Thursday, 22 March 2012

What should government do about oil prices?


JOHN MANGUN
OUTSIDE THE BOX  
Business Mirror
http://www.businessmirror.com.ph/home/opinion/24877-what-should-government-do-about-oil-prices

AMERICAN philosopher Thomas Paine is a founding father of the US. He wrote a series of pamphlets entitled Common Sense, advocating the colonies to break from British rule. His writings were so influential that some of the first US leaders believe independence would not have occurred without him.
Paine was a radical. His book, The Age of Reason, was a scornful attack on religion. When Paine died, no Christian church would receive his body for burial. He wrote Agrarian Justice, which introduced the concept of a guaranteed minimum income. Paine opposed capital punishment. After he participated in the French revolution, he was called a “missionary of world revolution.”

It would seem that Paine would fit perfectly with today’s Occupy movement as well as with those groups in the Philippines identified as progressive, pro-poor and leftist.

Except for one thing.

Paine wrote, “That government is best which governs least.” At the core of his political writings was the belief that government was the source of problems, not the provider of solutions.

What should the government do about oil prices?

Usually when you hire someone to do a job, you check his/her past performance.

One thing government should do successfully is run the international airports. From http://www.sunstar.com.ph: “Safety and management concerns led the US aviation watchdog to downgrade the Civil Aviation Authority of the Philippines in 2007 and limit US-bound flights from the Philippines. In 2010 the European Union also blacklisted Philippine carriers.” The current DOTC secretary responds that the government will assess the situation and address the deficiencies. What has the government been doing since 2007?

A Catholic bishop says the government should “show concern on the poor people, regulate the oil industry,” regulate being the code for price controls. How about if the government “regulates” donations to the Church, requiring the Church prove that 80 percent of those donations go for services to the poor?

A party-list group says the government should impose price controls. But then they say the blame for high oil prices rests with evil speculators in the global oil markets. By their logic, the speculators, who apparently control oil prices, should have been thanked in 2011 when prices dropped 30 percent from $113 to $80. Just plain dumb.

One solution offered is to decrease or eliminate the value-added tax on oil products. Yes, pump prices will drop immediately. But how does that do anything if crude-oil prices continue rising?

I guarantee you within six months, the government will figure out a way to make up the P50-billion value-added tax (VAT) shortfall—maybe with increases to the tariffs on oil products, with a net economic benefit to the public of zero.

Perhaps drilling for our oil in the Philippines would be a good idea. No, that doesn’t work for these people either. Opening up new areas for oil exploration to the global companies that have the money and expertise to do the job is considered “rape and plunder.” Their solution is for the government to pay for and develop the resources. Good idea. Let’s double the VAT to raise the money to do it.

Government price controls are always offered as the solution. However, in order to make that work, what really needs to be done is nationalize the oil companies which some are calling for. In fact, that is one of the progressive leftists’ solutions.

The problem is that these people can never show one example of where government ownership has ever worked to the benefit of the public. Look how successful the government-owned National Power Corp. has been in keeping electricity prices low.

Every comment from someone who says, “I am pro-business, but the government should…” scares me because it really means, “I don’t trust business but I do trust the government.”

Quantum International Group Inc. plans to invest more than $2.6 billion in five power plants that can produce as much as 13,000 megawatts (MW) of electricity, almost doubling the Philippines generation capacity. The company says it could sell power for 25 percent less than Napocor within five years and 50 percent less within seven years. They generate the power from safely burning garbage and industrial and hazardous wastes. Quantum is building plants in Brunei, Malaysia, Bangladesh and South Africa.

I can hardly wait to see if the government can avoid doing something to kill this project. I look forward to the pro-poor groups proving their concern for something other than their pro-government ideology.

So what should the government do about oil prices? Nothing.

What the government will do, based on current suggestions, will not provide a true solution, will actually make things worse over time, and will stop the free market from finding genuine solutions.




E-mail to mangun@gmail.com and Twitter @mangunonmarkets. PSE stock-market information and technical-analysis tools provided by CitisecOnline.com Inc.

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