The GOP's hidden gas tax: $1 per gallon

My Senator, Norm Coleman, was sworn in on January 7, 2003, just before the start of the Iraq War, when the price of oil was $31.08 per barrel. On July 21, 2008 the price of oil had risen to $131.04 a barrel, $100 higher. That's an increase of 320% in five and a half years. My Congressman, John Kline, began his career in congress at the same time, and like Norm, he still serves.
ap_gas_price1_070521_ms

Nobody should blame any politician for normal market forces working on commodity prices. Most politicians rightly keep their hands off a well-regulated market. But there is one exception to this rule: if a currency is considered a commodity, then we must remind ourselves that politicians control the economics that underlie the currency of a nation. The bankrupt economy of Zimbabwe, where inflation now tops 2 million percent, can only be blamed on the disastrous economic policies of Robert Mugabe and his corrupt regime. Because of Mugabe, the Zimbabwean dollar is now utterly worthless: the newly-issued Z$100 billion bank-note is not enough to buy lunch.

The US dollar isn't in such dire straits; but it isn't doing well, and hasn't been for a long time. And the decline in the value of the dollar is one of the most important reasons for the rise in oil prices. During the same period that the price of oil in dollars rose from $31 to $131 per barrel, the price of oil when measured in Euros rose from €30 to just €82. At the same time, a dollar that used to buy 0.96 Euros then is only buying 0.63 Euros today. This implies that 45% of the increase in the price of oil since 2003 is due to the falling value of the dollar. Since both oil and currency markets fluctuate, this percentage changes daily. Over the past few months, the percentage has ranged from 41% to 49%, but 45% is a good recent average.

So why is the dollar declining? That is entirely due to the economic policies of the Bush administration, which has continued to run up hundreds of billions of dollars in deficits while cutting taxes for the rich in a time of war. The currency market knows that these policies are self-defeating and unsustainable, and the market has hammered the dollar as a result. And the consumer is paying the price at the gas pump.

It's no coincidence that while the national debt increased by 49% during the Norm Coleman years, the price of a Euro was increasing by 51%, nearly the same amount. You can't fool the markets for very long: massive budget deficits reaching out as far as the eye can see lead to an eroding confidence in the US and its currency. This results in a hidden tax on everything we buy from abroad - which today means almost everything we buy, period. In the case of gasoline, the GOP's hidden deficit tax amounts to more than $1 per gallon.

When Bill Clinton was President, he handed a $236 billion budget surplus to George W. Bush - who promptly gave it away in the biggest tax cut to the richest 1% of Americans we have ever seen. John McCain voted against that at the time, and continued to oppose the Bush tax cut right up until the time he decided to run for President. Then, in a pander to his party's right wing, he reversed course and now supports making that tax cut permanent. He also claims that he wants to balance the budget, but has yet to come up with a credible plan of how he could ever accomplish that goal.

The United States is not Zimbabwe, thank God. But we don't need politicians with the same sense of magical thinking about deficits that Robert Mugabe demonstrates. This November, let's vote to repeal the GOP's hidden deficit tax that has added $1 to the price of gas. Let's return to the pay-as-you-go ethic of the Clinton years. The best way to do that is to remove from office congressmen, like Norm Coleman and John Kline, who have voted to support George W. Bush and his deficits almost 90% of the time.

Further reading:
Reuters
The Financial Express

Cross-posted at DKos

Tags: Bill Clinton, budget deficit, Dollar, Euro, exchange rate, gas prices, George W. Bush, Robert Mugabe (all tags)

Comments

9 Comments

Kline not helping

I think this is a great insight.

Of course, John Kline has done other things to hurt the price of gas. Most disturbingly, Kline voted against the DRILL act just the other day. He doesn't actually care about gas prices--he just wants to play political games.

by Jeff Rosenberg 2008-07-23 04:00AM | 0 recs
Can you explain your math..

The price of oil went from $31 to $131... or an increase of 4.22x.

It also went from 30 euro to 82 euro... or an increase of 2.73x.

Thus, of the increase felt in dollar terms (4.22x), 4.22-2.73 = 1.49, which is 35% of 4.22, is due to dollar depreciation.

How do you arrive at 45% ?

by SevenStrings 2008-07-23 05:34AM | 0 recs
Re: Can you explain your math..

Sorry, that's not correct. Using factors includes the pre-2003 price into the calculation, when I was referring only to the increase since 2003. Example:

Suppose that the price of oil in dollars rose 15% while the price of oil in Euros didn't rise at all. In that case, all of the increase can be attributed to currency devaluation, so the correct computation is (15% - 0%)/ 15% = 100%

In the case at hand, the equivalent computation is
(320% - 178%) / 320% = 45%

by KeithPickering 2008-07-23 10:12AM | 0 recs
Re: Can you explain your math..

You paint a misleading picture with your 45% metric.

The price of oil in dollars has increased by 320% in dollar terms (to 4.2x of its 2003 level) and by 173% in Euro (to 2.73x or its 2003 level).  If you assume (as you are doing) that the price of oil in euro is a fair price based on market forces, and the remainder is based on dollar depreciation, then it works out like this:

1 currency unit: price of oil in 2003
2.73 currency units: price of oil in 2008
4.2 dollar currency units: price of oil in dollar terms in 2008.

Thus, the increase ascribable to dollar devaluation is 4.2-2.73 = 1.47.  This increase is 1.47/3.2 = 45% of the total increase; but only 1.47/4.2 = 35% of the price of oil.

Another way to look at it: the dollar has depreciated by 35% (from 0.96 to 0.63 Euros) compared to the Euro, and not by 45%.  But then, we can easily see that from the dollar-Euro exchange rate.

by SevenStrings 2008-07-23 11:03AM | 0 recs
Re: The GOP's hidden gas tax: $1 per gallon

i like this post quite a bit and you may be on to something but perhaps its a bit too simplistic for me to ever use as an argument. seems to me that this argument needs to be presented to the right to see where it is weakest and shored up from that point. ?

I'm no economist but I would assume nothing is black and white and to claim that the GOP has created a "$1 a gallon tax" through economic policies that led to the dollar depreciation is a stretch.  Nor do I think it needs to be framed in such light.

The GOP has in fact been bad for America if you're not high up on the salary totem-pole. It's a myopic party at best and destructive at worst. I think posts like this have the potential to creating a new CW to use against the right.

by alex100 2008-07-23 06:16AM | 0 recs
All this while Coleman attacked the U.N.

I now see that harassing Kofi Anan and the United Nations was definitely more important than investigating our own government's malfeasance.  

C'mon, Franken.  Get rid of this guy.

by Dracomicron 2008-07-23 06:22AM | 0 recs
Re: The GOP's hidden gas tax: $1 per gallon

The $1/gallon isn't since 2003, that's almost what we've lost since July 2006.

In July two years ago, the cost of gas was $3. There was a steep decline at the end of 2006, right before the elections, but we'll compare apples to apples (July 2006 v July 2008) to accommodate seasonal variations. Similarly, 1 euro was 1.25 dollars (via x-rates.com historical lookup: it's a script so I can't directly link).

Today, gas is $4.10 (same source) and the euro is 1.6 dollars.

So, American gas was 2.4 euros per gallon in 2006, 2.5625 euros per gallon in 2008. That's an increase of 6.77%.

The American cost of gas was $3.00 in 2006; an increase of 6.77% would put the cost of gas at $3.20. Therefore, the cost of gas increase from devaluation of the dollar alone is about 90 cents.

by TCQuad 2008-07-23 07:43AM | 0 recs
Re: The GOP's hidden gas tax: $1 per gallon

And, just to reply to my own comment, here's the same math from March 19, 2003 (day before Iraq war) to five years later (the closest record was 3/17/08):

March 19, 2003 - $1.444 per gallon, 1.059 dpE
March 17, 2008 - $3.257 per gallon, 1.5765 dpE

March 19, 2003 - 1.35977 euros per gallon
March 17, 2008 - 2.06596 euros per gallon

151.9% increase

$1.444 * $151.9% = $2.194 - 3.257 = -$1.063

From when the war started until five years later, we started spending an extra $1.06 on gas just from the loss of value on the dollar.

by TCQuad 2008-07-23 07:58AM | 0 recs
Shouldn't we be talking about pumas?

All these issues of grotesque republican malfeasance are making me think.

by iohs2008 2008-07-23 07:55AM | 0 recs

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