Sunday, November 30, 2008
Democracy in Iraq: Talking tough on oil
Drudge and others are irritated that Iraq's oil minister said that $80 per barrel is a "reasonable price" for oil. The general idea seems to be that this reflects a lack of gratitude.
Frankly, I think that is looking at it the wrong way.
The thing is, we went and created a democracy over there. The government actually cares about its own popularity because it needs to keep winning elections. That means that it needs to spend money on things that the voters want. Well, in establishing its 2009 budget the government of Iraq assumed that the price of oil would be -- you guessed it -- $80/barrel. Elected Iraqi politicians now have to explain to voters why government spending has to be lower than originally forecast. Obviously, they cannot say that any price below $80 is "reasonable" without losing support to rival politicians. Gratitude -- if that is what any of them actual feel toward the United States -- will not help them win the next election.
Iraq may yet turn out to be an ally of the United States when it really matters, but sure as Allah made little green apples its politicians will always want the price of oil to be higher, at least as long as they have to win contested elections. If you doubt this, look up the last time a national politician told Iowans that corn and soybean prices really ought to be lower so that foreigners can eat more inexpensively.
Yes, we have gone and created a democracy in Iraq. History may yet record that it will change the Arab Muslim world, and quite possibly for the better. But do not expect Iraqi voters, who are no different than voters anywhere else, to support low oil prices. They will vote for tough talk on oil every time. That is, indeed, the obvious ultimate reason why the war to liberate Iraq from the Ba'athists and transform its system of government was never about lowering the price of oil for Americans.
17 Comments:
By 
, at
Sun Nov 30, 10:51:00 AM:
A higher price for oil would also fit with the incoming administration's energy policy, at least as I understand Obama's position on this. So maybe Iraq is being just the kind of ally the new president wants.
By , at
Sun Nov 30, 11:39:00 AM:
Good commentary. My take on the price of oil is that it will end up in the $80-90 range within a year.
The Iraqi government's opinion is further proof that the "No Blood for Oil" people were flaming ignoramuses. But the facts on the ground never really mattered to them.They just wanted a good-sounding slogan to chant against ChimpyMcBushHitler.
By , at
Sun Nov 30, 11:42:00 AM:
$80 a barrel seems quite a bit more reasonable than $150.
By , at
Sun Nov 30, 12:56:00 PM:
We need an Oil Floor tax that kicks in below $80. Liberals such as the Brookings Institute and Thomas Friedman support it, as well as conservatives like Charles Krauthammer. Free Market conservatives who balk at any tax (like the influential Rush Limbaugh) need to understand the Oil Market is not a free market. Even without OPEC the oil market fails to fully account for a number of externalities (US defense budget, Air Pollution)
By , at
Sun Nov 30, 01:22:00 PM:
Oil producers can't be faulted for wanting to get as much as they can for their oil. Everyone wants to sell their products for as much as the market will bear. And when the oil is gone, it's gone. They can't make more of it.
By 
Dawnfire82, at
Sun Nov 30, 03:03:00 PM:
Because artificially inflating the cost of a necessary good is a good idea, and no real burden for people to bear.
While we're at it, why not established a 'floor tax' for sugar? Or grain? People are too fat these days anyway. What better way to battle against obesity than to make sure that people can't afford to gorge themselves?
/sarcasm
By , at
Sun Nov 30, 03:33:00 PM:
Excellent post.
We want them to be a democracy like us--until they begin to act like us. We want them to reach the right decisions and compromises quickly, even though our Congress can be very slow in spite of more than two centuries of practice.
By , at
Sun Nov 30, 04:03:00 PM:
We need an Oil Floor tax that kicks in below $80.
What you mean "we" white man? I don't need that.
By D.E. Cloutier, at
Sun Nov 30, 04:14:00 PM:
"influential Rush Limbaugh"
Limbaugh, Limbaugh, Limbaugh. He is an entertainer, nothing more. (That's his description, not mine.) His listeners agreed with him before they ever turned on the radio. He changes very few minds.
By Dawnfire82, at
Sun Nov 30, 04:59:00 PM:
*sigh*
And going the *other* way...
"What you mean "we" white man?"
Do you have magical powers that allow you to view someone ethnicity over an anonymous Internet post?
Why don't you share this secret, and revolutionize physics?
By Mike, at
Sun Nov 30, 05:58:00 PM:
Dawnfire -
In case you didn't notice, we actually do have a floor tax on sugar and pay a multiple of the Free World price.
This may not have been aimed at preventing obesity, but it sure makes ADM and the senators from the corn states happy.
Artificially inflating the cost of a necessary good may actually be a positive idea in the case of imported oil. This diverts money from filling Saudi, Russian, Iranian, and Venezuelan pockets in the most efficient manner possible.
Just because Brookings supports the idea doesn't automatically make it dopey (close, but not 100% of the time). Bush's failure to push a huge gas tax on September 12, 2001 is in my book, his biggest mistake.
By TigerHawk, at
Sun Nov 30, 06:22:00 PM:
Just because Brookings supports the idea doesn't automatically make it dopey (close, but not 100% of the time). Bush's failure to push a huge gas tax on September 12, 2001 is in my book, his biggest mistake.
Identifying Bush's biggest mistake is a tall order. In general, though, I agree with Mike. We have known since at least 1973 that we pay an extremely steep price for our dependence on massive quantities of imported oil. Frankly, no president has had the political courage, vision, and opportunity to confront that dependence in a serious way. Bush might have been able to make that happen as part of a comprehensive response to September 11 -- he had the knowledge and probably the political muscle, but not the vision.
While I would not support a tax that maintained a specific floor on the price of oil, I would support a tax that started low and was slated to increase annually for the next twenty years. I believe that the American reputation for profligacy is such that if we subjected ourself to a sustained and growing tax on oil it would actually drive down the price over the near term -- the oil markets would marvel that the United States finally got up the political kinetic energy to increase incentives to conserve.
By Mike, at
Sun Nov 30, 07:57:00 PM:
TH -
A floor tax is a little nutty, but might sate the Democratic instinct to wonkishly overcomplicate. I'd much prefer your tax, but I'd be happy with anything in that direction.
The floor tax certainly beats picking and choosing specific technologies (I've heard numbers as high as $400 billion tossed around) or "greening" our automakers.
American ingenuity can seriously dent the world's habit of financing our enemies. Whether it comes from better information (I believe Google will impact our driving habits as much as UPS algorithms improve shipping efficiency), more efficient machines (like LED light bulbs or industrial motors), or a little less lawyering (which stillbirths nukes and soon coal), there's no reason we can't beat this trap. We've already doubled our GDP per barrel of oil since the 70s. I just want to give it an economic nudge so we move faster.
By Dawnfire82, at
Sun Nov 30, 09:26:00 PM:
"This diverts money from filling Saudi, Russian, Iranian, and Venezuelan pockets in the most efficient manner possible."
No, it increases the burden of the typical taxpayer. What makes you think that if we don't buy it, no one else will either? If we 'incentive tax' ourselves into not importing oil, then that's just more oil (for cheaper) for the Chinese, Indians, Japanese, Brazilians, et cetera.
And there's no reason for me to believe that it will significantly affect oil imports. Over the last few years the price of gasoline *tripled*, and the domestic demand for gasoline fell a whopping 1%. That's pretty inelastic. (which is why I called it a necessity) Given that example, you'd have to put an astronomical tax on the stuff to have the desired effect. (which would be political suicide, I guarantee) It would just be another tax filling government coffers to achieve an unachievable objective.
And that doesn't address industrial uses for petroleum at all. There's more to black gold that internal combustion engines.
By Assistant Village Idiot, at
Sun Nov 30, 10:23:00 PM:
Wait, you mean the Iraqis don't have a puppet government that does the bidding of imperialist America? You must have heard wrong, Tevye.
By Mike, at
Mon Dec 01, 06:57:00 AM:
DF -
You're right. We need to tax both oil and derivatives to have a real impact (not just gasoline). And the political opportunity is rare (9/12/2001 was one such moment - Obama's first one hundred days is another).
We are "short-term price-insensitive" to fuel prices. But oil prices are no different from any other good. As the impending doom of Detroit speaks so eloquently, consumers stop buying Lincoln Navigators when gas prices climb. Industry finds substitutes. And demand drops.
I have to disagree on the net effect of a tax. Yes, oil gets cheaper for the Chinese. But it also gets cheaper for the Saudis. And some of our money is spent funding Barney Frank's latest harebrained scheme rather than Al Quaeda.
Any tax is going to throw economic drag on the taxpayer. At the margin, I'd prefer that tax push me into using less crude and inventing new ways to screw Iran.
And yes, I'll admit the Democrats have not yet been able to incent me through tax policy to die less often.
By , at
Mon Dec 01, 04:40:00 PM:
Some feeble minded thoughts: Dawnfire @ 9:26 is pretty much right. Even if you do enact the tax, the revenue stream will immediately be built into the Government's budget forever. The tax will never be repealed no matter how high oil goes. I would speculate that much of the increased holiday retail trade is coming because of the reduction in gas prices. Giving more money to Government is ALWAYS a bad idea. Having the Government manipulate our behavior via tax policy is also a bad idea as it distorts markets and therefore makes them less efficient. It also infers that Congress is smarter than the markets. Everybody that believes that, stand on your head.
