she pays the energy tax, she is forced to cut back on something for either the kids or herself.
And all of that for a pathetic 1% reduction in miles driven. That’s criminal.
Now please, folks, don’t insult my intelligence by claiming that it’s OK to harm the poor because of that well-worn fantasy, the fabulous claim that wealth redistribution will make it all OK. It won’t. Anyone who believes it will make it all OK has not spent enough time around government programs.
To start with, even the best-intentioned programs only reach a percentage of those most affected. Next, the poorer that people are, the less likely they are to hear about such programs. Think people living in apartments versus people living in their cars. Next, the paperwork required is all too often complex, confusing, and intrusive. Next, many of the poorest people are mistrustful of government. Also, immigrants are often equally fearful of government, and many don’t speak the language. Next, the people who end up getting the most benefits are often not those who suffered the most losses. Next, administering such a program requires a large expensive workforce of bureaucrats and paper pushers to make it function. And of course, they’re all Union, can’t be fired, plus we’ll be stuck paying these pluted bloatocrats their megabucks in retirement money ’til they shuffle off to a warmer place … and I’m not thinking Florida. Next, as with any government program, waste will consume more than you imagine. Think IRS conferences in Las Vegas and thousand dollar hammers. Next, parasitic rent-seekers like lawyers and consultants will be circling the honey-pot and making off with some of that good honey. And finally, there’s never been a government program that people didn’t scam, game, and cheat, so somewhere between a little and a lot of money will simply be stolen.
So no, wealth distribution will only make things worse, or on the best day with a following wind it might “break even” by taking from one bunch of the poor and giving to another bunch … and meanwhile the people at the bottom of the economic pile are hit the hardest. And whether you are a conservative or a liberal, that should appall you.
And finally … we’re going to create all that pain and create a giant bureaucracy and waste piles of money for a crappy 1% reduction in miles driven, a temporary reduction that will be wiped out by the next 1% increase in per capita GDP?
Really? That’s the brilliant plan? Screw the poor and the economy for a 1% reduction in miles driven?
Spare me. That’s more than foolish, that’s a crime against the indigent and everyone else in the country. Almost any other conceivable response to the imagined horrors of CO2 would be preferable. Taxes on energy are destructive and damaging to individuals, to businesses, to the environment, to the economy, and more than anything to the poor, and to turn it from mindless idiocy to criminal tragedy, there is nothing to show for it at the end of the day but a temporary 1% reduction in miles driven—from an energy tax, there’s no lasting gain, only lasting pain.
w.
DATA: The spreadsheet with the data and graphs is here.
[UPDATE] I just wondered, how much will the $28 per tonne of CO2 gasoline tax cost per year? Average fuel economy of the US fleet, cars and trucks, is about twenty mpg. Average person drives ten thousand miles, at twenty mpg that’s five hundred gallons. The tax at twenty-five cents per gallon on five hundred gallons is $125 per year.
In response to that tax, we can expect people to cut fuel use by 1%, or 5 gallons per year. Gas is around four bucks a gallon, so that’s $20 worth.
So the plan is to charge the average driver $125 per year in gas tax, and in response to that he’ll use $20 less gas, reducing his bill at the pump from $2,000 per year to $1,980 per year and cutting his CO2 emissions by a whacking great 1% … who thinks these plans up, and how can we catch them and stop them?
[UPDATE 2] I also got to wondering, just how much CO2 would a $28 per tonne of CO2 applied to gasoline consumption actually save? There’s 8.9 kg (19.6 pounds) of CO2 in a gallon of gasoline. Crazy but true, it’s the extra weight of the oxygen. So we’d be saving one whole percent of that, or .089 kg per gallon. Multiply that by the number of gallons of gasoline burned in the US, about 134E+9 gallons, and we end up with 0.01 gigatonnes (billion metric tonnes, E+9 tonnes) of CO2 saved.
And compared to a hundredth of a gigatonne, how large are the global CO2 emissions? Well, it’s about 9 gigatonnes of carbon C emitted per year, so as CO2 the mass is (16 + 16 + 12) / 12 of that to allow for the extra weight of the oxygen, or 33 gigatonnes of CO2 per year.
And the $28 carbon based energy tax would reduce that by 0.01 gigatonnes of CO2, which is a reduction of three hundredths of one percent (0.03%) … folks, have we truly gone so mad that such a trivial gain, three hundredth of one percent reduction in CO2 emissions, so small as to be absolutely unmeasurable, is used to justify this crazy tax?
One aspect no one has touch on is what happens when you crowd people into too small a space?
In animals you get all sorts of destructive habits and even deaths if you do not allow an animal enough space especially if you have several in a group.
When, because of employment, I was forced to live in city apartments, I escaped to a farm in the country every evening where I kept my horse and on weekends went backpacking in the mountains or caving all this thanks to my owning a car. However if you trap people in a city with no option for relief what happens?
Good point – there is a great book by Prof. Patrick Troy (Australian National University) called “The Perils of Urban Consolidation”, in which he is scathing about urban planners belief in some kind of utopian idyllic high-density-living past where everyone reacted positively with their neighbours. The truth is that most people can’t wait to gain the ability to have their own patch of private space somewhere.
I would love to see some good, scientific, or at least verifiable data on MPG loss(gain? – never!) when using ethanol blend gasoline. On four separate occasions I have measure the MPG on two different cars when taking a trip of more than 1000 miles (at least 500 each way) and each and every time I got at least 5% better gas millage when using only gasoline without ethanol. Told my son about this and he told me “You must be wrong. The internet claims that there is less than a 2% decrease if any!” Finally he tried it on a trip to Fargo ND and back and has thanked me ever since. He claims he has a 8-10% improvement on his 22MPG truck on the highway. (went from ~20 to ~22 MPG) With a 5 to 10 percent loss you are in essence paying for 5 to 10% “water” in your gas. How does that save the environment? How does it save Oil, Gas? Sounds like a scam or the butcher with his thumb on the scale!
Gail: “Have you ever bothered to look at who pays taxes on wages???
Nearly haf of Americans do not pay income tax.”
But income tax is not the payroll tax I am referring to. Everyone with a (not underground) job pays social security, medicare…. and other payroll taxes. Those are the taxes I would reduce to neutralize carbon tax revenue.
Since 9/11 any job below 1000 miles or so that is not just a one day gig or does not require tools (rare) – driving has become my default so I clock close to 20K miles per year (mostly in rentals unless I need to drag the 5th wheel to some remote location to live in for the duration) and still manage to get platinum status on at least two airlines
just doing my part to put more plant food in the atmosphere
Todd Litman says:
July 10, 2013 at 12:50 pm
Thanks, Todd. First, thanks for your comments. Let me be clear that my comment was about the way the guest editor at Judith Curry’s blog used the graph, not the way you used the graph.
Next, you say that you “agree with Eschenbach that the graph he criticizes (Figure 4 in my report) by itself does not prove that fuel price affects per capita vehicle travel”, so we’re in agreement on that, and that was my only point about the graph. And regarding whether fuel price affects per capita vehicle travel, we agree on that as well, we both say it does. So far, so good … but there we part company. You go on to say:
And yet, despite your claim that all of those things things are necessary “for accurate results”, I can estimate the US miles driven with 98% accuracy using just fuel price and real GDP per capita. How much more accuracy are you expecting beyond that? … it’s kinda hard to argue with success. Call me crazy, but from my perspective I just showed that all those things are NOT necessary for accurate estimation of miles driven.
Next, my analysis covered the period 1956 to 2010, with no loss in accuracy with time. So what do you mean that my analysis “only reflects short-term impacts although carbon taxes are intended to affect very long-run consumption”. My analysis reflects all impacts up to the length of the data … can you do better?
I guess that’s my question, Todd. If your method is so superior to mine, give use the magic formula, show us the data, toss YOUR spreadsheet in the ring the way I have so that everyone can examine your method and decide for themselves how it works compared with mine.
Next, you say my analysis “only considers changes in mileage, not the much larger changes in fuel consumption.” It appears you have forgotten that all I have to do is divide the estimated mileage driven by the US fleet economy to get the estimated fuel consumption.
Finally, you accuse my analysis of being simplistic. There are two reasons that I stopped looking for more explanatory variables.
First, the R2 is 0.98 … there is very little further accuracy available even if we had a 100% perfect model. What kind of greater accuracy are you expecting?
Second, as I said, I’m shaving with Occam’s razor, which is sometimes stated as “Don’t multiply causes un-necessarily”. So if I can explain Amercan driving habits with 98% accuracy using just fuel price and per capita real GDP, then why on earth would I want to consider the “demographic, economic and geographic trends during the last quarter of the twentieth century which stimulate automobile travel demand” as you recommend? How will that help me understand the last 2%?
For example, I tried adding the US fleet fuel economy to the mix. Yes, the R^2 increases if I do that. From memory it went from 0.977 to 0.982. So for me, adding that is multiplying causes un-necessarily, for only a tiny gain.
My best to you,
w.
Matthew R Marler says:
July 10, 2013 at 2:08 pm
Ummm … ’cause it’s Hannah Fairfield’s chart, not mine?
w.
John says (July 10, 2013 at 1:33 pm): “How it can be possible that 82% is not most people, I just checked this.This is far mucg greater”
From Wikipedia, “[The US] is very urbanized, with 82% residing in cities and suburbs as of 2008…” [my bold] According to this in 2000 52% of the US population lived in suburbia, i.e. non-city, non-rural. So Patrick is technically correct.
The US Census bureau, however, pretty much defines “urban” as “non-rural”, so we have the strange situation that most Americans live in “urban” areas even though most “urban” Americans actually live in “suburbs”. Personally I see a big difference between my suburban/semi-rural neighborhood and nearby San Francisco, but far be it from me to argue with my
political mastersdedicated public servants. 🙂Willis writes ” I can estimate the US miles driven with 98% accuracy using just fuel price and real GDP per capita.”
And so you can closely align fuel consumption with GDP (after all “miles driven” is just a measure of fuel consumption). So what is your explanation of the current sustained reduction in fuel consumption (and GDP)? There have been stock market crashes and economic hardships a number of times over that period. What makes this period special?
John says:
July 10, 2013 at 7:18 am
Mike M,
You may do whatever You want unless You affect others. It is not a freedom You talk about, it is anarchy. Your freedom end where starts my freedom and vice versa.
I intentionally stated “If we can agree”, those “we” in USA should be citizens of USA. You asked: “WHO gets to make the determination whether or not a given act is wrong?” Answer is simple, the society. And every member of society is rights to do the best to convince others.
I love this argument. Shall we look at how successful majority rule has been in the past? Majority rule authorized the Salem witch burnings. Majority rule legalized slavery. Majority rule instituted Jim Crow laws. Majority rule elected Hitler chancellor (Godwin, yes, I know, but this IS relevant). Your precious society is quite good at misguidedly removing the freedoms of minorities and couching it as necessary for the greater good. Why on Earth should I trust you with this one?
Simple enough, people are still not working or underemployed. The economy is slowly getting a bit better but companies are not adding jobs. No work or under employed means less driving.
wodehouselee says (July 10, 2013 at 4:32 pm): .”…Although many people like to observe that Europeans still drive less than Americans, in fact the upward trajectory of automobile ownership and automobile use has increased in Europe in almost exactly the same way as in the United States, simply with a time lag due to a lag in affluence…..”’
I hope John doesn’t see this. His head might explode. 🙂
Gail Combs says:
July 10, 2013 at 4:00 pm
Top 10 Percent of Earners Paid Majority of US Tax Percentage (not the wealthy but the wage slaves)
Rank……..Income
Top 1% – $343,927+
1-5% – $154,643 – $343,927
5-10% – $112,124 – $154,643
10-25% – $66,193 – $112,124
25-50% – $32,396 – $$66,193
Bottom 50% <$$32,396
The top 10 percent of income earners paid 71 percent of all federal income taxes in 2009 though they earned 43 percent of all income. The bottom 50 percent paid 2 percent of income taxes but earned 13 percent of total income. About half of tax filers paid no federal income tax at all.
This does not mean the bottom half does not pay taxes. They do but they are hidden. 151 Taxes Hidden In Loaf Of Bread
Actually it does mean that the bottom half don’t pay (federal) taxes.
http://gregmankiw.blogspot.com/2012/07/progressivity-of-taxes-and-transfers.html
Darrin writes “Simple enough, people are still not working or underemployed.”
But the unemployment rate was higher in the early to mid eighties. Plug in 1956 to 2010 into here for example…
http://data.bls.gov/timeseries/LNS14000000
So that doesn’t make this period special.
Steve Reynolds says:
July 10, 2013 at 5:57 pm
Weren’t you the guy who didn’t answer when I asked how that would help the guy who is living in his car and driving around looking for work. Or the hundreds and hundreds of Hispanic folks living here in Sonoma County, both legal and illegal, who work only occasionally in the legit economy. Or the students who are paying taxes on gas but aren’t working?
Your claim is that when the government takes money from one man and gives it to another, it’s OK as long as the government doesn’t keep any of the money. So I’d like you to pretend that the government has taken $100 from you and given it to me. That’s 100% revenue neutral, right?
So since it’s all so revenue neutral … how about to make things more realistic, you actually write the check for $100 and send it to me?
What’s that you say? You’re not gonna send the money?
Why won’t you send me the $100? Well yeah, Steve, you’re right, me taking $100 out of your pocket isn’t fair. Because REVENUE NEUTRAL DOESN’T MEAN EITHER FAIR OR EQUITABLE.
w.
Steve Reynolds says:
July 10, 2013 at 5:57 pm
Gail: “Have you ever bothered to look at who pays taxes on wages???
Nearly haf of Americans do not pay income tax.”
But income tax is not the payroll tax I am referring to. Everyone with a (not underground) job pays social security, medicare…. and other payroll taxes. Those are the taxes I would reduce to neutralize carbon tax revenue.
>>>>>>>>>>>>>>>>>>>>.
I suggest you look at history. Politicians are very very good at telling us how great something is and then it morphs in to something nasty that benefits them and their buddies not us. A carbon tax would be like the Federal Reserve Act of 1913, a stealth tax that is a direct short across the productivity of the country.
Already the average American now works for twenty years for the government simply to pay his taxes. [Lost Rights: The Destruction of American Liberty, by James Bovard (St. Martin’s Griffin, 1995), p. 289.] That does not include all the years we labor to pay the ‘interest’ on the freshly printed fairy dust lent by banks that we use to buy just about everything from groceries to houses.
The ruling class has figured out the best way to make us serfs.
@TimTheToolMan says:
July 10, 2013 at 7:22 pm
You know administrations love to tweak statistics to make themselves look better and this is one of those case. The U6 number which counts unemployed, those who have fallen of the unemployment rolls but still looking for work and the under employed has us at 13.8% for this month. We have counties in my state close to 30% unemployment and that doesn’t show in the national average. For a good explanation of the U6: http://www.forbes.com/sites/susanadams/2013/06/07/the-unemployment-news-is-worse-for-many/
I have no doubt you’re right about continuing unemployment, Darrin, but that’s not what I’m driving at. There must be an underlying cause and I believe it can seen in the Hannah Hartfield graph (as well as Willis’ graphs although not as clearly.
The difference as I see it is that in the early eighties after unemployment had peaked, consumption again rose as prices dropped and continued to rise for years. Things got better quite quickly. This time consumption continues to fall and the recovery has been prolonged.
Todd Litman says:
July 10, 2013 at 12:50 pm
These elasticity values are less than unity, so fuel is considered “inelastic”, but much more price sensitive than Eschenbach concludes. The long-run reduction in vehicle travel is two or three times higher than his short-run estimates, the reduction in fuel consumption is two or three times higher than his vehicle-travel reductions, impacts tend to increase if transport options improve, and these are all economic transfers not economic costs, their ultimate impacts on consumers and the economy depend on how revenues are used. Eschenbach adds two common but incorrect assumptions, that carbon taxes are inherently regressive (they harm the poor) and that they are economically harmful. The regressivity of fuel prices depends on the quality of transport options and how revenues are used. If lower income people have good alternatives to driving and revenues are used in ways that benefit poor people, fuel/carbon taxes can be progressive overall. Yes, crude oil price spikes are economically harmful because money is transferred to petroleum producers, but if carbon tax revenues substitute for more economically harmful taxes, such as income or sales taxes, it can support economic development.
A somewhat fair point in that consumption taxes can be made both progressive (we need another word because I find no “progress” in taking DISproportionately more from someone just because they have more) and more efficient than income taxes. But hold on, you said they are less economically damaging than sales taxes. Whoa. Why? That statement demonstrates a significant bias in your understanding. Unless you can demonstrate that a particular form of consumption is more destructive or has higher externalities than another, then any sales tax is completely equivalent to a carbon (consumption) tax. But that is your bias, isn’t it? You believe that CAGW is a problem and that a carbon tax will be a Coasian solution to the problem. But what if you’re wrong? Then you are introducing a distortion to the market which penalizes carbon intensive energy and makes “renewables” appear to be cheaper when in fact they aren’t. Given the quite obvious failures of the CAGW models you have to realistically entertain that possibility, so you shouldn’t be advocating for a carbon tax, but you should still be advocating for a consumption tax.
Now you (and I) could make an argument that gas taxes should be higher to support our road infrastructure. I certainly have no issue with that at all, but I don’t want any of that money diverted to subsidize public transit, and ideally I want the US road network privatized -not unlike the Canadian equivalent of air traffic control- with the gas tax stream going strictly to funding the system. Buses use roads so they pay the tax. Public transit ridership too low? Then you either explicitly subsidize it or it goes away. I’m looking at you Amtrak and CA high-speed rail.
All of this presumes that the government would implement a carbon tax in a revenue neutral manner. But then again, this is the same government that claimed health insurance premiums would go down with Obamacare. Fool me once, shame on you. Fool me 17 trillion times, shame on me.
Finally, I would add that you neglect the deadweight losses associated with any tax and I would hope that the news cycle over the last few months has convinced you that our government is spectacularly good at making deadweight losses.
A good example is the country of Norway, which is a petroleum producer, has one of the world’s highest incomes and GDPs, has a cold climate and low population density, yet maintains one of the world’s highest fuel taxes and maintains a multi-modal transportation system which encourages walking, cycling and public transit where possible. As a result, Norwegians drive about half as many annual kilometers and consume about half as much petroleum per capita as in the U.S. By discouraging domestic consumption Norway has more petroleum to export, making it more economically successful overall.
Now hold on there. I think you’re double dipping a bit in this example. How much of Norway’s GDP is excess oil production (beyond what even an American would use) that they sell on the open market? How much value does Norway obtain from exporting the additional “saved” oil versus the cost of all of the public transit subsidies? Why don’t they raise the gas tax even higher and export even more oil? If public transit, walking, and biking are always winners then Norway should ban the consumption of all petroleum and export it all… Where’s the breakeven point? 60%? 80%? 99%? Or have they arrived at the Goldilocks point already?
And finally, Norway is limiting the freedom of its citizens through such high fuel taxes. Perhaps they would like to consume more fuel and live a more American lifestyle. Perhaps not. I’m certain that there are some Norwegians who would consume more gas if they could afford it even if a majority would not. Heavy taxation inherently limits that choice.
TimTheToolMan says:
July 10, 2013 at 7:22 pm
Darrin writes “Simple enough, people are still not working or underemployed.”
But the unemployment rate was higher in the early to mid eighties. Plug in 1956 to 2010 into here for example…
http://data.bls.gov/timeseries/LNS14000000
So that doesn’t make this period special.
Unemployment is a bad statistic even when U6 is taken into account because if you aren’t looking for a job you don’t count. Labor force participation rate is as low as it was in 1979 (maybe it ticked back up a bit-I haven’t looked at the last couple of months) and has been falling. The participation rate in the 80’s and 90’s was rising or plateauing. But obviously prices do play a role as well in the efficiency of vehicles and the amount of elective driving we do.
OK, re read your original question. I would say the underlying cause of the slow recovery is due to how Obama has handled the crash and recovery. In other words, bad policy. I heard several economist say at the time his actions were going to prolong economic malaise, not pull us out of it in a reasonable amount of time. I would say they’ve been proved out as right.
Obamacare hasn’t helped either as businesses are unsure just how much it’s all going to cost. Companies cash reserves have been on the rise as they sit on their cash instead of spending it.
Willis: “Weren’t you the guy who didn’t answer when I asked how that would help the guy who is living in his car and driving around looking for work.”
I’m the guy, but I did answer:
“Steve Reynolds says:
July 10, 2013 at 12:43 pm
Of course the effect of a tax cannot be neutral for everyone, but I think the payroll tax break I suggested would actually benefit almost every low-income family with a member on a payroll.
Even “the unemployed guy sleeping in his car and looking for work” would probably be better off if an RN carbon tax replaced the market distorting maze of subsidies for ‘renewable’ energy that we have now. If potential employers were not paying various taxes and fees to support those subsidies, they might be able to afford to hire him.”
Willis: “Your claim is that when the government takes money from one man and gives it to another, it’s OK as long as the government doesn’t keep any of the money.”
Willis, you are doing what you often complain about: saying I have made statements or points that I have not made. Please quote my exact words. I am probably as much against taxes in general as you are.
What I do claim in the style you used:
It is less bad for the government to take money from one man if it stops taking it from another poorer man and also stops making almost everyone poorer by distorting markets with subsidies.
Darrin writes “I heard several economist say at the time his actions were going to prolong economic malaise, not pull us out of it in a reasonable amount of time.”
From an outsider’s point of view it looks like the US has topped out its credit card and something had to give. Only time will be able to tell whether Obama’s policies are heading the US in the right direction or not but again from an outsider’s point of view previous policies that resulted in the escalating national debt clearly weren’t good ones either.
At the end of the day recovery will mean people finding employment and that slowly seems to be happening. It still doesn’t explain the continued decreasing oil consumption though.
John et al. are working towards the Agenda 21 vision of tiny urban enclaves with the rest of the landscape unpopulated. The better to control you, my dear!
Gail: “I suggest you look at history. Politicians are very very good at telling us how great something is and then it morphs in to something nasty that benefits them and their buddies not us. A carbon tax would be like the Federal Reserve Act of 1913, a stealth tax that is a direct short across the productivity of the country.”
I agree that is a risk to instituting a carbon tax, so keeping it revenue neutral is absolutely critical. But a simple carbon tax is much more difficult to subvert for the benefit of political cronies than subsidies or the designed for graft cap and trade bill.
Willis Eschenbach says:
July 10, 2013 at 7:22 pm
Steve Reynolds says:
July 10, 2013 at 5:57 pm
Gail:
“Have you ever bothered to look at who pays taxes on wages???
Nearly haf of Americans do not pay income tax.”
But income tax is not the payroll tax I am referring to. Everyone with a (not underground) job pays social security, medicare…. and other payroll taxes. Those are the taxes I would reduce to neutralize carbon tax revenue.
Weren’t you the guy who didn’t answer when I asked how that would help the guy who is living in his car and driving around looking for work. Or the hundreds and hundreds of Hispanic folks living here in Sonoma County, both legal and illegal, who work only occasionally in the legit economy. Or the students who are paying taxes on gas but aren’t working?
It wouldn’t but then you need to answer why the hundreds and hundreds of Hispanic folks who work in the shadow economy shouldn’t have to pay for infrastructure and services. He explicitly stated “not underground.” The point being that they should be here legitimately or not at all. A consumption tax for which they cannot be compensated by e.g. the EIC actually encourages legitimate immigration. I’m all for expanded immigration but I see no reason to reward someone for coming here illegally, so let’s put aside that strawman.
The same goes for the student. They drive on the roads. They consume (destroy) a resource: gasoline and diesel and roads. Why shouldn’t they pay? If we choose to reward scholarship, then give them a refundable tax credit like the EIC as long as they’re in school. That’s a choice we can make (I wouldn’t) that directly addresses that concern.
No system is absolutely perfect. He was speaking in the aggregate. And he’s right that a consumption tax if done properly will be both economically more efficient AND can be “progressive” (man, I HATE that word). Fewer distortions in the system make it run better and overall we win. Now, where I have a problem with a carbon tax is that it’s a limited consumption tax that creates its own distortions based on a problem that empirically is not happening, so I would much prefer sizing the gas tax to properly (and ONLY!) care for and expand our road network. Similarly I’d want as many usage taxes directly tied directly to services as possible so that the consumer/taxpayer knows and sees both the services and their payments in as transparent a system as possible. A broad consumption tax could provide for everything else that we decide to subsidize (defense, entitlements, etc.) and it can even be engineered to provide subsidies to low income workers.
Finally, “fair” is entirely arbitrary. Team Blue and Team Red and Team Libertarian would all disagree on what “fair” is. Team Blue also loves carbon taxes, but so does a chunk of Team Red. I happen to think that everyone should pay something into the system and if you use something you should pay for it. Team Blue just thinks that I should pay for everything. I don’t like Team Blue very much…