Nice post. I do wish the President and Secretary to the Treasury of Sri Lanka had half your intelligence. I do hope someone will direct them to this post.

The basic problem with this suggestion is that by avoiding buying petrol one one day all we do is POSTPONE usage, not curb it.

Given that the majority of oil is bought and sold in the futures markets and the large stocks held at various stages of the refining process, no one will even notice a stop of consumption for one day, even if the whole world stopped.

It would take weeks, possibly months of non-use before anyone in the industry feels the impact.

A long term reduction is another thing altogether and something that we should all aim for. What the government should do is publicise means of saving; this together with high prices should work the trick.

Car pooling, more scheduling of work (to prevent unnecessary zig-zaging across the town) , greater use of telephones / emails (minimise journeys -esp unnecessary ones check that a person is available before you leave to meet them etc)

These are all comonsense measures but sometimes people need to be reminded of them a few times before they adopt. An imiganitive government would co=opt industry heads to do a car-pooling day (no one travels alone) maybe even a bus day (with everyone including CEO’s going by bus) just to get around the social/status phobias and raise awareness but then that is far too much to expect I suppose.

Indi, This might have been somewhat accurate if it was written for the U.S., (especially if you are a member of the church of Gore) but in my opinion, would be totally invalid for Sri Lanka.

Sri Lanka doesn’t have foreign policy issues in the middle east. Iran is our buddy. As you correctly point out your self, the likelihood of spawning alternative energy breakthrough is slim.

So why is a tax good for us? you can partially justify one on the basis of payment for the use of roads, fine enough if the tax actually goes for that purpose. Other than that higher taxes, doesn’t serve a purpose.

And I donno how you can argue global rise in prices as good, especially for countries like Sri Lanka. the reasons you have given are hardly enough. Not a lot of people in this country can afford to live posh green-lives nor should you american-liberals force them to.

This is really much bigger than Sri Lanka.

The rise in global oil prices is good for the world, in which Sri Lanka is a bit player. It’s not the big scary Liberal imposing some hippie lifestyle on us, these are huge market forces. Oil is not sustainable, hence the price is going up, hence the economy will adapt into something better. This is pretty simple economics, and blaming it on ‘American liberals’ is pretty silly. To quote a bit from the Financial Times:

First, do not blame conspiracies by speculators, oil companies or even Opec [or in your odd argument, American liberals]. These are the messengers. The message is one of fundamental shifts in demand and supply. If speculators push prices up in response, they are helping the adjustment. Even if Opec keeps output back, it is preserving a valuable resource for the future

[...]

Third, understand that prices at these levels are now playing a big macroeconomic role. At $100 a barrel the annual value of world oil output would be close to $3,000bn. That is 5 per cent of world gross product. The only previous years in which it was higher than that were 1979 to 1982.

Fourth, adjust to high prices, which will play a big part in encouraging more efficient use of this finite resource and ameliorating climate change. The current shock offers a golden opportunity to set a floor on prices, by imposing taxes on oil, fossil fuels or carbon emissions.

[...]

Finally, do become serious about investing in basic research into alternative technologies. Energy self-sufficiency is an implausible goal. Investing for a post-oil future is not.

We are no longer living in an age of abundant resources. It is possible that huge shifts in supply and demand will reverse this situation, as happened in the 1980s and 1990s. We can certainly hope for that happy outcome. But hope is not a policy.

The great event of our era is the spread of industrialisation to billions of people. The high prices of resources are the market’s response to this transforming event. The market is saying that we must use more wisely resources that have now become more valuable. The market is right.

and there is actually a lot that SL can do. Our new traffic system in Colombo is extraordinarily wasteful and destroys public transit in the city. That can be fixed. The government sector wastes huge amounts of petrol, etc. This shit is happening and we can blame the messenger or do something about it. I prefer the latter.

My beef with your post has nothing to do with why prices are high, but rather your contention that this is a “good” thing and your attempt to justify high taxes on SL fuel.

I wasn’t blaming American liberals for the rise in gasoline prices, do re-read, but now that you mentioned it, I will ask why on earth hasn’t the US congress opened up it’s own gas and oil reserves up for extraction? . And since we are trading links, here’s one for you on that.

Your FT article doesn’t I’m afraid, state your case why high gas prices are a good thing. your contention is not based on sound economics but rather some feel-good “save the planet” environmentalism, which like i said earlier, is a luxury poor countries cannot afford.

See your own example of the Colombo-traffic system, the waste it causes and govt. sector waste etc, this will mean that we will use higher gas than necessary, in other words we increase demand for oil and that would drive prices higher (simple economics, right?) which according you should be a “good thing” (promotes alternative energy adaption, etc.). so you should really be a supporter of the new traffic plan and government wastage. Your argument is self defeating, do think through the logic of “gas prices is good” theory.

Now, I do think pigouvian taxes (gasoline tax, carbon tax) makes some sense for the U.S. but the question is what is the right tax and the answer should be a national policy-question, it’s not “bigger than Sri Lanka”. Since we don’t think everybody can afford the prius or spawn alternative energy research, there’s no real justification for a carbon tax.

The whole notion that we are part of this global fight against climate change and therefore we shud to stuff for the sake of it is just pure nonsense. Like I keep telling you, I can’t afford your American liberal values, I don’t think many Sri Lankans can either.

I’m not really advocating a gas tax for Sri Lanka, whatever here happens is irrelevant. Most Sri Lankans actually do practice ‘American liberal values’ in that they don’t have cars and they take the bus or office transport to work. Sri Lankans really have very little control over gas prices, which are set on a global scale.

That said, the climate change issue is not a dainty liberal luxury or, as Cheney says, a personal virtue. In broad economic terms climate change is going to hit our very coastal nation – already prone to devastating flooding – hard. There isn’t too much we can do about it, but we really should care. Pretty much every major policy maker including the Republican candidate recognizes climate change as a real problem with long-term economic costs (and great benefits if we make adjustments now). Something like 200 major economists opposed Clinton and McCain’s grandstand to lower the gas tax, because the high prices are good. This is seriously Economics 101, and accepting that climate change is real is now Public Policy 101.

These aren’t liberal values, it’s simply supply and demand, and science. There is more demand for oil than supply, hence the price rises. As the price rises it makes alternative energy and policy economically viable. This is going to happen naturally (slowly), or we can speed up the process by keeping prices high by setting a floor for gas prices (on a global level, again, Sri Lanka is not that relevant).

I think you’re trying to frame this as an idealogical issue when it’s not. It’s actually pretty basic economics which – while definitely not populist – is agreed upon by all major economists in the world. Whether Sri Lanka taxes gas or not is irrelevant, we probably shouldn’t. On a global, long-term level, however, high gas prices (set by the market) are good. Sri Lanka doesn’t have to tax, they just have to live with supply and demand until the global energy ecosystem changes.

Harvard professor N. Gregory Mankiw, who has written a best-selling textbook on economics, said what he teaches is different from what Clinton and McCain are saying about gas taxes. “What you learn in Economics 101 is that if producers can’t produce much more, when you cut the tax on that good the tax is kept by the suppliers and is not passed on to consumers,” he said. (Source)

To sum, climate change is real, it does have real economic consequences, and the high oil prices today are set by the market because of basic supply and demand. And that market force is good for the future, moving us away from a bad thing. The US and bigger countries can take an active role by setting a price floor now. What smaller countries like Sri Lanka do is irrelevant on a global scale, but we really should practice conservation here just because the prices are high and we have to.

I probably misread you as justifying the high taxes in SL. If you are not, fine enough. But you’ll have to excuse me, ‘cos here we are in a country which has higher gasoline prices than the U.S. (probably due to high taxes and piss poor policy) and here you are cheering on the high prices.

Contrary to what you say local policy does have a say in the prices of gasoline. Gasoline isn’t bought in the world market as a complete product, there’s refinement, distribution mechanisms, taxes and public policy factors affecting final price of gasoline at the pump. There’s much we can do to (or not do, like letting the market work) which can affect market prices.

This is not to blame the hike in prices to policy in totally, but you have to point fingers where blame is due, and ask why prices are lower in other parts of the world. If you ask our friends at LBO they will surely add Ben Bernanke (the Fed chief) to the “to blame” list. There is of course the bubble-theory of high oil prices, which should not be completely discredited.

Also a few technical points:

What McCain-Clinton proposed was a gas tax holiday (a suspension) not a complete cut on gas taxes. A holiday was deemed as stupid because cheaper price would increase demand given the short-term inelastically of supply. If they proposed a permanent cut, then there might have been more disagreements. Although for US, I don’t think many would propose one. I do read Mankiw obsessively, including his textbooks for fun. You might be interested in what he actually said in his blog rather that other guy who’s being a bit creative with what Mankiw said.

There is a problem also of what U.S. economists say and applying it wholesale elsewhere. In Sri Lanka demand for gasoline is probably more inelastic than in the U.S. Given there’s hardly any viable alternative to using whatever Sri Lankans are currently using (coz public transport for car-owners is too shitty), people would continue to consume more-or-less the same amount (or only a little less) than they would otherwise consume despite the high prices. One idea I’d get behind, and you should probably promote, is a more vibrant public transport system. If you can promote that with Global Warming fear mongering, then good on you.

and that brings me to Global Warming.

Surely, you’d concede the fact that Obama and McCain agree on something is not a viable metric to measure the desirability of public policy. So when you claim “high gas prices are a good thing” one will have to evaluate all the alternative cost and benefits of such a predicament. Including the impact of high gas prices on people who are actually living today and the benefits it would bring in terms of mitigating global warming. Thankfully, good people at the Copenhagen consensus already does that kind of thing and a team of economists, which include a set of nobel prize winning fellows (Thomas Schelling included) who have put global warming mitigation the bottom at the list priories for global development .

Having said that, I agree that a Carbon Tax is most sane climate-change mitigating solution that I’ve heard.

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