$14,289,000,000,000.00 not enough credit . . .

[southsider2k5]

No way. First, the amount of money we are talking about is a meager percentage of their income, so its not going to have any noticeable effect on overall levels of production and procurement. Second, the money is tied to specific actions it must be used for, and those actions are prompted by high gas prices anyway - so it will happen regardless. If the subsidies were removed, what you will see is a lot of complaining by big oil, a brief and small spike in the futures that quickly dissipates, and then nothing. The subsidies are a hand out, pure and simple, and no they would not have an effect on gas prices at the pump unless they did something purely punitive and acted like children (which would then get a government response and investigation, everyone loses, etc., so won't happen in any big way).

 

With an elasticity of 15 to 20, almost the entire price hike would be handed to the consumers. It really is that simple.

[Balta1701]

With an elasticity of 15 to 20, almost the entire price hike would be handed to the consumers. It really is that simple.

Normally if I suggested we start subsidizing something to save the consumer money, I'd expect you to be the one responding that the American taxpayer is paying for it either way.

[southsider2k5]

Normally if I suggested we start subsidizing something to save the consumer money, I'd expect you to be the one responding that the American taxpayer is paying for it either way.

 

I wouldn't have expected you to be so enthusiastic about a tax on the poor either.

[StrangeSox]

With an elasticity of 15 to 20, almost the entire price hike would be handed to the consumers. It really is that simple.

 

Why don't they just charge the higher price now if the market will support it regardless?

[southsider2k5]

Why don't they just charge the higher price now if the market will support it regardless?

 

They don't have to.

[StrangeSox]

They don't have to.

 

But if they do, they'll make more money and more profits. So what's stopping them? The kindness of their hearts?

 

edit: I'm honestly trying to understand this here, I don't have a strong background in formal economic education.

Edited May 17, 2011 by StrangeSox

[Y2HH]

Oh, ok, so it's even worse, there's no "mandatory" part left to it except for covering scheduled benefits.

 

So we still spend $30 trillion extra to meet current obligations, but then we cut off Social Security completely for some portion of the population, and then we discover to our horror that once we made Social Security "elective", 2/3 of the people in the country didn't invest in it at all, hit retirement age with nothing, and wind up being supported by the government anyway.

 

The reason that the program actually works is exactly what you said in your last post. It covers everyone. It's a baseline. Everyone pays the same rate and everyone is invested in the program. Individual mistakes can't screw it up. It's simple, functional, and even if you screw everything else up in your life, by the time you hit OASDI, you are not out on the street.

 

Pretending that you can extract savings by making social security optional is just silly, because you should know exactly what will happen. People will fail to invest in it or they'll borrow against it, then the government will wind up picking up the tab for those people anyway.

 

This is one area me and you agree on 110%.

 

I highlighted via underline (above) a point people seem to dismiss, whether out of convenience to their argument, or out of believing people are smarter than they are. What Balta claims in the above underlined would happen...absolutely would happen.

 

Look at the elective 401k contributions in various corporations throughout the country, most people don't bother and the statistics show it. They claim they'll save on their own, but they don't, because they live on credit. At my company, 401k contributions are so low that they actually started automatically signing people up every year and you have to go out of your way to remove it (you can). Never mind the fact that my company matches 100% on the first 1%, and 50% on the remaining 5% (total 6% contribution), an overwhelming number of people STILL elect to NOT do it.

 

Balta is absolutely right, as it stands many seniors barely make it by with social security now, and you're asking to give the choice to the "credit card generation" to not contribute to it because you believe they'll save on their own? I wouldn't refer to them as the credit card generation if they were living on surpluses.

 

LAUGHABLE, at best and negligent at worst.

 

I can loan you my Delorean here, you can travel into the future and see what would happen.

 

They wouldn't save.

 

And the taxpayers would end up propping them anyway...otherwise they'd collapse the entire system. One thing they WILL NOT elect to do in the future in which they have NO money is starve to death.

[Balta1701]

I wouldn't have expected you to be so enthusiastic about a tax on the poor either.

We can make up for it by using 10% of the money we give in those subsidies to improve public transportation.

[NorthSideSox72]

Oh, ok, so it's even worse, there's no "mandatory" part left to it except for covering scheduled benefits.

 

So we still spend $30 trillion extra to meet current obligations, but then we cut off Social Security completely for some portion of the population, and then we discover to our horror that once we made Social Security "elective", 2/3 of the people in the country didn't invest in it at all, hit retirement age with nothing, and wind up being supported by the government anyway.

 

The reason that the program actually works is exactly what you said in your last post. It covers everyone. It's a baseline. Everyone pays the same rate and everyone is invested in the program. Individual mistakes can't screw it up. It's simple, functional, and even if you screw everything else up in your life, by the time you hit OASDI, you are not out on the street.

 

Pretending that you can extract savings by making social security optional is just silly, because you should know exactly what will happen. People will fail to invest in it or they'll borrow against it, then the government will wind up picking up the tab for those people anyway.

 

You keep making arguments up. I am not saying anyone gets removed from the system. When I say "elective", I mean from certain choices, and its obligatory money inbound.

 

With an elasticity of 15 to 20, almost the entire price hike would be handed to the consumers. It really is that simple.

 

I completely disagree. They only do that in order to be a whining child. Its not enough money that it should have that sort of impact. And even if they do decide to change the price punitively, the backlash would backfire on them, as the public would scream louder for non-oil energy.

 

Not going to happen.

 

 

[Balta1701]

You keep making arguments up. I am not saying anyone gets removed from the system. When I say "elective", I mean from certain choices, and its obligatory money inbound.

Then we're back on the first problem...the fact that if you allow everyone to take money out of the pyramid and make choices about where to invest it, you need $20 trillion or so extra to maintain benefits for people currently in the system. And no, raising the cap doesn't get you that; it only covers the gap between current scheduled inputs and current scheduled benefits. You need to raise the cap, then add in an extra dollar beyond that to cover every dollar you allow people to "Choose" what they do with it.

 

And be honest...let's hypothetically say that we first allow people to start "choosing" or investing in T-bills. Do you really think there won't be an enormous lobby to allow people to expand those choices? Do you really think that it'll be many years before we hit a bull stock market and people are angry over why they're stuck "Choosing" to put their money in treasuries?

[Texsox]

Y'all keep saying pyramid in regards to SS, but our entire budget is a pyramid. $14 trillion and climbing debt. As we increase the debt, we are counting on more people to pay taxes, to shoulder the debt. It is always someone else paying the taxes, in this case, someone not even born.

[StrangeSox]

So, back on topic.

 

So far 3 people have voted "Don't raise it".

 

That effectively means that Medicare, the Army, and Social Security will stop being funded come about Aug. 1, or that the U.S. government will default on its debt. (Edit: and I should note, you'll still be paying the taxes for those programs. The money just wouldn't go out).

 

Which do you prefer, shutting down all of those or defaulting?

 

I don't think I've seen a response to this yet?

[Balta1701]

Y'all keep saying pyramid in regards to SS, but our entire budget is a pyramid. $14 trillion and climbing debt. As we increase the debt, we are counting on more people to pay taxes, to shoulder the debt. It is always someone else paying the taxes, in this case, someone not even born.

Which would you prefer to leave people of future generations, no debt and no jobs, or debt but a solid job market?

[southsider2k5]

We can make up for it by using 10% of the money we give in those subsidies to improve public transportation.

 

Which benefits by far mostly people in cities, which means half of the country gets left out.

[southsider2k5]

But if they do, they'll make more money and more profits. So what's stopping them? The kindness of their hearts?

 

edit: I'm honestly trying to understand this here, I don't have a strong background in formal economic education.

 

Mostly anytime you have a change in fixed costs, you have a change in production and pricing. What would essentially be a new tax on business, would drive up costs. Those costs, in an industry that sees virtually no change in demand for changes in supply, would be passed on. We see it all of the time when the price of oil goes up now. Profits aren't affected at all to the negative, prices are raised instead. In an environment where there was an elastic reaction to pricing, profits would fall and prices wouldn't react nearly as much. Businesses would have to absorb the costs to keep customers, as much as they could.

 

The best argument out there for what would happen if subsidies went away, is exactly what we see happen all of the time when the price of oil spikes. Price increases get passed along. Period. Pricing pressure doesn't discriminate to why there is pressure. Prices only care that there is pressure. Whether prices are trying to go up because of changes in supply, new taxes, a new refinery, a refinery fire, or less subsidies doesn't matter. It is completely immaterial.

 

In theory, there should be a number to hit when those elasticity numbers start to curve upwards. Its not a straight scale for sure. It seems to me personally (I have zero evidence of that) that it seems like $4 seems to be a spot where we get bigger reactions of people changing behavior. But without a truly sustained period of time at that price point, it is impossible to say for sure because you have to have some sort of a "long term" run so that all changes in the other areas could be adjusted for. I would give the caveat that if subsidies were cancelled at a price point somewhere past where elasticity of gasoline starts to accelerate, I could see less of a price change being able to be passed on to the consumer. The reality is even if I am right about $4 being big mentally to the marketplace as a whole, the changes in behavior will still not be large in a relative sense of the elasticity of most things. There will still be a lot of the price increases passed along to the customer.

[StrangeSox]

Mostly anytime you have a change in fixed costs, you have a change in production and pricing. What would essentially be a new tax on business, would drive up costs. Those costs, in an industry that sees virtually no change in demand for changes in supply, would be passed on. We see it all of the time when the price of oil goes up now. Profits aren't affected at all to the negative, prices are raised instead. In an environment where there was an elastic reaction to pricing, profits would fall and prices wouldn't react nearly as much. Businesses would have to absorb the costs to keep customers, as much as they could.

 

But how much does this really affect global oil supply? I can't imagine a US subsidy of ~$4B amounts to more than a percentage or two of worldwide oil production profits. Which means, to me at least, that'd it have little or no real impact on global oil prices.

[southsider2k5]

But how much does this really affect global oil supply? I can't imagine a US subsidy of ~$4B amounts to more than a percentage or two of worldwide oil production profits. Which means, to me at least, that'd it have little or no real impact on global oil prices.

 

It all does. IIRC, the OPEC crisis of 1973 was caused by a 10% change in world wide supply.

[StrangeSox]

But right now, the Saudis are cutting oil production, claiming that the market is over-supplied. Ed Wallace was on Here & Now a couple of weeks ago and laid out the case in an editorial that the current prices are almost entirely due to speculation. If that's correct, then production subsidies won't really have an impact, right?

[southsider2k5]

But right now, the Saudis are cutting oil production, claiming that the market is over-supplied. Ed Wallace was on Here & Now a couple of weeks ago and laid out the case in an editorial that the current prices are almost entirely due to speculation. If that's correct, then production subsidies won't really have an impact, right?

 

If "speculation" is the cause, then production subsidies wouldn't have an effect unless "speculation" masked its evil participation by increasing prices.

[Balta1701]

Which benefits by far mostly people in cities, which means half of the country gets left out.

How many of the poor own farms?

[southsider2k5]

How many of the poor own farms?

 

Do you really think every poor person who isn't near public transit lives on a farm?

[Balta1701]

The one thing that 2k5 is assuming with that entire statement of course is that the oil industry behaves as a monopoly which can set its own prices.

 

If however, there is competition between providers, then everything 2k5 is saying is wrong.

 

Basic supply and demand tells you why. There is a fixed supply of oil coming out of the ground. The amount of supply changes slightly over time, but it has essentially been constant since 2006 (hi peak oil).

 

In an actual competitive system, the price of that oil would be fixed by the demand for it. If the price moved too high, then, although demand for oil is inelastic (doesn't change much with price), we'd see oil supply build up as people bought less. The most recent example where this happened in large scale was 2008, where prices dropped to 40% of what they are now due to an overabundance of supply.

 

If prices are set competitively, then the price at the pump is set entirely by the price that is needed to balance consumption and production. No where in that equation do subsidies show up.

 

If one company attempts to raise prices in response to subsidy cutoffs, then I can corner the oil market by starting another company with venture capital and selling gas at a lower price while still making money. The price should be determined entirely by supply and demand.

 

The only way this breaks down is if the oil industry is operating as a legal monopoly. In that case, every provider is setting their price in agreement with others in the industry, and as such they can all decide to raise their prices simultaneously without having to worry about another provider undercutting the price. This is of course patently illegal. However, its the basis for 2k5's entire position.

 

The only way that subsidies could possibly effect production is in the event that they made it profitable to produce oil that was not profitable without that. However, right now, profitability is not what is limiting oil production; lack of additional oil to produce is. The profit margins on every barrel of oil coming out of the ground right now are enormous. All that the subsidies are doing is adding to that profit margin, translating directly to profit.

[Balta1701]

Do you really think every poor person who isn't near public transit lives on a farm?

82% of the total U.S. population lives in urban areas.

[bmags]

Which benefits by far mostly people in cities, which means half of the country gets left out.

 

that "half" of the country gets a lot more back than they put in.

[southsider2k5]

The one thing that 2k5 is assuming with that entire statement of course is that the oil industry behaves as a monopoly which can set its own prices.

 

If however, there is competition between providers, then everything 2k5 is saying is wrong.

 

Basic supply and demand tells you why. There is a fixed supply of oil coming out of the ground. The amount of supply changes slightly over time, but it has essentially been constant since 2006 (hi peak oil).

 

In an actual competitive system, the price of that oil would be fixed by the demand for it. If the price moved too high, then, although demand for oil is inelastic (doesn't change much with price), we'd see oil supply build up as people bought less. The most recent example where this happened in large scale was 2008, where prices dropped to 40% of what they are now due to an overabundance of supply.

 

If prices are set competitively, then the price at the pump is set entirely by the price that is needed to balance consumption and production. No where in that equation do subsidies show up.

 

If one company attempts to raise prices in response to subsidy cutoffs, then I can corner the oil market by starting another company with venture capital and selling gas at a lower price while still making money. The price should be determined entirely by supply and demand.

 

The only way this breaks down is if the oil industry is operating as a legal monopoly. In that case, every provider is setting their price in agreement with others in the industry, and as such they can all decide to raise their prices simultaneously without having to worry about another provider undercutting the price. This is of course patently illegal. However, its the basis for 2k5's entire position.

 

The only way that subsidies could possibly effect production is in the event that they made it profitable to produce oil that was not profitable without that. However, right now, profitability is not what is limiting oil production; lack of additional oil to produce is. The profit margins on every barrel of oil coming out of the ground right now are enormous. All that the subsidies are doing is adding to that profit margin, translating directly to profit.

 

Ugh.

 

-2008 wasn't caused by a an over-supply. It was caused by a drop in demand. Those are two very different things.

-the oil industry is an oligarchy. It isn't quite a monopoly, but it is pretty close to it in terms of pricing and production. There really isn't true competition because a very few control the supply, which by its very definition means there isn't true competition. The biggest problem is that the supply isn't controlled domestically.

-Final sale price affects amount produced. It's called profit motive. If you costs go up, whether it is due to supplies costing more, or the government cutting off your subsidies, production goes down. The source of the cost increase doesn't matter. I taught that very lesson in the first six weeks of high school economics.