The question now being raised by the pundits, is whether consumers (Just about everybody) will choose to spend, or, heaven forbid, save, the dividend accruing from dramatically lower oil prices.
I do not know the answer, but my guess would be, the rich will fail to realize it exists , the poor will spend it, and the middle class will pay down debt.
There is a poignant dynamic to all of this. One of the main causes of the oil glut was, or is, too much liquidity (money) created by the central banks in an effort to solve the problem of a credit crisis, (housing) that was also caused by excess liquidity or easy money. (Allan Greenspan’s Irrational Exuberance) The cumulative result of all this is that most of us in the Western Industrialized Nations, are , awash in funny money that could bankrupt us all.
The idea that Central Banks will somehow redeem the trillions of specie created for the purchase of worthless housing related assets, is a cruel joke, being foisted on a unknowing and gullible public. In much the same way as accounting for deficits that now seems to bear more resemblance to Enron’s books than to an accurate determination of the nations financial health. Surely its’ only a matter of time until the bond market figures out that the Emperor has no clothes.
So why not use the billions in savings from lower oil prices to pay down sovereign or provincial debt?
The idea may make sense economically but the optics are terrible. It is almost impossible to solve any problem that requires an omission of error by the elite., or for that matter the bearing of the unabashed truth.
So why not an excise tax that might be labelled S.T,P. ( Save the Planet) Just consider the possibilities for a positive Spin for such a tax.
It could be a ‘feel good tax’ We are doing something to hold back the ravages of Climate Change, while digging ourselves out from the nightmare of the present public relations disaster related to the Kyoto Accord.
We could claim revenue neutrality, whatever that means, by returning a small part of the proceeds to lower-income families, much like a negative income tax, while at the same time as reducing our standard of living to a more sustainable level. (leaving the resources for future generations)
There is precedent for this type of revenue stream. Britain and Norway, two major Carbon producers, use high gasoline taxes by various names to finance activities unrelated to the environment or climate change.
The Province of British Columbia has the only Carbon tax ( a levy based on a ton of carbon) in North America in addition to excise taxes on fuels. The tax is supposed to be revenue neutral to the Provincial Treasury, but by whose accounting standards, no one seems to know. It remains to be seen how well this will fare in light of current greatly reduced oil prices.
We live in a World where price reductions for commodities are feared because they can lead to deflation and the inability of governments to pay the interest on their ever-growing sovereign debt. But this one has already happened and so far, our world is not falling apart, although it is early days. It can thus be considered as a windfall and a priceless opportunity for North American governments at all levels to do something useful for the benefit of generations to come.
Will it happen? Not without political leadership that seems to have gone missing from the halls of democracy. But hope springs eternal, from the ‘Accidental Gold Miner’ that, as proved by history, a leader will arise when most needed.