A post or two ago, I was discussing the tragedy of poverty. You could probably add 'and inequality' to that, too. But I didn't go so far as to suggest a solution, in part because a segment of our society immediately thinks 'wealth distribution!!!' and is already prepared to reject anything you propose.
Which is why I'm not yet going to propose anything here. I just wanted to throw out a few more ideas for consideration.
I recently read a book about the oil industry, and I want to explore the concept of 'rents' a little more. In this case, the rents aren't what you are paying to stay in your home. It has to do with the difference between the basic costs of producing a product, and the profit you make when you sell that product on the market.
With oil, the rents can be pretty high...once you've found oil and paid for the basic infrastructure the basic costs for producing a particular gallon of oil aren't that high. (The costs are tied in with upgrading/improving infrastructure and paying to explore for more oil-producing locations. That exploration can be pretty expensive, too.)
Demand, on the other hand, IS high. High enough that the price per a gallon of oil is significantly higher than the production cost. So someone (or rather someones) can make a pretty good profit off of it.
So where does that profit go?
When oil first started to become big, a lot of it went to the businesses that found the oil in the first place. The ones that spent money drilling holes, built up the infrastructure, etc.
But nationalism and anti-colonialism became a big deal shortly after oil became so important. And a lot of countries felt like the foreign oil companies were taking away their resources and making a profit off of it. One that came at their expense, and left them poor. (I have to wonder if the story would have been different if the oil companies had been local...if the profit had stayed within the country, albeit in private hands, would there have been such outrage?)
Anyways...that led to a push by the oil producing countries to gain a portion of the rents. Now, most conservative capitalists grew upset by this, because those nations did it by nationalizing company oil resources. They will point out that most state run oil companies stopped producing as much revenue...they let the infrastructure wear out, didn't invest in upgrades, etc. But the heart of the issue wasn't capitalist/socialist...it was about colonialism. Foreign companies coming into a country, making sweetheart deals at the host nations expense, and making a lot of money off of it. (I am oversimplifying this, but I want to highlight why an oil producing nation would feel they have a claim on part of those profits. There have been consequences to this, but I'll go into that elsewhere.)
There are two other major interests in these rents. First - consumers. We are all, to one extent or another, consumers of oil. Driving to work, using goods that were driven to us, buying product shipped overseas...we all consume oil. And the cheaper it is, the easier it is on us. Goods don't cost as much to ship, we don't have to budget as much of our income to gas, etc.
The final one, and the one you could argue has the least rights to these 'rents', are oil consuming nations. They can raise tariffs and taxes on oil and gain some portion of those rents. Of course, although they may not be entitled to the 'rent'...they may have a right to use tariffs and taxes to influence consumer incentives. That is, making gas artificially more expensive can also encourage less usage...and can make alternative energy sources more competitive.
I just listed four different groups who want a portion of the rents. So who deserves it, and how much of it should they get?
This is one area where self-interest often determines the answer. Self-interest and politics, of course. I will say, however, that all groups can cause problems if they don't feel they are given a fair share here.
As most economists/capitalists would argue, companies won't fund the expensive oil exploration process if they weren't able to get a significant profit off of it. Nor would they continue to upgrade or improve an oil producing plant.
Nations, as recent history shows, can capitalize on nationalist sentiment to take over.
Consumers...well, if you've heard the term 'oil choke price' it gives you a sense of what can go wrong when oil is too expensive. Some of it is basic economics. When gas costs too much, alternative fuels become more viable. More efficient cars make more sense. Biking to work makes more sense. So if oil becomes too expensive it can lose most of it's customers. But the 'oil choke collar' has other affects, because the more consumers have to spend on gas the less they have to spend elsewhere. This includes more than just the cost of filling up your tank...it also includes the price increases for all products that are shipped via oil fueled transportation. The price of food goes up, because it costs more to ship it to your local store. The price of everything goes up, for the same reason.
And as for oil-consuming nations, in some ways purchasing oil evokes the same fears the oil-producing nations had when their industries were run by foreign companies. Oil consuming nations are basically importing oil, and putting money in the pockets of other nations...whether their foreign businesses or the state-run governments themselves. How much trouble an oil-consuming nation can cause probably has more to do with how interested they are in pushing for energy alternatives.
The dynamics between these different groups fall under one of my favorite topics - the social science theory behind social dilemmas.
Which is why I'm not yet going to propose anything here. I just wanted to throw out a few more ideas for consideration.
I recently read a book about the oil industry, and I want to explore the concept of 'rents' a little more. In this case, the rents aren't what you are paying to stay in your home. It has to do with the difference between the basic costs of producing a product, and the profit you make when you sell that product on the market.
With oil, the rents can be pretty high...once you've found oil and paid for the basic infrastructure the basic costs for producing a particular gallon of oil aren't that high. (The costs are tied in with upgrading/improving infrastructure and paying to explore for more oil-producing locations. That exploration can be pretty expensive, too.)
Demand, on the other hand, IS high. High enough that the price per a gallon of oil is significantly higher than the production cost. So someone (or rather someones) can make a pretty good profit off of it.
So where does that profit go?
When oil first started to become big, a lot of it went to the businesses that found the oil in the first place. The ones that spent money drilling holes, built up the infrastructure, etc.
But nationalism and anti-colonialism became a big deal shortly after oil became so important. And a lot of countries felt like the foreign oil companies were taking away their resources and making a profit off of it. One that came at their expense, and left them poor. (I have to wonder if the story would have been different if the oil companies had been local...if the profit had stayed within the country, albeit in private hands, would there have been such outrage?)
Anyways...that led to a push by the oil producing countries to gain a portion of the rents. Now, most conservative capitalists grew upset by this, because those nations did it by nationalizing company oil resources. They will point out that most state run oil companies stopped producing as much revenue...they let the infrastructure wear out, didn't invest in upgrades, etc. But the heart of the issue wasn't capitalist/socialist...it was about colonialism. Foreign companies coming into a country, making sweetheart deals at the host nations expense, and making a lot of money off of it. (I am oversimplifying this, but I want to highlight why an oil producing nation would feel they have a claim on part of those profits. There have been consequences to this, but I'll go into that elsewhere.)
There are two other major interests in these rents. First - consumers. We are all, to one extent or another, consumers of oil. Driving to work, using goods that were driven to us, buying product shipped overseas...we all consume oil. And the cheaper it is, the easier it is on us. Goods don't cost as much to ship, we don't have to budget as much of our income to gas, etc.
The final one, and the one you could argue has the least rights to these 'rents', are oil consuming nations. They can raise tariffs and taxes on oil and gain some portion of those rents. Of course, although they may not be entitled to the 'rent'...they may have a right to use tariffs and taxes to influence consumer incentives. That is, making gas artificially more expensive can also encourage less usage...and can make alternative energy sources more competitive.
I just listed four different groups who want a portion of the rents. So who deserves it, and how much of it should they get?
This is one area where self-interest often determines the answer. Self-interest and politics, of course. I will say, however, that all groups can cause problems if they don't feel they are given a fair share here.
As most economists/capitalists would argue, companies won't fund the expensive oil exploration process if they weren't able to get a significant profit off of it. Nor would they continue to upgrade or improve an oil producing plant.
Nations, as recent history shows, can capitalize on nationalist sentiment to take over.
Consumers...well, if you've heard the term 'oil choke price' it gives you a sense of what can go wrong when oil is too expensive. Some of it is basic economics. When gas costs too much, alternative fuels become more viable. More efficient cars make more sense. Biking to work makes more sense. So if oil becomes too expensive it can lose most of it's customers. But the 'oil choke collar' has other affects, because the more consumers have to spend on gas the less they have to spend elsewhere. This includes more than just the cost of filling up your tank...it also includes the price increases for all products that are shipped via oil fueled transportation. The price of food goes up, because it costs more to ship it to your local store. The price of everything goes up, for the same reason.
And as for oil-consuming nations, in some ways purchasing oil evokes the same fears the oil-producing nations had when their industries were run by foreign companies. Oil consuming nations are basically importing oil, and putting money in the pockets of other nations...whether their foreign businesses or the state-run governments themselves. How much trouble an oil-consuming nation can cause probably has more to do with how interested they are in pushing for energy alternatives.
The dynamics between these different groups fall under one of my favorite topics - the social science theory behind social dilemmas.
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