David Eichler writes in his article "The Unemployment Paradox and Commodity Taxes" that it was the burden of high commodity prices, particularly the price of oil -- and not the sub-prime loans -- that broke the back of the U.S. and world economy.
Seen from another perspective, the now lower oil prices will function as a stimulus for the industrialized world.
The oil price was higher in 2008 than ever before, reaching an average for North Sea Brent crude during the year of $98 per barrel. The peak was in July, when the average for the month was $135. Thereafter the price has dropped with the collapse of the world economy. The average in the last quarter of 2008 was $57. In January this year a new lower average was reached at $46.
The world uses 85 million barrels of oil per day. Should the price of oil remain on its January level the oil consumers of the world will save this year $1'600 billion compared to last year. The United States uses 19 million barrels per day. The savings for the oil consumers would be $360 billion per year compared to last year. And as the U.S. imports 13 million barrels per day (10 million crude and 3 million oil products) the country would save this year $250 billion compared to last year.
In America the yearly savings are almost half of the size of the recently approved two-year $787 billion stimulus package. The effect of the savings could, however, be greater than that of the stimulus package. Compared to the previous year, savings started to roll in as early as October, whereas the stimulus spending will start later this year, and will take some years to work through the economy. The savings are also well-targeted. They will presumably benefit most the low-income earners because those households spend a larger share of their income on energy than the more affluent. This means that the savings are likely to be transferred into spending on other goods and services, which will stimulate the economy. Finally, the savings do not require borrowing, which would burden future generations.
The $1.6 trillion drop in the world's oil bill will benefit almost every country in the world, except of course the few large oil-producing countries. It will not only improve individual countries' economies, but everybody's export markets as well, and the world trade can be expected to recover.
In addition to the lower oil prices, the lower commodity prices benefit the industrialized world.
David Eichler rightly proposes that the United States should tax its oil consumption, like Europe does, in order that we not consume ourselves into this mess again.
Olli Raade, Editor
