Tuesday, October 17, 2006

California ballot initiatives: The stupidest thing I've seen today

Trust me. I see a lot of stupid things on a daily basis. But California's Proposition 87 on alternative energy is the stupidest I've seen today. You can read a summary on the California State website here, if you don't want to read the longer link above.

There are so many stupid things about this bill that it's hard to know where to begin with my Fatwa. But let's look at two of the most glaring:
  1. A $4 billion fund for research is created by imposing a 1.5% to 6% tax on California-produced oil. Not on oil generally. Not on gasoline. Just California-produced oil. Since this means that California oil will cost 1.5-6% more, and California is not a major oil-producing place, how is this going to reduce U.S. dependence on foreign oil? For that matter, how is it going to raise $4 billion?
  2. The proposal "prohibits producers from passing the tax on to consumers." How exactly does that work? Where's the money coming from? From the companies themselves? If so, why would they produce oil in California when there are other more profitable places to do it? And if they don't produce as much (because it's not as profitable anymore), doesn't that mean the supply will decrease and the price will go up? How do you prohibit that?

The problem here is a massive failure of the public education system. If you want to tax something, you have to ask where that tax is coming from. And when you say its coming from "the corporations," I want you to show me one of these corporations. Fair warning, though: If you point at a building with a company's name on it, I will smack you with a 2-by-4 and put a fatwa on your ass! That's a building with a corporation's name on it, not a corporation. I want you to show me a corporation!

OK, trick question. Because there's no such thing! A corporation is a legal fiction, idiots! It's just a bunch of people! Some of those people are rich; some are poor. Most are paid a salary; some get paid dividends. In California, a lot of the people getting paid dividends are members of the California Public Employees Retirement System. If you want to take people's pension money, why don't you just do that, instead of screwing around with moronic propositions that will just get some schmuck laid-off or relocated to Oklahoma?

Why must stupid people plague me so? Why? What did I do to them?


lizzylarceny said...

Since when is taking money from old people a bad thing?

And maybe the guy who gets shipped to Oklahoma can sell his cardboard box in LA and buy a farm in OK.

Sounds like a win-win situation to me?

SmoothB said...

Fair point on the old people. But seriously: how is taxing California oil supposed to decrease our consumption of foreign oil? Doesn't that just make it more expensive to consume American oil as opposed to foreign oil? So it actually makes us slightly more dependent on foreign oil, right?

Oh, but I forget -- sellers can't pass the tax onto buyers. But how do sellers do that normally? Right -- by selling less, or going out of business, and thus "avoiding" the tax. By forbidding them from doing so, the law must make it illegal to reduce production. So I guess it doesn't increase our dependence on foreign oil. I say, if this law works, we should forbid all companies from ever going out of business, and then we'll have solved all our economic problems forever.

M.D. Fatwa said...

California oil companies that go bankrupt will indeed raise the price of gasoline in California, and therefore will violate the law by passing on the effects of this tax to consumers. Bankrupt companies will therefore be breaking the law and need to be executed.

What really surprises me about this bill is the support is has seemed to receive from some very wealthy individuals in the software industry. Which leads to several other interesting questions: 1) How can you get to be so rich and still not understand basic economics? And 2) How can you get to be so rich and still be stupid? Does this undermine the whole concept of a meritocracy?

Anonymous said...

Texas, Alaska, Arkansas, all charge an extraction tax. So don't get your panties in a bunch over this. If it will raise money to support research, why not?

M.D. Fatwa said...

So do the Kuwaitis and Saudis. But neither they, nor the Texans, Alaskans or Arkansans suggest that this tax isn't passed on to the consumer. After all, they're not stupid.

Anonymous said...

The lamest "refute" to a proposition is to say "we need to improve x but this proposition is not the right one." I'm not expecting it to be flawless, but it makes sense. Also, the point of the proposition is promote use of alternative energy and THAT is suppose to decrease our consumption of foreign oil. Furthermore, down the road, alternative source of energy will save money as oil is a limited resource.

Oil companies are not going to go bankrupt because of this tax increase. We all pay taxes, sometimes we pay more of them. Businesses go bankrupt because they can't make money. It will still be profitable to sell oil. Selling less oil will mean less profit. If anything, local oil companies will need to sell even more oil to account for little dent the tax made. Export.

M.D. Fatwa said...

But the problem with the California initiative is that it doesn't even do that. It doesn't promote alternative fuel usage. To do that, you would have to argue that (1) notwithstanding what the law says, the new tax will be passed on to consumers and raise the price of gasoline so that alternative fuels become more cost-effective, or (2) money from the tax will lead to research advances that will lower the cost of alternative fuels.

#1 won't work because California is not a major oil producer and therefore the tax will not have any significant effect on the world price of oil. Therefore, if you are gas station, and you have a choice of buying gasoline at X price or X+6%, which are you going to buy? So, basically, to be competitive, the producers of California oil will have to lower their costs by 6% to remain competitive with non-California oil producers, or else lower their production. (California cannot forbid oil imports from elsewhere, as that violates the U.S. Constitution.) Do you think Calfornia oil companies can absorb a 6% from their profits? If so, why? Do you think they can absorb 20%? What about 100%? Clearly not 100%, so what you are saying is that you think they can effortlessly absorb an increase in cost somewhere between 6% and 100%. What makes you think this? What makes you think the breaking point is above 6% and not 1%? Has anyone done any research on this, or are they just guessing?

But I'm guessing that even 1% is too high. Companies need capital to operate, and they get this capital from investors. I'm an investor, even if only through a 401K. Am I going to put my money in a company that offers me 6% less in profits? Or am I going to put it in a non-California company that offers me 6% more? (Sure, there are some investors out there who "care about [fill in the blank]", but as the performance of socially-responsible investment funds demonstrate, there really aren't that many at the end of the day.)

And that gets me to why even #2 won't work. This fund will not raise a lot of money anytime soon. The tax is on "profits." Unless California oil is cheaper to produce than the world average (it's not), most California producers will simply decrease production until the profits on California production drop to zero. They will still produce oil, because oil sales will be used to pay for employee and management salaries and help defray the costs of the companies' worldwide operations. But actual California "profits" (money left over after salaries and debts are paid) will drop to close to zero. Since the profits will be zero, the fund will collect very little. But some oil workers will still lose their jobs or be forced to move, because California oil production will drop.

Anonymous said...

OK. As someone who:
A. Lives in California and is a taxpayer and driver here.
B. Is interested and involved in the effort to develop alternative energy resources.

What I believe about 87 is this. You are correct in that it will not directly promote alternative energy use through economic means. What it essentially is asking you, the voter, is should we tak oil production in California which could possible lead to a small (1-2 cent) increase in the price of gas to fund research into alternative energy. Think of this proposition as essentially the same as the Stem Cell research initiative of a few years ago (which is still tied up in court!). 87 is saying the federal government is going too slow funding R&D into solar and ethanol and biodesiel so let California fund some research. True, production will probably drop but it will still mean probably a hundred million a year for R&D in state which could have a huge economic benefit farther down the line. So maybe an oil worker loses his job. Well, maybe 5 jobs in alternative energy production are created which are higher paying and have a more secure future than the oil job anyway. Right now the federal initiative is run through the DOE (look up Genomes To Life). It promises a few hundred million over the next few years. 87 would essentially be matching this for in-state R&D. It's your choice but I think the 1-2 cents is worth the potential economic gains long term. Also as to why the tech people are supporting this. Follow the money. The no campaign is funded by oil and oil equipment and drilling companies. The tech people (Doer, Paige, Shmidt, Hearst, Khosla) are all partners/investers in Kliner, Perkins, Caufield, and Beyers the biggest Sillicon Valley VC firm which has recently gone huge into alternative energy (look up Nanosolar). They stand to make money off the results of the 87 funded research.

Anonymous said...

Man, how much are the oil companies paying you?? You are buying and repeating all of their assertions uncritically. Let's look at some facts.

15 (fifteen) states have slapped the same kind of tax on the oil extracted from their states. Did THEIR gas prices go up as a result? No. Saying unequivically that they WILL is the worst kind of scare tactic.

Yes, this will raise a bunch of money by taxing profits. They make HUGE profits. Public record.

Putting the money into research on alternate energy sources will definitely reduce our dependance on foreign oil. Not immediately, but that's not what is claimed. Over the long haul. That's all they are saying.

No one really knows what governs oil and gas prices. "The global market" maybe, but that's about as predictable as the Tigers winning the World Series. Ooops. See what I mean. Putting an extraction tax on California oil will not affect the global market one bit. And therefore prices. The proposal prohibits the California companies from price-gouging. If you don't think they would, you are naive, and have forgotten about Enron.

If this is the stupidest thing you've seen today you are very sheltered.

M.D. Fatwa said...

Tree fiddy. I'm cheap.

Hey, all I'm saying is you shouldn't be allowed to vote if you haven't taken basic economics and know what a supply and demand curve is. I don't make the laws of economics, I just tell you when you're about to break them and what the results are going to be. You can complain about how unfair gravity is all you want, but if you fall down, you're still going to bruise your nose.

M.D. Fatwa said...

And another thing, wasn't the fact Enron could screw you over a result of a California law that said the state couldn't buy natural gas on the spot market? I'm just saying, if you keep passing laws requiring energy companies to give you an anal probing, why do you act so surprised when they forget to lube it up?

The stupid thing about Prop 87 isn't the tax--that's just dumb. It's the idea that this tax won't get passed on to consumers. That's plain stupid. Where do you think this money is going to come from? Santa Claus?