Recessions and Taxes

Here is where One can find the real threat to World Recession. Can China maintain the rate of growth under the impact of higher Oil? The Answer is No! The lack of fuel at the controlled Prices lead to Work Stoppages defeating Productivity, while letting the Market set Prices will destroy Chinese Trade advantage; mainly based upon Chinese fuel use inefficiency (the article states that China uses 3.4 times the energy per unit of economic output as does the World average). What the article does not state is that Oil at $85-87/barrel eliminates the Wage advantage enjoyed by China and India (this is my estimate, based upon gross sketching). It is hard to estimate accurately, as it is based upon native Wages in China and India, Wages in the advanced nations (think Minimum Wage rates), amounts of energy used in China and India, and amounts of Energy utilized in the advanced nations. The Whole then has to be scaled for Factor Costs of Production transfer. The later element, though, is a question of Time in which Energy inputs remain as expensive. High Energy Cost is Bad News, and my Guess is probably as good as any.

This article expresses the real constraint of the Oil Price surge. The Price of Oil gained about 40% since August, and Chevron 3rd Quarter Profits slid 26%. This covered a average Cost of $60-70/barrel. Crude rose over $96/barrel on Friday. The major Refineries will be cutting Production in the near future, both to cut high Production Costs under full production conditions, but of greater moment, to generate high Pump prices. Government intervention might seek to curtail this process, something basically futile in the face of sustained high Oil Costs; the effort cancelled by a downshift in Maintenance Costs, which Refiners probably are already engaged. Readers should understand that the Oil industry has already slowed Production because of the disappearance of Profits, and the automotive industry is already suffering from the high Pump prices; the price of Oil must come down, or there will be Recession.

Tim Worstall came up with this Gem. I don’t agree with the Concept of eliminating Corporate taxation, but what he wrote was all very true. I will make a Counterproposal: Abolish Income Taxes, and make Business taxes pay for it all. My Reasoning: Individual Taxpayers still pay the extra Pound of flesh in payment to the Accountants and Tax Preparers. Business must pay the Accountants anyway, are most effective in minimizing tax payments as a Class, currently possess a political lobbying network which could be turned to elimination of excess Government Spending, and they pass Tax Costs onto the Consumers anyway. Individual Taxpayers could not complain about their Taxes which do not exist–except through hidden tax forms, Business would have a new weapon in the fight to suppress Wages, and Businessmen could howl about high Taxes, which they do anyhow. Of course, I would want a rock-solid 28% Capital Gains Tax without escape mechanisms, just so Everyone could feel victimized. lgl