Despite a collapse in oil prices of 50 percent since summer’s end, Saudi Arabia, whose vast production capacity has enabled that country to modulate world oil prices by adjusting its output, “effectively resigned from that role,” Daniel Yergin wrote in this past Sunday’s New York Times Week in Review. “…OPEC handed over all responsibility for oil prices to the market, which the Saudi oil minister, Ali Al-Naimi, predicted would ‘stabilize itself eventually.’”
For those unfamiliar with Yergin, since at least the late 1970s, he has been a leading expert and author on oil and its intersection with international economics and politics. He writes that the Saudis’ motivation for relinquishing control—a decision which was far from unanimous among OPEC nations—included fear of losing market share if they turned off the spigots, particularly to Iraq, which they view as a satellite of Iran, and to Iran itself, should sanctions end, bringing that country’s million-plus bbls/day back onto the market.
Now, Yergin writes, the US, long ago the “swing producer” of oil, has been granted that status once again by virtue of Saudi Arabia’s abdication.
The US “was once, by far, the world’s largest oil producer and exporter,” Yergin writes. American production peaked in 1970 at 9.6 million barrels a day, but by 2008, had fallen by nearly half, while oil prices had climbed to $147/bbl (raising the specter of peak oil).
Then, technology came to the rescue, in the form of fracking and horizontal drilling. In 2010, writes Yergin, these nascent gas-harvesting technologies were unleashed upon oil, and by 2014 brought American oil production most of the way back to the 1970 peak. That, and slowing world economic growth brought prices from the stratosphere back down to more terrestrial levels of less than $50/bbl.
Yergin expects shale oil producers to find ways to “drive down costs” so that even if oil prices stay well south of $100/bbl, shale oil production will remain strong. He doesn’t speculate what prices will do beyond 2016, short of saying a growing economy may stimulate more demand. (We were unable to reach him for comment, as he was traveling overseas.)
Providing additional perspective in a New York Times “Upshot” column, the NYT’s David Leonhardt says the current nationwide average price of gasoline, $2.03/gallon, is actually more expensive than at anytime during the 1990s. From 1986 through 2002, the inflation-adjusted cost of a gallon averaged $1.87.
Nonetheless, if maintained, the current low fuel cost could lift some financial burden from the middle class on down. Leonhardt notes that political leaders from President Obama to three likely presidential candidates—Hillary, Jeb Bush, and Scott Walker “consider the wage slowdown to be the country’s most pressing issue.” The wage slowdown refers to the fact that American middle class wages have been so stagnant for the last several decades that our middle class is no longer the world’s most affluent.
Leonhardt asserts that energy costs were a major factor behind the wage slowdown. He writes that the beginning of the wage slowdown coincided with the end of cheap gas. But if gas prices hold to current levels, Americans will have an additional $180 billion their accounts this year, he says (that’s about $562 per capita).
(But maybe energy is not such a major factor: the $180 billion represents less than 1.5 percent of personal income. Tufts economist David Dapice blames the wage slowdown more on rising medical costs, globalization and the breaking up of unions, and slack in labor markets. And Harvard economist George Borjas says mass immigration takes a 3-4 percent bite out of income.)
But if gas remains cheap, rising demand could boost prices. Leonhardt notes in the early ‘80s, CAFE helped dampen demand for fuel. In the mid-‘80s, the best selling vehicles were the Chevy Celebrity, Honda Accord, Ford Escort, and Ford Tempo, “all modest size,” writes Leonhardt. But by the cheap oil era’s end, in 2002, the CAFE truck loophole had catapulted the Explorer, the Trailblazer, the Silverado, and the Ram to the top (See Derek’s article on that loophole.)
“Left to its own devices, the energy market will repeat this cycle,” Leonhardt warns, adding that SUV and pickup truck sales in December 2014 had risen 12 percent over December 2013, compared to just 5 percent for cars.
Avoiding this cycle is the logic behind taxing either gasoline or carbon enough to dampen demand, and rebating at least some of that money to consumers, in the form of tax cuts, as Larry Summers and Charles Krauthammer both advocated, and as the Energy and Enterprise Institute has been promoting. Thus, the external costs of both could be internalized without harming the economy.
Rising CAFE standards are going to keep a lid on demand going forward, as older cars are swapped out for newer, more efficient models. Even the gas guzzlers are improving, so it’s getting harder to be purposely anti-green.
Raising the gas tax to encourage conservation while rebating that new money as income tax reduction or as an expanded earned income tax credit sound like a good idea to me.
Doesn’t that only work as long as car depreciation stays in line? At this price, depreciation and maintenance are more expensive than fuel for a lot of people already.
“expanded earned income tax credit”
No, just no.
Yeah, be afraid, be very afraid
I think there is enough welfare available, if they want money to flow among the proles cut taxes and spending simultaneously.
At least this program is predicated on “earned income” vs the other cash assistance programs paid to people who sit at home not working.
True, but it is effectively welfare just the same as enforcing a minimum wage/status quo and then offering traditional welfare to make up the difference effectively corporate welfare. Neither is going to end anytime soon.
what it does is make people work part time only so they can keep their income low enough to get that credit.
It is welfare, and those people never do math, but spend all day calculating when they have to stop working so they get as much money as possible from uncle Sam.
“It is welfare, and those people never do math, but spend all day calculating when they have to stop working so they get as much money as possible from uncle Sam.”
Oh, BS. More money makes a better life, and nobody wants a better life more than someone whose life is in a state of extreme deprivation. Nobody is going to turn down more hours or a raise–things that bring more money immediately–in hopes that maybe they’ll get a bigger EITC credit at year end. Utterly ridiculous.
HotPotato,
Some people actually will, but I agree most won’t. Some will get told by friends how it works, or will figure out through experience, that it doesn’t pay to earn more by working. Some will value the free benefits too highly, not want to lose them, and choose accordingly.
We now have low wage workers being pushed into part time, and then subsidized by the same crazy laws. It’s stupid. The whole thing falls apart when the low wage guy gets automated out completely, but we’ve decided to tax domestic labor and marginalize US workers even faster. Imagine if we gave the opposite incentive by taxing consumption rather than labor.
“Nobody is going to turn down more hours or a raise–things that bring more money immediately–in hopes that maybe they’ll get a bigger EITC credit at year end. Utterly ridiculous.”
You would think so, but once you factor in things like unemployment, government subsidized health care, EBT and assorted other tax credits working 15 hours a week suddenly becomes more lucrative then working 40. I’m not saying it’s right, it’s just the way it is
“what it does is make people work part time only so they can keep their income low enough to get that credit”
And where would we find empirical evidence to support this claim?
Ect,
Do you accept the incentive exists and deny that people respond to it? Or, do you think it’s just bunk? Similarly, do you see the incentive for businesses to keep certain parts of their labor below certain hour thresholds?
I’ve watched a lot of people respond to incentives in businesses that they swore they did not care about or even realize yet there really was no better reason for the obvious preferences.
If you ask me, the kids working two part time jobs to get sixty hours work a week have a real beef against the government and their big business cronies.
I agree totally with your first paragraph, the gas guzzlers of 15 years ago just don’t exist today in the same way. With automobiles getting ever more efficient I just don’t see that demand rising to the predicted extent some are saying
As far as your second paragraph, although it seems nice in theory, I would be leery of anyone who promises tax money being used for the good of the people who pay them
A major idea is to rebate tax by eliminating or reducing social security tax
‘ I would be leery of anyone who promises tax money being used for the good of the people who pay them’
agree
globally demand will not increase due to oil price like America does
The EU have big gas taxes, so its always expensive.
The China don’t have big taxes, but they do have a set price for societal harmony, no big rises or drops, just continuous gradual swing to the market price.
What America could do, is a set have an new vehicle excise that if the WTI is less than the 3year average, that they buyer of a new car pays for 12 months equivalent of oil to be added to the Strategic Petroleum Reserves, to be phased out once reserves equal 12 months. It could even be have a year long ramp up.
Just an excise
I agree with Lie2Me, you would not see the money back unless you are in the lowest income level and most in the category are going to drive the least efficient vehicle because they are cheaper. We don’t need anymore programs that promote income redistribution. Any increase in taxes on fuel should go directly to repair and replace essential road and bridges and even then you should be skeptical of the “bridge to nowhere”.
What’s least efficient these days? It’s not like poor people are driving around on Old 70’s era V8 LTDs, but more likely old 90’s 00’s Corollas etc.
True poor people are not driving 70’s Oldsmobiles but many are driving old Ford Explorers, Chevy Blazers, and Dodge Durangos because they can get them at the used car dealers that offer affordable prices and loans that these buyers qualify for. True that a 90’s and early 2000’s SUV gets better mpgs than a 70’s Olds but when you are earning 10 bucks an hour and supporting your family even cheap gas takes a large bite out of your budget. I don’t think increasing the fuel taxes to redistribute dollars to those who are driving more efficient vehicles is the answer. I have been in and out of the Job Center in Dayton, OH (I work with low income and elderly taxpayers) and I have seen many come in and out seeking training and jobs and there are a lot of old suvs. If you want to help the working poor then make available more retraining for job skills that can quality these people for higher paying jobs that will quality them to buy newer and more efficient vehicles which most would be glad to have but cannot afford.
So what about the costs of heavily oil dependent commodities?
For example, tires included a significant amount of oil in the manufacturing and rubber compounds.
Sunlight, wind are ever increasingly becoming cheaper to harvest, and, are more abundant, reliable and considerably less toxic to our environment than oil.
Oil is becoming increasingly troublesome, politically and economically. I think it’s time we became more focused on less problematic resources, yes?
@beerboy, sunlight and wind don’t contain the compounds that are used to make tires, as PrincipalDan points out right above your comment. It also can’t produce the lubricants for machinery, or the compounds turned into plastics and other materials, or long string fibers like Kevlar, or medications. Oil isn’t just used for energy.
So since the economy is improving we should take action to curb the bounce back?
What type of back-a—wards thinking does it take to actually say something that dumb.
@Hummer – recessions have followed “bounce back” in oil prices. It would make sense to increase fuel taxes to put back into infrastructure since taxes have not kept pace with inflation.
A full dollar seriously?
The best thing they can do is let the price stay low so consumption can slowly increase, thereby increasing amount of taxes collected.
What about the large amount of money funding EVs, they should be taxed for road use, fuel increases affect everyone, a credit for people making $100k+ to buy a EV only helps a few people.
Lou, IF ONLY taxes were actually used to repair, maintain or upgrade infrastructure.
We, in New Mexico do not see much of the fuel tax money collected in our state because it all goes to states with a lot more traffic, like the back-east states.
Our roads in NM truly suck, for the most part, with roads in constant disrepair around our most populated areas like Albuquerque, Santa Fe and Las Cruces. And this includes the Interstates, 10, 25 and 40.
And the roads only get worse the farther from those areas you travel.
Nope, I’m against any increase in any taxes because of the government’s track record of how those taxes were misused up to this point.
I thought NM controlled its own portion of the gas tax. The Federal rate is 18.4 cents a gallon. NM probably has its own portion, which it decides to spend. If you have a problem take it up with your state government.
I expect the “back East” states are actually subsidising NM and others which have a small population (relatively speaking) and a large road network because it is a geographically big state.
NM is probably going to collect less taxes next year because of the loss in gas and oil revenue. Next years letter from PO Box 360 in Santa Fe to me will probably have lower numbers. Some of that back-east money does come back! Even though I’ve never been within 50 miles of New Mexico, I still pay plenty of taxes there.
Hey David, thanks for a very informative article with many a salient fact. Education might be a good thing because the less spent on fuel the more people have for other things. Anyways lots of great ideas flowing around and the gas tax seems like something that will happen. If that doesn’t, taxes on displacement would have much of the same effect, only faster.
great link on the middle class and poor. Seems like the sort of capitalism the US likes is bearing its fruit. Really sad. Maybe the Obama-med thing will help. Unions should also focus on this.
I like the cycle, don’t touch the cycle.
“The US ‘was once, by far, the world’s largest oil producer and exporter\'”
If you compare Saudi production with US production over the last few decades, you will find the US in the lead about one-third of the time.
This idea that the US produced little oil is wrong. The US has remained a major oil producer all this time, although it certainly dropped since its peak. The problem is that the US doesn’t produce nearly enough oil to serve its own needs; if we had Canada’s population, then we would be drowning in a surplus of the stuff.
In any case, global supplies have been fairly stable for decades; there has never been a supply issue since the end of the OPEC crisis. What we have had over the last several years is a high demand for oil futures contracts, but that bubble deflated quickly and we are probably now at a new normal that will stay with us for quite awhile.
We’re not likely going back to $25-ish oil as a norm. But the current price is now a legitimate market price that is based upon supply and demand for the product itself instead of the futures contracts.
“global supplies have been fairly stable for decades”. No, they haven’t. Global supply has gone from 62 million bbls/day in 1994 to 90 million in 2013 (DOE data). That’s a substantial increase.
Demand growth outpaced supply growth for many years, which led to higher prices. In more recent years, supply growth has outpaced demand growth, which has resulted in falling prices. For example, the oil demand/supply ratio published by Oil Market Intelligence reached 1.1:1 in 2003. At the end of 2014, it was down to 1.01:1.
I agree with you that the current price is a market price. This is a result of our old friend the law of supply and demand, which has never been successfully repealed.
You remarks about the oil market and futures contracts are utter gibberish. You clearly have no idea how commodities markets work.
It’s still “juke box collusion” as my dad would say. Prices around here stalled on in the $1.70’s when oil was still falling daily. Took nearly two weeks to drop from $1.79 to $1.71, then oil has ONE good up day and bam, $1.79 overnight (probably 50 stations), then a few days later shot up to $1.89. We’re a border county and gasbuddy shows the other two states have only gone up a few cents from their bottoms in the $1.60s. Even though gas is super cheap right now, that kind of behavior still pi$$es me off.
I do visit nations around the world and I do visit the US two or three time a year. And I do shop and do all of those domestic and homely things”.
There are a couple of things that I have noticed regarding the US. There are many people working for $10.00 or less an hour.
What is striking is the actual difference in the cost of goods between Australia and the US doesn’t allow for the wage discrepancy in the US.
The average middle class worker in Australia complains on how broke they are, but they are better off than the average or median middle class worker in the US.
The US really needs to stop looking at ways to tax and look at ways to improve the middle class. I do think a realistic minimum wage of $15.00 is a necessity.
The US also needs to look at how it’s litigation process works. I do know in Australia is someone is sued and the person who is suing loses, he has to pay for all the costs.
In the US the lax bankruptcy laws are severe enough.
What we call rates in Australia you guys call county taxes. I own several properties and I average $1600AUD per annum in rates. We don’t pay school taxes as this is a function of the state.
Insurance in the US is high (probably because of the ridiculous litigation laws). For a $51,000 vehicle and two homes I pay $2,000 per annum.
The way your pharmaceutical industry has a strangle on your country is astounding. Add this to the cost of medical practitioners insurance, etc you have extremely high medical costs. And the odd thing is with all that cost the US has a higher mortality and lower life expectancy than many other OECD and some developing nations.
I’ve read recently that per captia in the US medical costs are $10,000 per year. Australia with the second highest cost of medical is around $6,000 per year.
Your tertiary education fees are quite high, even by our standards. The student loans in the US should be structured and managed by the government. We have what is called a Hex Fee (5% tax) on our tertiary educated people. They pay the government back after their wages are around 25% more than the minimum wages. Degrees are scaled to what is required. So if a discipline like one of those left wing arts degrees (which are generally a lifestyle enhancing course) has to many people unemployed or not working in the arts and we have a shortage of structural engineers (real degree(engineering)) the cost charged for the structural engineering degrees is reduced to encourage students.
I do see many comments regarding the cost of a vehicle in Australia vs the US or price of fuel, etc. But at the end of the day I do really think we are getting a better bang for our buck.
Because all of these differences between the US and Australia allow for a society with less disparity between each other.
As a product of GDP there is little difference between Australia and the US. The last I saw the as a percentage of GDP the US was around 28% and Australia around 30%.
It’s we just are taxed differently.
The US has a large percentage of it’s workers that are the working poor. That is something that a nation must address.
Increasing the minimum wage will lift and increase the size of the middle class. But from comments I’ve read on this site there a plenty of Amercians who are happy seeing the fellow country folk suffer.
It seems many in the US believe they are better off than the rest of the world. How wrong they can be, as David has pointed out.
And this is from a right wing conservative.
After all that rationalization you still appear to be jealous as hell of anything US
“The lady doth protest too much, methinks”
More than a few Aussies are anti-American, anti-Brit, or both. It’s just weird to see that turned into a fixation on the chicken tax and crash test requirements. (A windbag who hates airbags. Go figure.)
And no, I didn’t read his post. I just assume that it rehashes the same old Shiite that he always says, over and over and over and over and over…
When you comment on a post you haven’t read, it’s inevitable that you’ll be mistaken about what that post actually says. Which is certainly the case here.
But it’s worth reading. I don’t agree with everything he says, but I will acknowledge that it is a very thoughtful piece, devoid of the childish personal attacks you seem to find necessary to disguise your lack of knowledge.
It’s commendable that you want to give the poster the benefit of a doubt, but what good points he may have get negated by the usual self serving editorial slant against the US, thus making the read tedious
Sadly for Ect, he’s a bit obsessed with me and is looking for any possible thing that he can gripe about.
Since he has no legitimate complaints, he has to find alternatives, instead. A real bunny boiler.
BAFO has made the same half dozen points over the last two years, and they’re wholly inaccurate and predictable, so there’s no good reason to read them. He’s a re-run of a third-rate sitcom: not entertaining and not worth watching.
ect, usually BAFO refuses to answer any direct question asked him and instead starts off on one his oft repeated diatribes. He expresses that he uniquely has his finger on the pulse of American culture and we Americans are stupid about our own country and we should listen to his expert levels of knowledge he has gained on his travels to the good old U.S. of A. If that tack doesn’t work; he’s always ready to call people names. We all know that wins the internets and shows who is smartest. I doubt I’m alone in my views.
Lie2me, I largely concur with your thought, but this post was at least more thoughtful than most of his. There’s actually been a small movement in this direction over the past few months, which should be encouraged.
Having said that, his subsequent posts have degenerated back to prejudiced rants, so the brief glimmering seems to have been snuffed out.
Oh well.
“obsessed”? LMAO, you give yourself far too much credit – as usual. Which, come to think of it, is a big part of your problem.
It would help if you actually did a bit of research before passing yourself off an a SME on subjects you clearly know nothing about.
In the meantime, it is somewhat amusing how easily goaded you are, and the absurd twists of logic you’ll go through to avoid ever having to acknowledge when you’re mistaken.
@ect,
I’m prepared to have civil discussion and interaction with those that warrant that response from me.
If you actually read my comments the ones like Lie2me, pch101, DiM, etc solicit the response I give them.
I tone match. Look at my language and style when I respond to them and not others.
I have little respect for these people and they will be treated as such.
Some have asked me to ignore them, but why?
In the US, we have a thing called “The Stock Market”, whose role is to send money (by the boatload) upwards, away from the poor, away from the middle class, and (as much as they can) away from taxation.
And the middle class are forced to play the game as well (through 401(k) plans, with the collusion of the government), fearing the rout of the Social Security by the monied interests (which will lead to more 401(k) participation), more money available to feed the “flash boys” and day traders who (wittingly or not) manipulate the market and stock prices based on misinformation and whims. This leads to instability of corporate balance sheets, who then strive to cut costs by reducing staff levels, keeping wages low, and cutting benefits and hours worked (thus tapping into the EITC).
It’s greed, folks, subsidized and supported by the US government (pre-tax 401(k) contributions) – the modern, perverse version of capitalism.
Gas prices are kinda neat, too – they get low, the poor rejoice, and the middle class (if they have a 401(k) plan, they probably are investing in oil companies) start to wonder why they’re taking a hit, or not earning as much as they’d hoped.
/rant
@shaker,
We also have a “Stock Market”. We also have compulsory superannuation, which is similar to your 401k. But your 401k isn’t compulsory, like your medical insurance.
One thing we do have in Australia that would benefit the US is our old age social security for our seniors isn’t a given. The same goes for unemployment and many other social programs. Our social programs are larger in the US, but far better managed. You aren’t entitled to anything here in Australia.
On retirement your overall value of investments and assets other than the family home, furniture, cars, etc is taken into consideration.
So if you own two home you will not benefit from social welfare until you have exhausted all other financial/investment resources.
Up until the 1970s in Australia everyone irrespective of income received what we call the “old age pension” (retirement welfare). The government of the time scaled our income, investments, etc to the system I had just described.
The seniors who weren’t eligible for welfare had the money saved and used to create our so public health system.
Welfare in Australia is for those who really require it, welfare isn’t an entitlement. Maybe this is the difference between our mindset and the more socialist attitudes of the US and EU.
We don’t have slums and ghettos either. We do have some homeless, but not like in the US and EU.
But our system is in dire need of an overhaul to keep us in front.
I do think our minimum wage system is the greatest equaliser in the reduction of income disparity and our “harsh” approach toward welfare recipients.
Even industry receives very little welfare. We don’t have subsidised regulated milk, eggs, bread, etc. these items are cheaper here in AUD than the US. Bread is from 85c a loaf, milk is 95c (69cUS a quart) a litre.
It’s not deregulation that improves a market, but the instruments that attempt to protect segments within a market that artificially increase the costs of goods and services to the consumer.
“So if you own two home you will not benefit from social welfare until you have exhausted all other financial/investment resources.”
Sounds like without a Social Security System growing old in Australia sucks
@Lie2me,
Actually the opposite.
You really need to travel a bit. Backpack around the world and visit Australia last.
We have the globes second best retirement.
Have a read.
http://www.news.com.au/finance/superannuation/australias-superannuation-savings-starting-to-pack-a-punch/story-e6frfmdi-1227195507987
@Lie2me,
Here’s another one to get your head around.
http://www.dailymail.co.uk/news/article-2792618/how-australia-richest-country-world-fifth-year-row.html
@Big Al –
Thanks for the reply.
I was beginning to write a screed about US labor policy, corporate profits, unions, etc. as I saw it from the early 1970’s until now.
But then I realized that I was on the verge of revealing my own incompetence on the subject.
There are so many factors (governmental, social, economic) that have resulted in the growing ‘underclass’ that we accuse of ‘sponging’ off the government, yet corporate profits (and the stock market) are at all-time highs.
A conclusion that I’ve come to is that the focus on stock prices (and the existence of government aid programs) has made American companies less responsible to American society (there’s always welfare, Medicaid, etc), and more responsive to the stock market, which is the purview of the wealthy, people who play with money without regard to the social costs.
The growing underclass is forced to live on less money, so they seek the cheapest goods, (thus keeping overseas labor models in place), cheapest foods (leading to obesity, poor health, and higher medical costs), and this underclass, being essentially abandoned by the economic system, turns to the government more and more, turns to crime to make money that can’t be made any other way, drugs, etc.
All of this simply reveals that societies without any ‘proactive’ plan, will devolve into the lowest-common denominator state, and result in ‘reactive’ regulations by government once things have gotten completely out of control. The regulations are seen as “socialistic” (or even communistic) by the wealthy, who certainly feel that their ‘hard-earned’ money is under attack by “government out-of-control”.
Whew.
I agree that we need a rise in the Minimum Wage, to bring more people out of reliance on government programs, and I agree that this could cause prices to rise as a result. BUT, price rises should not be borne entirely by the consumer (thus keeping profits high), but partially by the wealthy business owners and stockholders who have to realize that the downward spiral of the underclass (and the continued erosion of the middle class) are partially their responsibility to reverse.
Oh, and my ’13 Malibu is still running fine and trouble-free. It’s a much-derided car (it’s like Family Guy’s “Meg” of the car world), but it’s so much better than the Malibus of 10 years ago. Built in Kansas City, USA (though I wish it had more “domestic” content, but, I wanted an affordable car, too, so that makes me part of the problem.)
Why do you conflate corporate profits and welfare? Corporations are supposed to create profits by creating value not help the poor. Welfare is a program to help those who have suffered rare circumstances or who are incapable. These two really are not related in a free market system.
@shaker,
Thanks for your response,
Australia from what I read in the early 70s has the second most “socialist” policies globally by any OECD economy after Sweden.
This has done an about turn. It literally takes decades to change the complex web and layers of inefficient regulations, tariffs, handouts, protection and importantly change the culture within a nation to accept what might be better for them.
I do hope we continue modifying our system to cope with the next big change in our society, that is, AI and robotics removing a massive middle class.
Protection of the jobs the way unions manage issues like this isn’t the answer. The way the “rich” want to manage the change isn’t the answer.
The answer is somewhere in between. We need new industry and products to keep our society churning.
The first and easiest step in the US is to increase the minimum wage over several years to allow for adjustment.
Increasing wages like I mentioned doesn’t impact prices as great as many fear, as is proven here in Australia.
Even if the US had overall higher wages in USD, the USD would be valued to reflect this change.
Market forces would reflect this.
We need capitalism. But, anti competitive policy and regulation (trade barriers, handouts, tariffs, technical barriers, etc) only hurts the consumer.
Raising the minimum wage is a great idea if your plan is to make human labor less competitive. What are you thinking?
I’m not against a minimum wage completely, but it needs to be set at the rate that allows uneducated and untrained workers to be of value. Forget this middle class, live able wage foolishness.
@Landcrusher,
Wages will only affect competition outside of the US, not within. Even then the impact of higher wages would be partially offset by your currency adjusting to allow for this.
A growth in the lower wages will gradually flow onto jobs further up the pay scales, until the increases diminish.
I mean really, what is the difference in the quality of life if you are a billionare in Germany, Mexico, Peru, Australia or the US. Very little.
Does it matter if an “uneducated” worker makes good money? Is this “classification or discrimination” on your part. Are you jealous of this?
People should look closely at what the real cause of their gripes against a higher minimum wage. I have noticed this attitude you have appears to be more prevalent in the US. People think because they went to college they are entitled to the good life and the guy flipping burgers isn’t. Is this the case?
Remember most of the money he/she earns will be spent and not saved just to exist. This will benefit a nation more than that money going into the pockets of billionares who don’t spend it.
So, this money will gradually move upwards through the middle class, creating jobs and creating more middle class wealth.
Like we have in Australia.
Taxation and redistribution of wealth by government is far less efficient than the money going straight into the pocket of the employee.
How much does it cost to redistribute wealth in the US? All those civil servants, etc.
Like I also mentioned and you would not even notice it is the value of the US currency would take into account a shift in wages.
It would also create inflation initially, this would be good for the US.
Actually with your unemployment reducing in a low inflationary environment now would be ideal to increase the minimum wage.
BAFO,
You ignore my point, which you must to make your class warfare, ad hominem, non response.
Let me try terms you seem to get.
You heartless bastard! Is your love of big government and hate of higher wage earners so great you will set a wage above entry level workers’ market value so they can’t get jobs? That’s the point. People are not supposed to settle into minimum wage jobs and try to raise a family.
Perhaps you have never actually flipped burgers? Well, I started in fast food at 15. I was a manager at 16 and multi restaurant supervisor at 17. Let me explain it to you. Most of my workers were not worth minimum wage when hired. Most, not all, learned skills from me and became worth more. Many who could have gotten promoted to higher positions refused the extra responsibility because it wasn’t worth the increase to them. They were the ones who got to work extra shifts if there was demand because they were worth it.
Setting the minimum wage to a living wage, and all other mandates increasing cost and risk of hiring, means they hire less inexperienced workers and work the existing ones harder without giving them the hours to meet thresholds that trigger mandates. So the better ones get less pay for more work and less new kids get no chance at all. Some kids get two jobs so they can earn what their boss would likely pay for less hours without the mandates.
So, ONCE AGAIN, set the wage at a level that allows inexperienced workers to be able to provide value. If you really care about the few folks actually stuck in minimum wage in spite of truly trying to improve their situation then find another solution because YOU will be hurting more than you help by raising the minimum wage to anything close to a live able wage (whatever that really is cuz it’s never really well figured).
I am not heartless or privileged, I just both happen to care and understand what happens with these silly government schemes. Maybe in the future you can try to not do a PCH impression and make these things about me cuz it don’t work for him either but he’s too dense to change. Are you as well?
@Landcrusher, also I have always used Landcrusher when addressing if you want to be relegated into the mire with the likes of DiM, Psk101, Lie2me, etc, I will treat you with disdain and the respect you truly deserve.
So your rant of I’ll need to use a certain tone and language when addressing me will need to cease as it was not warranted in the situation.
So, call me Al, Big Al or Big Al from Oz, thank you. (this goes for all)
1. I’m an unusual one. I do believe in liberal economics and not a system based on a non-egalitarian class structure, like you seem to be preaching.
2. In Australia we also have wages based on age. Yes. So, you don’t receive adult wages until you are 18. This will resolve most of your angst regarding the minimum wage. Most any kid under 18 working works part time.
I do notice in the US most supermarkets and fast food outlets employ old people and mothers etc. This is not good. Kids should be doing this stuff. Mature workers should be the ones with better jobs.
More and more people in the US are becoming reliant in having low paying jobs as their primary source of income. Something is amiss with the situation.
3. Our education system appears to be a fairer system to allow for all people to go to university, colleges and trade training.
You still have to repay your debt as I described above. You pay extra tax until you educational costs are paid off, because the government is your guarantor.
4. My comment is just in relation to a “burger” flipper at McDonalds. There are actually higher paying mundane tasks in the US.
5. I did read that it costs a government (Australia) $1.30 for every $1 to manage including wealth redistribution. So this appears to me that paying some one in the US $15ph might be cheaper overall than the government managing all of the welfare distribution.
6. A compression in your wages/salary structure will remove much of the tension between the haves and have nots in the US. I’d even bet it would reduce racial issues. As less disparity would exist across the demographics.
7. Point number 6 would also reduce the impact of crime.
8. What I’m describing wouldn’t happen overnight. It will take decades to make these kinds of adjustment. This is due to people like you who have yet to experience a more equitable society.
This isn’t left wing. I do believe a fairer and an actual livable minimum wage would improve productivity in the US.
As you have stated in the past. You do think the cost of goods and services will rise and I do think this frightens you.
But, do you want to continue seeing your middle class dissolve? Because as the middle class dissolves less money is left to spend, costing more middle class jobs.
Look at income in the US in real terms now compared to the 90s. Look closely.
“You Can Call Me Al”
“If you’ll be my bodyguard
I can be your long lost pal
I can call you Betty
And Betty when you call me
You can call me Al” -Paul Simon
Ok, BAFO, got it!
Al,
No offense intended, just going with the flow.
I will answer you point for point.
1. I don’t understand where you get this BS. I can only assume its necessary to prop up your argument so you keep interjecting it and/or you really fall for the nonsense stats put out by the redistributionists. Last I checked, more than half of all americans will spend at least one year in the top income quintile during their lives. No one seems to like to hear this because it shakes their world too much.
2. Wages based on age? Talk about non egalitarian class structures. When I say kid, btw, I mean under 30 with no life and/or work experience. So, Harvard Masters degree and quarter million dollar first job equals KID.
In an egalitarian society, why would you exclude anyone from any particular job? BTW, the non kids at the market are almost all union even in right to work states. Many older americans refuse to quit working, like my mom, who is 78 and has informed everyone they will have to wheel her out of the office.
3. The fairness of our post grad system is not an issue here. The problem is secondary school inadequacy brought about by politics over pragmatism by people claiming to be the party of pragmatism.
4. I don’t get this comment, but burger flipping is what I did to get started. I understand the issue spans many industries.
5. Our welfare state claims a ridiculous level of efficiency. I don’t care. The real cost is the loss of a good life to those stuck in welfare so I prefer not to hype artificial solutions like the minimum wage.
6. Compressing our wage structure might be a good idea, but the idea of doing it artificially is foolish. Much of the disparity comes from lying statistics that get reiterated so much they get to Oz.
7. The correlation here is not the most important one. We are not to the point in this country that people commit crime because of real unfairness in the system. The propaganda about it may be used as a rationale, but that’s guys like you who are to blame.
8. It actually didn’t take decades for LBJ’s programs to start worsening the poverty problem in this country, but it sure has lasted decades. Step one would be to reduce mandates, not make new ones.
Speaking of offensive, most of your post from 8 on is pretty much offensive nonsense and pseudo intellectual garbage.
If you want to compare the US today to the nineties then lets look at the reasons for the changes. Too much added regulation and government interjection into the economy is all you need to look to. The primary big success in the US has been oil production because that industry found legal ways to keep from getting squashed and overcame government opposition to their success. That worked right up until another government decided to change their affect on the market.
Board members all over the country got the message. Keep your head down, keep milking the cow, keep spending on lobbying, and keep hiring connected folks who know how to play the game. Leave innovation to the little folks and hope you don’t get squished from below while you ensure you don’t get squashed from above.
By the way, the last man from Oz I talked to in person is now stuck in the US because of your housing issues. I got plenty of education on that. Seems you guys are creating your own class system based on property ownership. Enjoy your wealth while you can because you haven’t got enough soldiers to keep the Chinese from coming to get it, and we might not get there in time to save you next time around.
@Landcrusher,
Well, your apology is accepted, but why in the first place? To be like one of them?
I’m disappointed in who and what you value and aspire too. It wasn’t an “accident”.
No, I do think I’m correct.
You see I don’t support unionism or large government. I don’t support the businesses that require welfare and or taxpayer handouts to stay afloat.
I support the individual consumer, not industrial consumption. But individual consumption provides the requirement for industrial consumption. Oh, industrial doesn’t mean manufacturing like many assume. Industrial is all industries, agri, services, manufacturing, mining, etc.
Without the consumer there is nothing. It isn’t industry that keeps an economy afloat, but the individual consumers.
So what ever gives them an advantage is what I support. I do believe that an adult worker should receive enough to live on irrespective of the task at hand. Your comment on who and what is a valuable employee has little to do with this concept. Fire them if they don’t perform, if they have some handicap, ie, depression, get the problem resolved.
I don’t support the unionised approach of blackmail and standover to achieve selfish and greedy increases that destroy industries, create protection, etc.
I do believe in regulation, but regulation that protects the consumer, not industry.
I do believe in small government, as more government allows for waste and inefficiencies.
Look at it this way, even prior to the cave man inventing the bow and arrow he was a consumer. We have always consumed.
Why? Why to we need to protect industry when we will always consume?
Is this for the few? Does this support the many in the most efficient and practice that is best?
This is why I support a livable minimum wage. It allows a person to consume in what I would expect if I was ever in that position. Like I stated there are 10s of million working poor in the US.
What opportunities is their for them. Is their millions of middle class jobs to go to. How much does additional education cost to train them? If they have to work two jobs, feed kids, clean the house, etc when and where do the resources come from to enhance their lives to what you expect.
In Australia we have a universal term. It’s called “giving someone a fair go”.
A livable minimum wage also allows for a reduction in government due to reduced administration and the meting out of resources. Government intervention with the consumer reduces choice as well. I do believe in choice. An example is the US auto market. You don’t have the best choice it is limited and regulated as such to support industry, not the consumer. If it did support the consumer in the best possible way, why does each and every vehicle in the US have an average $3 000 given to it. That’s just material (dollar) support. This doesn’t include the quagmire of regulations, technical barriers, 25% tax on trucks, etc. This is costing billions and the consumer (taxpayer) is forking out this money.
If you are happy seeing an inefficient system of support for consumers then so be it.
I do think like I’ve stated in the past you don’t value your fellow country man accurately. You value them with dollars and not empathy.
Because of greed. You want consumption to favour you. You think you will lose out. From your writings, I really do think you will consider yourself worse off. It has little to do with nothing but greed.
But how? if the middle class in the US is increased all above will profit, including yourself.
A minimum wage will direct money to start at the lowest possible level in a society and filter it’s way up.
This is equitable and supports the consumer and not industry.
In the end if the consumer benefits all else will benefit. The government will gain in more taxes as well.
If the wealthy benefit a smaller portion of those below will benefit. The government doesn’t benefit as less taxes are paid.
So, you see my view is small government, less regulation/protection/handouts for any industry.
Protect the consumer once we learn this and stop pandering to the people who don’t need protection we will be further in front.
We still do have issues like this in Australia. We have middle class welfare, this is wrong as well.
“@Landcrusher,
Well, your apology is accepted, but why in the first place? To be like one of them?
I’m disappointed in who and what you value and aspire too. It wasn’t an “accident”.
No, I do think I’m correct.”
That’s right, Allen, make sure Landcrusher regrets giving you even a miniscule amount of respect so that you can turn around and slap him in the face with it. What a guy
Right-wing conservative means two different things in the US and Australia.
Australia also doesn’t have the illegal immigrant problem the United States has, first from Mexico and now Central America states. They come into hospital emergency rooms, which are forced to treat them, then walk away from the hospital bill; raising costs for everyone.
They also cause issues in the education system, since their kids have to be mainstreamed into the educational system, adding a bigger burden on the system. Finally, they can also take advantage of many of our social programs without paying the taxes that fund them.
I do agree that the minimum wage is not sufficient to live off of (and is too close to what you can get from all the various social programs to discourage some folks from working.) It was a pay level meant for college students and young singles, not to raise a family on. But it may result in higher prices for some things.
Someone mentioned how gas prices do not fall as quickly as oil prices do, and can rise at the slightest hint of trouble. I do agree; what surprises me is that we have not seen the cost of some goods go down when the cost of raw materials and transportation have dropped. I guess like the airlines; they have decided to use the extra revenue to reinvest in captial projects rather than pass them on to the consumer.
@jhefner,
The US has had this situation for over a century. The US had addressed this better in the past. Even my grandfather and his family took a steamer to the US, landed on Ellis Island and was granted citizenship like most of the current US citizens ancestors.
Having these people remain in the US has allowed for the development of a large population of illegals. I do believe to make them legal. Then you will not have illegals as they are called.
Simple solution. Improve border protection and reduce the number crossing.
The US has a much lower rate of legal immigration, roughly half that of Australia. The Canadians have a higher rate of immigration than the US does. Even many EU nations have a higher rate of immigration in comparison to the US.
Whilst the US continues to not allow these people to gain citizenship their number will increase.
Without the labor surplus we have at the entry level, caused in great part by illegal immigration, the market could do a much better job determining the value of that labor. A minimum wage is a poor second choice, but I see no other choice.
The airlines are making as much money as possible when they have the opportunity. They lost BILLIONS and need to make that up. It wasn’t that long ago that the commercial airline business had lost money since its inception.
I drove by a station yesterday that had regular priced at $1.979. There are 3 other stations at the same intersection and they all had regular around $1.979.
The strange thing was how mid and premium were priced. The first station had mid-grade at $3.079 and premium at $3.769.
The other stations were all random, the most reasonable had about a 40 cent difference between grades.
I seem to recall that when regular prices were naturally around $2, mid and premium were about 20 cents higher. What happened? Something doesn’t smell right.
Any thoughts on what a sustained drop in oil prices will do for the ethanol blend requirement? The economics of using massive amounts of water to turn something edible into a not-terribly-flammable liquid can’t be good these days.
Ethanol and all associated gimmicks and subsidies will gradually melt away like an ice cream cone on a hot summer day. It may take a couple of years.
We NEED alternative fuels. And we NEED a sliding fuel tax so that at times of low fuel prices we don’t become complacent and set ourselves up for the next radical price spike, and its associated economic trauma. We do NOT need to gasoline to remain the monopoly fuel.
Good article – at least the part citing Dan Yergin.
Much of the rest of the article and many of the responses seem to have missed the point that fracking is a one in a hundred year fundamental game changer. According to a recent USGS survey there are fracking opportunities all over the world. Long term, the traditional exporters are screwed unless they be very low cost.
The rather myopic view that this price break is just part of a normal cycle more or less assumes that the only places one can produce lots of oil from fracking is in the Bakken Shale and the Permian Basin. Fat chance of that.
To be a “swing producer” you need to have a low production cost. Over the long haul perhaps everyone will be fracking, but in the meantime, the global oil price needs to be substantially above where it is now for fracking, sands, and shale production to be viable.
Fracking still is more expensive than just drilling a regular well on land and there are still environmental mishaps. The fracking technology will get less expensive and safer over time. Below a certain price it does not pay to produce. Realistically the price will not get below the 30 dollar range or if it does it will not stay there because the cost of production will be more than the market price. Oil overall is much more expensive to produce because most of the really big producing fields are deep offshore and those are much more expensive to produce. Many oil producers use secondary recovery methods such as injecting natural gas or salt water into existing wells to increase production (there are other methods of recovery as well). The big easy to drill on land oil discoveries for the most part are gone, long since discovered and produced. Oil is much harder and more expensive to recover and that is why below a certain price it does not pay to produce it. Hopefully the market will stabilize at a price where the producers will still make money and the consumer will still be able to afford fuel and be able to count on price stability.
@Jeff S,
An important facet of fracking is the logistics behind the movement and storage of fracked oil.
The wells are in a constant flux. They are short term in comparison to conventional oil wells.
A system is needed as well to move this oil for the markets. This is a less transparent cost of fracking.
I’ve read that some wells are spending over $30 per barrel just to move the oil to a terminal or port.
True Big Al and that is why I stated that below $30 a barrel it is not profitable to frack oil or produce tar sand oil. Fracking has its environmental issues as well with contamination of underground water but fracking technology will get less expensive and safer over time. I worked in the oil industry in Houston for over 10 years in the 80’s and the technology is much better now than it was then. It was not even feasible back then to even try to get oil from tar sands or to even extract oil that is now being fracked. Much different today but the technology today has allowed us to do what was impossible even a few years ago. I would love to be in the oil industry today, exciting times but I am closer to retirement (about 4 years away).
The problem with fracking is that it spreads the operation over millions of acres, requiring more water and resources, and endangering more of the environment.
This seems to be an argument FOR offshore drilling to some, which is the play that’s being made in Washington by Big Oil.
Big Oil is essentially playing their ability to destroy the environment on a state-by-state level (a hostage) to the “cleaner” alternative of deep water drilling in sensitive areas.
The real answer is to reduce consumption even further to keep the price down.
RE: “The real answer is to reduce consumption even further to keep the price down.”
Except in the real world it doesn’t work that way. You need HIGH global market prices to keep consumption down. Do what you will, when OPEC is ready for the price to go back up, after many producers have been run out of the game, the market price of oil will go back up on its on. If it needs help, OPEC will throttle back its own production to make it happen.
Al,
(started a new thread for convenience)
I said I meant no offense, and honestly, I don’t get the offense. It seemed like a reasonable acronym, and even after your obvious irritation, I am unaware of the source of the irritation. I accept you don’t like it so I stopped using it, and you don’t have to explain it because I am aware that just feeds the fire.
This seems to be a typo, “I’m disappointed in who and what you value and aspire too.” Im not at all sure what you mean. What, in your imagination, are my aspirations? Why would you write that? I could empty a thesaurus describing the statement, the author, the lack of civility, the hubris, etc.
To the discussion:
Your consumer bias is antithetical to a free market. Accurate pricing information, required for the best allocation of resources, requires fairness for both sides. The US courts have a consumer bias that often leads to inefficiencies which is often balanced by laws that protect the sellers inappropriately. The result is not a balance at all. It’s inefficiency in one case and inefficiency in another. Luckily, its better than just about any previous system and not awful.
Also, I think your romanticism of the consumer is missing a necessary point. Its hard to explain, but while a consumer always adds value to the system at each transaction, there has to be a net gain in value creation over the system or it fails. Your caveman did not just consume, he had to work for everything. Even bopping the neighbor over the head and taking his goods is work of a sort.
It would be wonderful if everyone were a benevolent player in the world, but that’s just not so. Your ideas sound wonderful, but fail in practice. If you allow people a free ride, many will take it. If you offer them a discounted ride, many will as well. If you set a minimum wage to ensure the fellow consuming labor pays a wage that is not exploitive, fine. If you set a wage based on a consumption level, you just offered a discounted ride to a whole slew of workers while disenfranchising others. All too many will now favor the minimum wage job where they can trade less value than they will receive in compensation. They will, in error, assume a future where these jobs are always there and lose all ambition for the work place.Its been decided its all fair, even though it clearly is not.
By the way, you didn’t get rid of unions in the process of your new wage deal, so the unions will now fight to provide less value for more wages also. Its only fair if I offer 30% more value than the minimum wage guys that I get 30% more pay. Of course, this is a union talking so its really 10% more value, but they have data to prove the 30% for sure.
Why should I as a minimum wage person on a livable wage do what it takes to earn more? We already have millions who stay at minimum wage jobs as it is. The idea that there is no opportunity is bunk. Anyone capable of flipping burgers is capable of moving up. The reality is that complacency and foolishness are what keep the small minority of people in minimum wage jobs. Paying them more just warps the market.
Also, back to that disenfranchised worker. You cut him out of the market before he even got started. Great. We have wonderful charities to teach challenged people to be workers, and now we will need more to fill the gap between what public education provides and employers demand for the new wage. How efficient.
Now, your idea that we will eliminate government jobs by paying a higher wage is just pollyanna-ish. We all know better. The minute the law is passed, the cheats start working around it, the workers start crying foul, and the interlopers start the next round of entitlements. We all know the savings will be totally theoretical and never realized. Plus, we now move some workers off welfare to EIC. Others will lose some, but not all benefits. And, still others will now lose their jobs and need more aid. I can here the testimony from the Department of Redundancy Department on why they need a budget increase already.
I I have no idea where your $3,000 thing comes from, but I suspect its one of those “subsidies” that aren’t really subsidies.
Trickle up isn’t any better than trickle down if the source of the funds is not value creation at fair market value. Setting an artificially high minimum wage will not give you a free lunch. TINSTAAFL.
I am with you on no handouts to industry, but not on government price fixing. We have way too much meddling in the labor market by government now. Lastly, a government with big rules is not a small government just because you lay off a few guys and delete a few paragraphs. Its a lot easier to write the rules for despotism than democracy.
Shaker,
Another new thread to respond to you because this page is about done due to convolutions. At least I can’t find anything.
The most ecologically safe place to drill is shallow water off of prohibited beaches that are only sensitive because the stake holders are jerks. Legal and political issues keep this oil from being tapped or even searched for. People who hate oil, and hate progress, and hate fairness will ensure that the rest of us cannot get the value from federal lands because they don’t want a dollars risk from production on land they don’t own and can only see from their property or their public beach.