Tag: income inequality

Open Letter to Skippy:

Having taken our shared vehicle out to work on a weekend, I happened to find myself in the not unusual enough, frustrating situation of being out of gas in an inconvenient neighborhood, and I find you responsible.

There is a habit that you have been partaking in recently, at least with regard to our daily commute, that would put more blame on your shoulders than a typical “tank low” situation.

The habit is hunting for the lowest price in fuel.  As the tank gets low, and the demand for fuel becomes more urgent, you fill the tank in $10 chunks while waiting for the next convenient time you come up to a cheap price in gas.  Now the tank has a higher propensity to be empty, so on the off chance I happen to need the car alone, noting that you end up being the driver more often than me, I find myself looking for a gas station with no opportunity to price hunt.  Hence, I end up filling the tank with expensive gas in inconvenient parts of town.

In order to avoid the string of $10 fills waiting for a cheap gas price, I encourage you to just fill the tank when it needs it, and the frequency of fills means you’ll get as many opportunities of cheap gas as you would expensive gas.  Hence, you wouldn’t save the optimum amount, but half optimum and I wouldn’t have to experience the excessive empty tank situations.

However, that situation got me thinking:  How would I solve the crumbling infrastructure problem?

The problem seems to have more to do with accountability than with willingness to pay ones dues or a need for financial security.  On a reasonable schedule, the government (either state or federal) should take bonds out that are equal to the cost of improving said infrastructure – for this example we’re going to say roads and bridges in particular, but other infrastructure items like sewage, water, etc. (http://www.infrastructurereportcard.org/) would benefit from similar programs.

These bonds would be paid for through gas and tire taxes – maybe a little through vehicle registration, but specifically gasoline-oriented vehicles, with some opportunities to charge electric vehicles through tires and registration. The bulk, though, should be gasoline vehicles. Let me explain. No, there is too much, let me sum up…

It’s important to distinguish that this tax will be on gasoline, not diesel, because an increase in the cost of shipping would have a multiplier effect, (http://www.economicsonline.co.uk/Managing_the_economy/The_multiplier_effect.html) through transportation of goods, which would hurt the economy.  So diesel is out.  Tire and vehicle registration would be just as an offset, in case a stronger than anticipated shift occurs in using non-gasoline vehicles for personal use.

This Gas Tax will not be a flat 5% or $0.10 per gallon, it will be a yearly adjusted amount that is predicted to equal the cost of the bond repayment.  Meaning, the rise in gas tax will be enough to pay the bond over a 10-20 year period (pending the type of bond for the market).  As sales amounts shift, the adjusted amount changes to reflect that shift, so the total amount of the bond payment is paid.  Excess goes to repaying the bond faster, shortages are made up in the following year.

I know what you’re going to say, so I prepared ahead with some further explanation.

(Opposition) “But increasing the tax amount will decrease the amount sold, so any prediction you make on current sales would lead to a shortage, per supply and demand.” (https://courses.byui.edu/econ_150/econ_150_old_site/lesson_03.htm)

(Response) Oh, good point, therefore the tax amount should be set higher, so if you need 5%, you raise the tax to 10%, under the assumption that the 5% would miss its mark, therefore you overshoot – and perhaps pay the bond off early.  The inelasticity of gasoline sales (http://economics.about.com/od/priceelasticityofdemand/a/gasoline_elast.htm) would mean that there would be a convergent point where the increased price would meet the bond payment.

(Opposition) “But that convergence point would never happen, because consumers would recognize the higher cost of gasoline and switch to more fuel efficient cars or alternatively fueled cars, like electric (http://time.com/money/3730389/electric-cars-sales-cheap-gas/), eventually driving your tax to 100% of fuel cost and making travel by gasoline car impractical.”

(Response) You mean to tell me that this would not only start us on the path of fixing the infrastructure, but also wean us from fossil fuel vehicles?  Sign me up!

Firstly, the convergent point would happen eventually anyway, as the cost of finding substitute cars with different fuels would become more and more expensive, helping gasoline’s inelastic demand curve, unless the increase in demand made the economies of scale for alternative fuel more practical – which wouldn’t be a bad thing.  A similar event happened to solar panels (http://thinkprogress.org/climate/2013/08/13/2455121/solar-getting-cheaper/, http://www.npr.org/2015/04/10/398704224/how-solar-power-has-gotten-so-cheap-so-fast).

Secondly, as happens many times over in economics, there appears to be a natural dampening effect to shocks, where the deficit in the market leaves room for human intuition to fill the gap with new technology and market structures.

Take the solar subsidies’ effect on panel installation  (http://www.npr.org/sections/money/2015/04/10/398811199/episode-616-how-solar-got-cheap). The start of a U.S. subsidies on solar at a time when China decided to launch head first into solar panel production threatened to bankrupt many installers, and did bankrupt many.  However, as the market expanded, some installers utilized their innovations and when the dust settled, panel installations came down, many customers came away with a steal, and fortunes were made.

Or how breweries survived during the prohibition era, converting their breweries into creameries (http://mentalfloss.com/article/55157/how-breweries-kept-busy-during-prohibition).

Thirdly, no market is set, and as long as there is demand, supply will find a way.

Lastly, and the major point, the cost of fixing the infrastructure is a long ignored bill related to the cost of doing business in this country (http://www.asce.org/uploadedFiles/Issues_and_Advocacy/Our_Initiatives/Infrastructure/Content_Pieces/failure-to-act-transportation-report.pdf).  Having roads, bridges and highways that help us communicate better, get to work faster, and live in more convenient locations is a benefit that comes with an added cost.  This cost is like a cable bill we’ve been casually ignoring, while the guy at Comcast keeps calling us on the phone, attaching late fees, and threatening to cut our service.

(Opposition) “You say that, but what about the poor old people on fixed incomes who live more than 7 miles from a store that sells eggs or cartons of milk?  Are they just going to be forced out of their homes due to a rise in cost of living?”

(Response) Moving further and further away from cities has been a subsidized luxury that the country has just been taking without thinking of the repercussions of bad urban planning or suburban sprawl (http://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=3450&context=wmlr). Living more secluded today is a luxury, and by not adequately funding our infrastructure, it becomes a subsidized luxury.  That being said, holding the people who live in secluded areas accountable for this increased cost of living may be an unreasonable shock that we as a society can help absorb.

I do feel for those people, especially the fixed income sort, the ones whose mobility is hampered through age, or just accumulated assets from years of not anticipating the impact their lifestyle has had on our infrastructure.

Perhaps we could provide them a discount in their property taxes, or provide subsidized fuel.  Residents would have to apply for these subsidies, proving their need and that the increased cost of living is an unreasonable hardship (this is already done for things like sewer upgrades and other utility maintenance).  These discounts and subsidies could be covered by the increased gas tax, which would make it go up more… so use would need to be sparing.

(Opposition) “Look, even if that stuff was true, and even feasible to assist those effected by the increased gas price, we don’t even have enough engineers and construction workers to perform the scale of project that this would create.”

(Response) An added point that not funding our infrastructure properly has created is an undervaluing of fields related to maintaining it.  As Barak Obama said in “Audacity of Hope,” “I wish the country had fewer lawyers and more engineers.”  Right now the highest paying jobs are for doctors, of various fashions, and lawyers (http://www.bls.gov/oes/2014/may/high_low_paying.htm); maybe our country needs a values shift.

Perhaps the lack of investment has left us in a situation where this would need to be staged in, and over time the salaries of the people creating and repairing this infrastructure would increase, shrinking the inequality gap, as well as generally boosting the economy by improving productivity due to better infrastructure and the multiplier of the jobs created by taking on this endeavor (http://profoundlydisconnected.com).

(Closing argument) Ultimately, the lack of investment in our infrastructure is a bill we’ve been refusing to pay.  Perhaps the bill is so large that we won’t be able to pay it in one chunk, but will need to stage it in slowly over time.  The alternative, in the long run, is to just cut our services. That would leave us in a downward spiral into constant, slow, underdeveloped status (http://www.bna.com/time-invest-americas-n17179911498/).

So the solution I propose:

• Create a Bond to cover the total cost of the infrastructure investment.
• Payments to the bond should be a flat fee to be paid by the government every year.
• The fee is to be taken from a specific source directly related to the use with the least amount of multipliers (like goods transportation) and an inelastic demand.  My suggestion is gasoline specifically, with a few added fees to vehicle registration and tires.
• The fees would be responsible for creating a specific amount of revenue.  So a $200 Billion dollar bond would need to come up with $20 Billion annually, for example.  If it takes a $0.20 increase in gasoline to pay for this the first year, then the tax is $0.20 the first year.  The next year, the revenue from said tax will be evaluated, and adjusted for each new year.  If less fuel is bought, and there is a shortage, then instead of $0.20, it would need to be raised to $0.30 by obligation and automatically without input from congress.

Let me know what you think in the comments section.