Re: Krugman on gas tax

[Sven R Larson <larson@xxxxxx>]

Dear friends,

Here's most of Krugman's article. I took the freedom to insert some
comments below, for further discussion.

Krugman:
> Tony Blair showed real backbone last week. Faced with a stunningly
> effective blockade by truckers protesting high fuel prices, the
> British prime minister flatly refused to give in to demands for tax
> cuts. The initial result was extensive disruption ? not just closed
> gas stations but shortages of bread and milk in supermarkets,
> delays in medical procedures and in general a state of chaos all
> too reminiscent of the U.S. gasoline shortage of 1979.

Larson:
You should know that many of these drivers make notably less than they
do in the US, and competition in particular on long freight routes is
stiff. The only ways productivity can increase in the trucking business
is, basically, by faster delivery and more load per truck. Krugman does
in no way acknowledge the increased stress on European truck drivers
following the liberalization of trade in the EU zone - he should, as
that would explain a lot of the fury behind the blockades over here.

> By the end
> of the week, however, the protests seemed to be subsiding in
> Britain (though similar protests were still growing elsewhere in
> Europe). So for the time being Mr. Blair has won ? though no good
> deed goes unpunished, and he is likely to pay a heavy political
> cost for his stand on principle.

Truck driver protests in Britain as well as in some parts of Scandinavia
were met with badged force by governments. Further comments unnecessary.

>  There is little question that Mr. Blair was right to be so
> intransigent. It's true that because of the high taxes the British
> government levies on petroleum products, gasoline and diesel fuel
> are very expensive, even compared with prices in other European
> countries. (Gasoline currently costs about $4.25 per gallon.) But
> the overall tax take of the British government, while high by U.S.
> standards, is actually low by European standards. Basically, high
> taxes on fuel are more than offset by lower general sales taxes and
> income taxes ? and any reduction in fuel taxes would eventually
> have to be matched by increases in other taxes.

This I don't understand. It doesn't make it cheaper for trucks to
deliver because corporate taxes or taxes on high incomes go down.
Neither of these will trickle down to those at the wheels, but will stay
higher up in the corporate hierarchies.

>  And there are good reasons why fuel should be singled out for high
> taxation. Among other things, traffic congestion is, believe it or
> not, a much worse problem in Britain than in the United States. A
> tax that discourages motorists from getting on the road and hence
> getting in the way of other motorists serves a social purpose over
> and above the revenue it raises.

Roughly 3/4 of private consumption consists of food, housing, clothes
and daily transportation. What Krugman is saying here is that fuel taxes
should be kept high in order to make people use their cars a bit less
for daily transportation. Anyone familiar with public transit systems in
Europe knows that they are more extended than what one finds in many US
cities, but still they operate at the peak of their capacities during
rush hour. It is virtually impossible for trains and buses to swallow
more travellers, and also to allow them to do their daily travelling
between home, work, schools and shops within the same time frames. I
honestly find it a sign of ignorance when a highly educated professor at
one of the world's most renouned universities so blatantly disregards
the effects on every day life of people in a case like this.

>  Even if Britain should eventually decide to tax fuel less and
> other things more, there's a question of timing: reducing fuel
> taxes in the face of a world oil shortage would be a terrible idea.

The problem is not oil shortage as such - it is the need among many OECD
countries for high, steady cash inflows from abroad. Many of these
countries have literally spoiled their populations with free access to
many services we pay deerly for, and when oil export income shrinks the
leaders of these countries see their future at power jeopardized. It is
also notable that a country like Saudi Arabia lacks internationally
competitive industries outside the oil business, so there really is not
alternative to oil when it comes to paying for imports. Or producing
domestic substitutes.

>  Why do fuel-price protests command such wide support? American
> conservatives ? and Britain's hapless Conservative opposition ?
> would like to think of this as an anti- tax movement. After all,
> don't truckers want a cut in fuel taxes? But while the letter of
> the protesters' demands may involve tax cuts, the spirit of the
> protest is quite different. This isn't a rebellion against taxes
> per se: it's a rebellion against markets. In effect, European
> truckers have been saying that it isn't right that they should
> suffer just because the world price of the fuel they need has gone
> up.

Finally, a word in the right direction. But Krugman still is missing the
point of standard of living. It's easy for an American whose economy is
the Perpetuum Mobile of growth and high employment to stop here. But
from the European horizon the protests reach beyond just dismay over
"unfair" markets. Efforts by hard working people over here to improve
standard of living have not been supported by the macroeconomy for a
number of years now. In the pipeline for the next decade is a major
reform of the pension system in the EU - something already on-going in
some countries. Such reforms, as well as frustration over lack of
quality for tax money in general, are enough to stress people as it is.
When fuel prices go up more stress is added to every day life - hence
the spark that lit the bonfire.

Keynes,

/srl



--
Sven R Larson
PhD; Assistant professor of economics
Department of Social Sciences, Bldg. 22.2
Roskilde University
Pb 260
DK-4000 Roskilde, Denmark
Phone: (+45) 4674 2910