Almost all Egyptians know that gas prices are subsidized, people outside Egypt might not but if they're reading now they do.
As a consequence, Egypt "enjoyed" one of the lowest prices for gas (petrol if you're a brit) anywhere in the world. Up until a few weeks ago 1 liter of 90 octane gas was being sold to the public for 1 EGP (around 18 US cents), that is less than 70 US cents per US gallon. For a quick comparison gas in the US is cheap because it goes for around $3 US a gallon, and is expensive in the UK where people pay around 1 sterling pound for a liter. That's more than 10 times as much.
A few weeks ago, the price at which gas is controlled rose 30% to 1.3 egyptian pounds, and while I was not there when it did, I can definitely imagine the major uproar on the streets following that. If conversations with friends and family are anything to go by, I actually bet thousands, if not millions, of people are still uttering swear words in disapproval of the government's action.
I, too, think this was a wrong step to take, gas prices should not have slidden up 30%. The subsidies should have been lifted and prices should have been let to shoot up to the 5 or 7 times the current price that it's estimated to be worth. I am not being sarcastic either, hold on to your guns a little bit before you declare me crazy and hear me out.
Subsidies mean that the government is paying the price difference between what you're paying at the pump and what it actually cost to get the gas to the pump. It does *not* mean that the cost of gas is less, it was just transferred and is being paid by someone else.
Now, a basic economic fact is that demand increases with lower prices and decreases at higher prices. That is why not everybody is driving around in cars costing millions of pounds, and why on the other hand almost everybody can eat bread.
In fact it is so basic that it's almost considered common sense, and is ultimately portrayed by the common saying "Abo balash kattar meno" or translated "Get more of that which is free".
Combine both facts and you get a better picture, taxpayers' money is used to buy gas and people are using more of it because of exactly that.
If subsidies were removed, and gas prices are allowed to fluctuate according to free market conditions, prices will shoot up to maybe 6 or 7 times their current values. This will naturally cause people to use less and prices will go back down a bit. Not back to the point they're at with subsidies but to the point where equilibrium is reached between supply and demand.
And before thinking that this would be a life threatening situation for low income people let me explain what I think.
What would people do if they found out their dinner is free? I say they will probably eat more than what they usually do, much more actually.
This is no different than the gas situation. I know that I drove around for much more than 500 Kms on the first day I got my first car in Egypt. I also know that it would have been prohibitively expensive for me to do that if gas prices were 5 times their values back then.
Nobody likes high prices, specially those who can't afford it themselves. And even though it might be nice to imagine a world where everyone affords everything, the underlying scarcity of resources makes that practically impossible.
What subsidizing gas is doing is taking from tax payers, many(most?) of which are low to middle income, and paying it for gas much of which is consumed by the higher income classes who own the bigger and more gas guzzling cars.
Still not convinced? I'll leave you with a few statistics I just looked up.
-The FY 2006-07 budget earmarks EGP 40 billion for fuel subsidies, up from EGP 22 billion in 2005, and more than is allocated to health and education combined.
-According to Boutros-Ghali, the rich benefit by EGP 1,700 per capita from fuel subsidies, while the poor benefit by only EGP 300 per capita.
Economics* is interesting isn't it?
*Most of my recently acquired and embarassingly little knowledge of economics has been through this book, Basic Economics by Thomas Sowell. A highly recommended read.
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24 comments:
this is all fine except it ignores some aspects of why subsidies exist.
while I agree petrol to run your proivate car should float to market price (hell it should be taxed too just to keep you from polluting and wasting precious resources).
gas used to run irrigation machines, factories and to transport goods should be subsidized.
why? because the market price is irrelevant when you are producing your own oil.
what I mean is we can sell gas at cost when it factors directly in producing more wealth, sell it for a high profit when it is mostly used for consumption.
I beg to differ.
First of all, I'm not sure how much of our oil is domestically produced. But this is actually irrelevant to my point anyway.
Let's discuss point by point:
market price is irrelevant when you are producing your own oil
Producing your own oil comes at a cost, much of it is hidden actually. Consider how many locations have been drilled and explored for oil only to later be found empty. Oil exploration and actually getting it off the ground comes at a cost. Obviously the cost need to be recovered, regardless of whose oil it is.
what I mean is we can sell gas at cost when it factors directly in producing more wealth
As I had just illustrated, much of the "cost" of gas is hidden, it'd be very hard for you or me to determine that cost. Fortunately, free market prices relieve us of that burden. You need someone to pay the upfront costs of oil exploration and drilling until they can actually get something to sell. The price at which this gas is sold must cover all the investment, plus profit to make it worthwhile. Free market price is the point at which supply and demand are in harmony. Higher demand in a free market will raise prices, even if the "cost" of actually getting the oil is the same. This will attract more capital into the industry as people realize it's a profitable investment because of the high prices. Thus, supply increases naturally introducing competition and price reductions completing the cycle.
Attempts to artificially set any price lower than it would be in a free market only leads to decreasing supply. Would you invest in a petroleum company if oil was sold "at cost"?
Selling gas for factories and irrigation machines is no different than selling it for use in cars, the point being if the factories and irrigation machines introduce more wealth than they consume in the form of gas or any other resources. They will still be able to pay the gas price with the returns from the wealths they create. If they can't then they're not producing any wealth and actually eating away the existing one in the form of consuming gas, amongst other resources.
Thoughts?
P.S.
Thanks for a thoughtful comment and a much missed rational discussion :)
all of it is domestically produced.
free market does not guarantee a return on investment, you need to reconsider your economical model.
there are ways to estimate hidden costs, all industries require alot of investment in infrastructure that is typically done by the government, roads for instance and a police force to protect your investment. so it's not a challange unique to oil, and nothing in the way the free market balances prices pays for roads, only taxes do.
besides for the market to be free you need some competition, oil is an extremely regulated field (locally and internationally).
but roads don't need to make a profit, and in our particular situation in Egypt oil doesn't have to make a profit either, if we can cover costs (including future costs of research development, prospecting, etc.) that's cool, think of the Egyptian oil industry as a public utility that exists to provide energy for production, frieght and transportation.
there is another aspect you are ignoring, which is that we can't just let supply increase to it's normal free market point cause we're talking about a limited natural resource (specially if we want to remain self sufficient when it comes to oil), so some regulation to keep production down is needed, but without subsidies this is bound to make the price rocket (fixed supply, variable demand).
I say treat oil the way you treat communication, overcharge the luxury, consumerist and end user aspects in order to be able to subsidize major wealth generating activities, protect the environment (and your natural resources) and provide essential services to everyone.
you hypothetical would you invest in an oil company question ignores two things, first your tax money is invested in the oil company already, it's a public sector thingie,a nd second the il company can still make a profit by selling high octane gas to privae car owners for a high price. (with a state monopoly you can do anything).
as for the point about irrigation machine consuming more wealth than they produce, there is a falacy here.
first you ingore the effect of long term investment, for instance desert land reclemation is a very long term investment, if it's energy consumption is allowed to affect immediate market price it will always look like a waste of resources.
and 2nd you assume that money is the universal way of calculating wealth, so if a price of the free market price of a tomato is 1LE and the free market price of a litre of gas is 2LE and it takes a litre of gas to produce a tomato then a tomato is a waste of wealth, let's not plant a tomato.
but there are other aspects to this, by not producing this tomato you find that you need to import more food and hence become dependant on foreign trade for very fundemental goods, any shake in the international tomato market might lead to actual hunger or the immiediate burning of cash, sometimes it is wiser to grow your own food even if at a higher cost.
then there are even more complex aspects, let's say gas becomes too expensive to the point where it is not worth planting barsim cause barsim doesn't bring the cash, but barsim is actually important for the aggricultural cycle cause it allows the land to heal and regain some of it's nutrients and make it ready for the next cash crop yet at the same time is useful for feeding the farm animals, so someone has to subsidize the barsim part of the year, it could be the farmer or the government, the farmer might not decide to do this (that is if they can afford it to begin with), and unless the government guarantees it somehow the real value of the natural resource (arrable land) diminishes.
free markets hardly ever care about such aspects.
I'd agree with your analysis we where importing most of our oil.
there are other ways to subsidize off course, you can give farmers and factory owners law interest loans, or free gas copouns or whatever, I'm not saying my way is the only right way.
and I do agree that the price for private cars should be much higher than 1.30LE
First of all, selling oil at different prices for different uses is your sure recipe for black market. That alone is reason it shouldn't be done in my book.
Now, I still don't understand your point disapproving of removing subsidies from oil for all uses. What is it that will go wrong?
Back to your points:
Besides for the market to be free you need some competition, oil is an extremely regulated field (locally and internationally).
Gas prices in the US are not subsidized or regulated, it's even different from one gas station to another. Prices during the past year have fluctuated all the way from around $2.8 US per gallon of 92 octane gas to $3.5 US. It can be done.
think of the Egyptian oil industry as a public utility that exists to provide energy for production, frieght and transportation.
This is an argument for doing the exact opposite. Do not let the oil industry be a public utility. Look at the state of public utilities, be it water, electricity, or transportation. It's not a coincidence the state of all of them is pretty miserable. "Public" means nobody owns it and nobody is spending their own money. It's stuff that nobody owns that are left to deteriorate.
first you ingore the effect of long term investment, for instance desert land reclemation is a very long term investment, if it's energy consumption is allowed to affect immediate market price it will always look like a waste of resources.
Not exactly true. Lots of capitalists invest to get long term rewards. Medical research is conducted for decades by pharmaceutical companies before it results in actual profits, examples are endless.
What you're ignoring here is that current prices do reflect future value. Your house's value will appreciate *instantly* if it's announced that the area is getting more utilities, or maybe a metro station close by. The changes might not be in effect for years but your house's price will appreciate as soon as the news is known. It will correspondingly depreciate instantly if it becomes known that the area is a high risk earthquake zone. Even though the house is exactly the same house it was yesterday before the news were known.
Amazon.com started posting profits in 2001 but its stock prices had already been going up for a few years before that, in anticipation of those profits. At the time, it was regarded as a long term investment expected to pay off at some unkown point in the future.
In short, I didn't ignore any effects for long term investments.
The other political argument for growing tomatoes even if they cost more is hardly a good one in practice. In a free market supply will move according to prices to satisfy demand. If you have the money to import tomatoes there will always be someone willing to supply you with it, your 2LE (and the underlying resources they represent) can be better invested in a potato, which is valued at actual 2 LE, you can sell the potato and get 2 tomatoes. Since you're a very efficient potato supplier and you prove competitive in the market place, you will get your tomatoes, or else you will not supply the potatoes... Only now in a free market you're getting more tomatoes than what you would have produced.
From the economic standpoint, it's never "wise" to grow your own tomatoes at a higher cost than you can get it somewhere else. If you still want to grow your tomatoes then make the process efficient enough that it's not costing you more. A free market will achieve that automatically when someone sees an opportunity to grow tomatoes more efficiently cutting costs and enabling them to compete with the 1LE tomato you're importing.
free markets hardly ever care about such aspects.
They actually do, when a farmer has property rights to his farm and knows that his future earnings depend on it, they will grow barsim if it adds value to their land. People do not want to lose money needlessly and the farmer will have better knowledge than anyone else of his own land, which he'll use to protect his land properties. Self monitoring is another benefit you get from a free market. You need monitoring when people are spending others' money, not when they're spending their own.
Subsidizing farmers as you said is a separate issue that I'm not tackling, at least right now.
Consequently, I still stand by my opinion that gas subsidies should be removed.
Convinced? :)
I agree with you in general that free market should work itself out BUT, Egypt seems to be emerging from a communist economy , more or less. There is so much government control that change has to be gradual so that the structure of society would hold. If the gas price is increased six or seven folds, probably the governemnet will fall, fight in the streets etc.
In my opinion, the government can start by gradually phasing out funding of public colleges. I see no need for more subsidized graduates with no jobs.
Sorry Chris, I just need to add a small comment here :)
This could be OK in many places like US when a trash man is earning what's enough for him to get a car, rent a home and even save some money, but look at Egypt for families whose total monthly income is sometimes like than 300 LE per month for whole 4-5 members.
Now after this increase, the price of everything is increased, transportation, food, everything.
Now if we have accepted the fact that they could manage their life (food, clothes, schools, renting, electricity, water, etc) with this 300 LE, now can you tell me how could they manage the new increase in the price of everything?!
Also put in mind, 300 LE is also considered a big income for some people, I know other families whose income is sometimes less than 200 LE.
I also need to add something, those people don't even have cars :)
Now the ticket for a public bus or underground will be too expensive for them to offer!
Did you even read the whole post? Or the couple pages of comments that ensued? :)
While I'm sure the poor would appreciate the gesture, incentives are never enough for some law or measure to do what it was "supposed" to do. There is a distinct difference between incentives and actual consequences.
Many bad economic decisions are made with the best intentions, communist economies were "all about the poor", but what they actually did is made them poorer.
Good intentions are no substitute for proper study of economics and the possible consequences of an economic decision.
Luckily, we have hundreds of years of economic history to study and analyze what worked and what didn't. We just need to do it.
No, I read it all, and I am still asking the same question:
Now how could a family of 4-5 members live the whole month with about 200-250 LE = $34-45 ?!!
I don't care about what do you say of wrong decisions and such stuff, just put your self in their shoes and imagine that your whole salary is less than $40 and you're supposed to do everything with it.
I don't talk about 1 or 2% of the country, I am talking about majority here, you may not feel it because you didn't face it one day, but just imagine that your whole salary per month is less than the same money you may spend in one night in any place you go at the week end, at this point, you won't care about all what you're saying, your only concern will be how to live without making a theft of killing someone for money
Oh, I think you saw an example before for what I mean, I mean this example:
http://v0od0o.blogspot.com/2005/08/story-of-egyptian.html
Now imagine the case of this poor guy, and that the price of every single item (including transportation) is increased of 30-50%, how could he live knowing that his salary is considered huge in compare with many other people who work as teachers, government employees, etc?!
Don't talk about what I "feel" or can/do not feel. At least try to keep a discussion rational and objective. If you're here to discuss ideas please go ahead, if discussing people(myself or any others) is more your kind of thing I'm sure you can find a better venue for that, but keep it off this post.
Now, I am not sure how to better explain it, since you said you've read everything. Let's try again with these 2 *facts* that I quoted earlier:
-The FY 2006-07 budget earmarks EGP 40 billion for fuel subsidies, up from EGP 22 billion in 2005, and more than is allocated to health and education combined.
Explanation: This means you're taking away money that can/should be better used for other causes like health, education, or anything else you deem appropriate (including investing it and providing more people with jobs or better incomes!).
-According to Boutros-Ghali, the rich benefit by EGP 1,700 per capita from fuel subsidies, while the poor benefit by only EGP 300 per capita.
Explanation: The subsidies' money did not grow on trees. Nor does any kind of money. It was paid by tax payers. Tax payers include the poor you're talking about. After that money was taken from them it was *mostly* used to pay for gas used by the higher classes. This, *by no means*, is helping them. Removing subsidies will save the money, the saved money can (as just one possibility) allow lowering taxes on the lower brackets of income. This will give the "poor" more income in their hands to start with!
I appreciate your good will, and I'm sure it helps you get a better night's sleep. But again I stress that good intentions are not enough! And what might seem on the surface like a good, simple idea can have deep economic repercussions defeating its intended purpose in the first place!
Ok, let's make it like that:
1- Since when the government takes money from one sector to put it in another for better sake or people?!
Give me only one example in the whole history of the government.
2- Fuel simply mean:
1- Transportation.
2- Food.
3- Clothes.
4- Other stuff.
Because all these items are affected by Fuel price, ask anyone in Egypt about the items whose price is increased since the increase in the fuel price, they will tell you that everything is increased, so don't increase the price of essintial daily stuff for health and education.
Some one could live without college, but can't live without food.
3- I think it's obvious and many people said before that everyone agree that gas for cars usuage is need to be increased even more than this, the main problem we're talking about here is the gas price for factories, public transportation, etc.
Because poor don't even have cars, so the increase of the fuel price IN GENERAL is making their lives hell.
And again, you didn't answer my question, how a family whose members is 4-5 members is supposed to live with less than $40 per month in the new situation?!
If you have a plan for this fell free to tell us, otherwise don't say that this is a very good decision!
So now who's the one who's not reading :)?!
Let's also mention a small case study.
Imagine a government employee whose all family income is about 350 LE (which is considered big compared to many other employees), and imagine that his family is only 3 members, him, his wife and one child.
Now if we believed the fact that they could manage their life using this 350 LE per month, after the new decision, here what they got:
1- They don't have a car, so the idea about rich is not in effect here.
2- They were using the most cheap transportation like underground and microbus, now they may not be able to offer it anymore, because it's price is increased at least 30-50%, so now they will use the oldest way of transportation, WALKING!!!
3- Due to the fact that they take nothing, luxury life options like eating meat, or buying new clothes once per year is not an option now, because as you know, the price of everything is increased now by 30-50%, so how could they be able to offer these anymore?!
No way!
4- On the other hands, for rich people, it doesn't make any change, because they don't give a damn about this 0.3 LE per Littre, it doesn't make any difference with them by any mean, also for food and everything else, it doesn't make any thing!!!
As I said before, yes, this is ok when applied to private car gas, but not everything, because as you see, the only affected people here are poor people, and don't tell me that they will pay less taxes and such stuff because this doesn't make any sense, because in case of taxes, an employee (if we agree about the idea that he'll pay less taxes) will gain what?!
5 LE?!
10 LE?!
And he'll need to pay 4X at least of what he'll gain in order to maintain the same level of life he was living which doesn't make any sense at all with any mean!!
You offend my sensibilities :)
Since when the government takes money from one sector to put it in another for better sake or people?!
Even though that's a gross and overly simplistic generalization, it's still beside the point. I wrote about about I think should be done for the better of economy of society as a whole. If the money saved is stolen, that doesn't make it any less good of an idea. Bash the government all you want, but again, take it elsewhere.
Fuel simply means (I added the s for correctness):
1- Transportation.
2- Food.
3- Clothes.
4- Other stuff.
Transportation *can* be subsidized on its own, if seen fit.
Food? Even if agricultural machinery uses oil, it's usually diesel rather than gas/petrol. This can be dealt with separately, not that I think those subsidies should not be removed as well. You're assuming a significant percentage of price hikes on all food and that in itself is unfounded. For example, Egypt imports more than 50% of its consumption of wheat. Fuel subsidies never lowered nor will the lack thereof raise the price of imported wheat.
Clothes, huh? I'd assume factories use electricity from the general electic network, which I trust gets its electricity from the high dam. We do export electricity, which means we have excess. Those factories that run generators depending on gas are exploiting the gas subsidies and when faced with higher(free market) gas prices will have to either make the switch to cheaper energy or else go bankrupt when they can't be competetive in the marketplace anymore.
Some one could live without college, but can't live without food.
They can sure live without health services as well, right? I guess the question becomes how long they do.
Because poor don't even have cars, so the increase of the fuel price IN GENERAL is making their lives hell.
I've already replied to that above in this very comment.
And again, you didn't answer my question, how a family whose members is 4-5 members is supposed to live with less than $40 per
Just like they do today. Combine all what I've said above about prices, taxes, and income, and you might get it.
Not that it's a question for me to answer in the first place. It's hardly an argument when discussing economic policies.
So now who's the one who's not reading :)?!
You.
Or maybe you're reading but what I mean is not actually coming through...
Transportation *can* be subsidized on its own, if seen fit.
Nice you agree with this point.
Food? Even if agricultural machinery uses oil, it's usually diesel rather than gas/petrol. This can be dealt with separately, not that I think those subsidies should not be removed as well. You're assuming a significant percentage of price hikes on all food and that in itself is unfounded. For example, Egypt imports more than 50% of its consumption of wheat. Fuel subsidies never lowered nor will the lack thereof raise the price of imported wheat.
So could you give me one reason why the price of everything is increased after the gas price is increased?!
Let me give you one reason and I'll leave the rest for you, one reason for this, is transportation for food itself.
Clothes, huh? I'd assume factories use electricity from the general electic network, which I trust gets its electricity from the high dam. We do export electricity, which means we have excess. Those factories that run generators depending on gas are exploiting the gas subsidies and when faced with higher(free market) gas prices will have to either make the switch to cheaper energy or else go bankrupt when they can't be competetive in the marketplace anymore.
Again, give me one reason then why the price is increased?!
Just like they do today. Combine all what I've said above about prices, taxes, and income, and you might get it.
Not that it's a question for me to answer in the first place. It's hardly an argument when discussing economic policies.
No you're wrong, it's like giving some one X LE with your left hand and take 4X LE with your right hand and after that claim that you're giving him X LE, yes, it's true, but you also take 4X LE from him, so the result as you can see is 3X more payments!!
Very heated debate no doubt. I feel the passion in Mahamed's argument and the logic in Christian's. The thing is, Mohamed there is only so much the governemnt can do (any government). In your example of how a family is to support itself, there is no easy answer. May be if somebody does not have the means, he should not start a family.
Chris, even if it is true that the rich gets more gas subsidy I think as a percentage of income the poor will suffer more.
The truth is somewhere in the middle
Nice you agree with this point.
Nu-uh. I just said that it's a separate issue than general gas subsidies. I neither agreed nor disagreed on the point of having them. Not that this was your point in the first place. We're discussing gas subsidies, not transportation subsidies. I just removed the correlation.
Let me give you one reason and I'll leave the rest for you, one reason for this, is transportation for food itself.
Let's debunk the statement noting that it's not based on any referenced fact or hard numbers. "Imagine" is good for fiction.
But anyway, I looked up the global price of wheat per ton. It seems in May 2006 it was hovering between $150 and $240 US depending on origin and quality. Let's take a median $200 US per ton.
Assuming a 100 mile trip from the port to destination of usage, and a truck that can do 10mpg, the truck needs 10 gallons of fuel for the trip. I assume the truck can, at least, carry 5 tons of wheat which is not unreasonable to assume.
The rise in the cost of 10 gallons of gas should amount to $25 US, assuming a rise from $0.5 US per gallon ($5 US for the trip) to $3 US per gallon ($30 US for the trip). (600%)
Thus, the overall cost of 5 tons of wheat rose by $25 US, which when divided by the old cost of the 5 tons ($200 * 5 = $1000 + $5 for transportation) would make it a slightly less than 2.5% increase.
Not the 30-50% you just made up.
Apply similar mathematics elsewhere.
An example for these decision:
http://www.masrawy.com/News/2006/Egypt/Economy/August/10/p.aspx
القاهرة - أكدت دراسة اقتصادية أن ارتفاع أسعار البنزين بنسبة 30%، والسولار بنسبة 25% سيؤدي الي استمرار ارتفاع معدلات التضخم لتصل الي 10%، بعد أن شهدت ارتفاعا في يونيو الماضي بلغ 6.4%.
وأشارت الدراسة التي أعدتها مجموعة هيرمس المالية الي أن معدل التضخم ارتفع بنحو 12% خلال الفترة من سبتمبر الي ديسمبر 2004 بعد قيام الحكومة برفع أسعار الديزل بنسبة 50% والغاز الطبيعي بنسبة 17% والمياه بنسبة 50% والكهرباء بنسبة 50%، حسبما ذكرت جريدة الوفد.
ونتيجة لارتفاع قيمة الجنيه المصري في أوائل عام 2005 انخفض معدل التضخم ليصل الي3% في أكتوبر 2005 إلا أنه عاود الارتفاع ليصل الي 6.4% في يونيو 2006.
The problem that they usually take the decisions in Egypt without studying its effect about everything, and most funny thing here that they are saying that they increased the price because the price of the petroleum is increased all over the world, and at the same time they are saying that octane 80 will remain the same!!!
Isn't octane 80 extracted from petroleum or it's from Milk?!!
And the most funny thing too, that 99% from gas stations don't have pumps for octane 80 which doesn't make any sense for these weird decisions!
But anyway, I looked up the global price of wheat per ton. It seems in May 2006 it was hovering between $150 and $240 US depending on origin and quality. Let's take a median $200 US per ton.
Assuming a 100 mile trip from the port to destination of usage, and a truck that can do 10mpg, the truck needs 10 gallons of fuel for the trip. I assume the truck can, at least, carry 5 tons of wheat which is not unreasonable to assume.
The rise in the cost of 10 gallons of gas should amount to $25 US, assuming a rise from $0.5 US per gallon ($5 US for the trip) to $3 US per gallon ($30 US for the trip). (600%)
Nice, so let's go back to the facts, WHY the price of everything then increased by 30-50%?!!!! (this is the fact).
they increased the price because the price of the petroleum is increased all over the world, and at the same time they are saying that octane 80 will remain the same!!!
Isn't octane 80 extracted from petroleum or it's from Milk?!!
Not that it's any of my business defending what they say. But petroleum prices do fluctuate. The subsidies keep them constant. 80 octane gas not increasing in sync just means that they're dropping more money on the subsidies for that. The money paid in subsidies is already increasing as I quoted in the original post. Which is due to both an increase on consumption as well as the cost of gas.
Nice, so let's go back to the facts, WHY the price of everything then increased by 30-50%?!!!! (this is the fact).
All prices have been on the rise for as long as you or I can remember, and they were not accompanied by an increase in gas prices.
That is to say, prices (of everything, whatever that means) can increase for a million reasons, other than gas prices. I am not about to discuss or explain those other million reasons but for a hint I'd suggest you read up on inflation.
Mr. Anonymous, thanks for stopping by and taking the time to comment :)
All prices have been on the rise for as long as you or I can remember, and they were not accompanied by an increase in gas prices.
But this time they are, and also, economically speaking, what do you think about Hermes report?!
Christian, a few of your premises are not entirely correct IMHO.
"Now, a basic economic fact is that demand increases with lower prices and decreases at higher prices."
While demand can be dependant on price, it is also dependant on many other variables, making the above statement false.
"What subsidizing gas is doing is taking from tax payers, many(most?) of which are low to middle income, and paying it for gas much of which is consumed by the higher income classes who own the bigger and more gas guzzling cars."
Is there any evidence that supports that many/most of the tax payers are low to middle income?
While demand can be dependant on price, it is also dependant on many other variables, making the above statement false.
Demand _is_ dependant on price, not just "can" be. My statement, of course, implies all other things being equal. Atmoshpheric temperature depends on the location of earth in its orbit around the sun, and while it is also dependent on other factors (like your location on earth), this doesn't make the statement any less true.
Is there any evidence that supports that many/most of the tax payers are low to middle income?
Yes, Basic Economics (the book I referenced) page 279.
Next post might have more referenced content online if I decide to make it about economics as well.
Hey v0od0o,
I just did an entire assignment on the effect of government subsidies including the factor of world prices in the local market... I 100% agree with you on subsidies, the money can be put into so much better use, the deadweight loss effect that the government has to bear is not at all beneficial to society and the total surplus would decrease after the subsidy.
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