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Subsidize fuel prices?

The rising cost of fuel is becoming a political issue. Europeans are asking for reduced taxes on fuel, US Presidential candidates are proposing tax holidays/breaks on fuel. Admittedly these are not subsidies; however, it is still a reduction of prices through government intervention.

The rising cost of fuel is becoming a political issue. Europeans are asking for reduced taxes on fuel, US Presidential candidates are proposing tax holidays/breaks on fuel. Admittedly these are not subsidies; however, it is still a reduction of prices through government intervention.

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The environmental card is the one most often cited when arguing against intervention in gas prices. This is because higher prices act as an incentive to accelerate the development of greener alternatives. This power of this argument can be seen with the trend to try and label Nuclear Energy green; nevertheless, despite all of the advances in recent years, alternative fuels are still years away from having a significant impact on the demand for oil.

I believe that the best reason for keeping the government out of the pricing of gas comes from Economics 101, supply and demand. The prices that are affecting current demand are those with taxes included. Remove all or part of these taxes and the demand goes up. Prices will rise again until the end-user cost, the price being paid at the pump, is again in equilibrium with demand. Bottom line result, no real change in prices, less money for the government and more profits the producers.

The problem with the arguments against intervention is that none of them take away the very immediate pain in the wallet. A person in pain has little time for reason, they only want relief from the pain. Governments, if they wish to remain in power, will intervene.

From the cup is half-full department: There are many factors affecting supply and demand. A reduction in cost of gas will give people more time and money to invest in greener options like more fuel efficient transportation. It also can buy time to increase the supply, either through new finds or alternative fuels. The post-subsidy equilibrium could result in a lower cost of fuel.

Subsidize fuel prices? Political pragmatism will win and I certainly won’t be complaining about a lower fuel bill, even it is only temporary and ideologically wrong.

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