Badger Blog Alliance

Sic Semper Tyrannis

Saturday, June 07, 2008

Re: Free gas & subsidies

Marcus responds to my last post, focusing on subsidies he expects shortly to dry up:
Here you miss the full picture. China, India, etc are paying full market price for the oil, but do not pass along those costs to their consumers. That is, the real production cost of gas may be about $3.20/gallon (which was a future's prices on unleaded a couple of days ago) but in China & India the consumer pays $2.75/gallon. Guess what? Those people are going to consume more gas than if they had to pay $3.20/gallon. When those nations stop subsidizing gasoline all of a sudden demand drops.

One might expect China, India or other subsidizing nations to respond to rising prices like parents who've just gotten their teenagers' cell phone bill.

Or one might expect that those of us in the heart of subsidized ag would laugh quietly, knowing that subsidies rarely go away. They're offered because government has a greater stake in the overall outcome that motivates them to prevent the cost from being passed on in the first place.

Governments often find themselves in Catch-22 situations then - if the subsidization was important in preventing the recipient from feeling the pain of true cost to begin with, and the cost rises, things have only gotten worse.

One thing most observers agree on is that things must change. But it - increased production, decreased consumption or both - won't happen anytime soon.