Saturday, June 21, 2008

China cut gasoline subsidies

On 6/19, oil price took a tumble for $5. The reason? China cut gasoline subsidies, following the example of other oil consumer countries. Imagine what will happen if all oil consumer countries unite to not only cut subsidies, but also hike taxes. The pain for businesses and commuters will be temporary, but the shift away from oil guzzling practices will last years and even be permanent as city infrastructures realign.

If you ever visit China, you'll probably land in Beijing or Shanghai. Both are booming metropolises w/ huge and inreasingly middle class population. Yet one look at their roads you will be able to tell the difference. Beijing streets are vast traffic jams filled with noxious fumes, while Shanghai roads are mostly populated with smooth-running clean buses and very few private cars. The reason? In Beijing, you can get a private car license for $10, while in Shanghai, it costs hundreds to thousands of dollars.

The Libertarian ideal says that the government is ideally small and little involved. Yet there are cases that government taxation make a critical difference in the pattern of market behavior, for better or for worse. Taxation on car licenses and gasoline is one of these.

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