Oil Market Is NOT a Free Market.

After threatening the Saudis with blocking arms deals and getting laughed at, after Bush begged the Saudis and was rebuffed, the House is sueing OPEC for cartel practice.

So, after 30 years, the smartpants in the House finally realized that OPEC is a price fixing cartel. And when are the free-marketers going to figure out that a market where the OPEC calls the shot is NOT a free market?

To get a free market, you got to destroy OPEC first. I can't repeat this enough: OPEC must be destroyed. Whether by sueing OPEC or by banding up with fellow oil consumer nations, I do not care. Consumers have consumer advocates, it's time that oil consumer nations work together to safeguard their own rights.

"...No one ever really does anything about it"

But everyone's talking about it. Brian Lafave, a guy from Wisconsin decides to not to use gas for 31 days, starting May 11th. Instead of logging 300 miles on his pickup truck, he's going to bike. This switch has already quietly happened for many Americans. Byebye exercise bike, hello real bike.

George Bush went begging Saudi Arabia and was rightly rebuffed, but it will be Americans like LaFave will one day turn the supply/demand table. They will not care if gas price goes up to $10/gallon, or if Saudi Arabia falls off the face of earth, they will be glad that they get to spend their gas money anywhere they liked.

An article appeared on Christian Science Monitor today advocating higher gas tax. It cites the example of Sweden's carbon tax and particularly mentioned the proposal by a Democratic law maker John Dingell to increase gas tax.

In this era of farm subsidies for $1M/year farmer families and 2 out of 3 presidential candidates proposing gas tax holiday, there's this one guy who dares to buck the peer pressure and say the obvious. Good luck to him and I mean it!

Gasoline Price Level vs Volatility

Gas tax hikes may not affect lower and middle class people so much if gas tax revenue is used for tax rebates. But another question is: would raising gasoline tax to $1, $3 or even $7 cause a lot of suffering among businesses?

The answer is no. Here's why: business will always try to pass the gas price hikes to consumers, whether that price hike is due to OPEC's manipulation, speculator's bidding frenzy or government taxation. What business really care about is not the level of gas price, but the volatility of gas price.

If a business has an Oracle that tells him, that gas price will stay at $10 +/- 10% in the next year, he will devise a strategy based on this number, decide how much product to manufacture, how much inventory to carry, how many delivery trucks to deploy, how many people to hire, and ultimately, the price he's going to charge. He has certainty at least about one thing, gas price, and it's valuable.

If on the other hand, a business has no such Oracle, the price of gas can double or half in a year. Then he'd have to guess: if he guess too low, he ends up charging too little, losing money if gas prices skyrockets; if he guess too high, he may charge too much and then lose customers to competitors who may have guessed better or may have just lucked out. Look at GM and Ford with huge inventories of SUV and other gas guzzlers sitting unmoved in the lot. Gas prices moved on , so Americans passed them by.

So when untaxed gasoline prices in America moved from $1.5 to $3.7, the heavily taxed gasline prices in Europe only moved from $6 to $8/gallon. In absolute terms, European businesses are paying more. But in relative terms, their businesses are better positioned strategically and can better absorb this hike.

Income Tax or Gas Tax? Your choice!

We are paying $3.7/gallon currently. CNN cited a survey that 8-9 out of 10 Americans now expecting to pay $5/gallon at the pump in future.

So let's say they are right, they do pay $5/gallon, but instead they start paying it now, with 30% of $5 going towards gas tax. So how much are we talking about?

Americans consume 140B gallons gas a year. So gas tax revenue comes at $200B. This is enough for an income tax rebate for every American of $600. Or it can be used as public transportation credits and investment, energy conservation credits and green energy credit.

Now if Americans are willing to pay the European rate of $7-8 starting today. Gas tax revenue becomes $400B. That's enough for income tax rebate of $1200. And if Americans are willing to pay $10/gallons, gas tax revenue becomes $800B, almost enough to give an income tax holiday for lower/middle class Americans for a whole year.

Interestingly, there are already talks of $10/gallon. People increasingly expect it, the only difference is you will be paying the $10 all to OPEC and refiners, and still have to pay Uncle Sam. You do the math.

Sign our petition if you would like to see our gas tax hiked

A Real Stretch

Following from CNN article " Food Inflation Hits Families Hard":

A new bill would cut the 51-cent-a-gallon ethanol subsidy to 45 cents, according to news reports. Farmers who make up to $2.5 million are eligible for subsidies, but the bill would drop eligibility to $1 million or less.

Tom Buis, president of the National Farmer's Union and a former corn farmer from Indiana, defended farmers before the committee.

"Everybody seems to be wanting to blame the farmer for everything bad happening in America and around the world," said Buis. "Some people think that profit should be a dirty word only for American farmers."

- YaoYao: Profit is not a dirty word. But profit on the back of a massive taxpayer subsidy by people earning more than $1Million a year, is dirty.

Corn farmers have been blamed for everything from the rising price of beer in the United States to pasta riots in Italy, Buis said. But, he added, half of all corn is used to cattle feed and much of it is used for soda syrup.

"To make the equation that corn is taking food out of people's mouths is a real stretch," Buis said.

- YaoYao: Right, so the cattle aren't destined for people's mouths either. The price of both meat and grain are shooting up because corn is planted instead of other grains, and corn ends up as ethanol. The real stretch is this man's believability

Alternative Universe Of Europe

CNN today has an article about International Gas Tax

Relevant quotes here:
"Out of 155 countries surveyed, U.S. gas prices were the 45th cheapest...

As of late March, U.S. gas prices averaged $3.45 a gallon. That compares to over $8 a gallon across much of Europe, $12.03 in Aruba and $18.42 in Sierra Leone."

"But those cheap gas prices - which Americans have gotten used to - mean they feel price spikes like the ones we're experiencing now more acutely than citizens from other nations which have had historically more expensive fuel.

Cheap gas prices have also lulled Americans into a cycle of buying bigger cars and bigger houses further away from their work - leaving them more exposed to rising prices, some experts say."

"Revenues from Europe's high gas taxes are used to fund a variety of things. One thing they have built is better public transportation"
"Europe's stronger social safety net, including cheaper health care and higher education, is paid for partly through gas taxes"

"Oil use in the United Kingdom has basically stayed flat from 1980 to now, while in France it's dropped 17%, according to figures from the Energy Information Administration.

In the U.S., meanwhile, oil use is up 21% over the same period, although the country has added more people and seen its economy grow slightly faster."