Bug vs windshield

Like an old rock song said, “Sometimes you’re the windshield, sometimes you’re the bug.” In the fuel world, the CNMI is the bug, of course, and the prices are the windshield.

Would you like to know what you can do about high gasoline prices? That’s easy: nothing.

In one way, that is good news. Here’s why: The Commonwealth gasoline market seems reasonably efficient. If the local market was broken, we could fix it. But it ain’t broken.

Some good attention is being devoted to the market. Taxes are, of course, a distortion in any market. And as reported in yesterday’s Saipan Tribune, Rep. Ray Yumul has sponsored a bill that seeks to impose a two-day per month “holiday” from the 15 cent per gallon tax on gasoline sales when the go-juice exceeds (as it does now) four bucks a gallon.

That’s a well-intentioned approach, and it’s refreshing to see someone actually support lowering, not raising, the CNMI’s tax bite. But this particular plan, or at least this aspect of it, isn’t one I’d suggest. In terms of economics, if gasoline taxes are considered too high to be optimal, then why not just reduce the tax rate? Or, if they’re not too high, then why not leave it alone? A two-day per month holiday seems like a mighty cumbersome way to address what should be a very simple issue.

If you want to reduce the market distortions of taxation, making a simple tax more complicated is counter-productive.

I have to admit that 15 cents a gallon seems like a reasonable tax rate, at least to the extent that it’s used to build roads for the people paying the tax. I don’t know where that money goes. But gasoline taxes, like all taxes on sales, are probably the least onerous ways to raise revenues.

Count your blessings, folks. Given the sorry state of the CNMI economy and the incredibly risky nature of doing business here, we’re very (very) lucky to have such a clean, efficient, and pleasant gasoline retailing system. This is one of the few gears in the CNMI economy that hasn’t been stripped, rusted, or stolen.

That’s the local picture.

Which leads me to the big picture, and this one isn’t very rosy. I can’t identify any factor that explains why oil has run from about $22 a barrel (yearly average) in the year 2002 up to an eye-popping $118 a barrel (yikes!) now. You can, by the way, still get an instant reading of the global price of oil at SaipanBlog.com.

If you’d like to veer into some spookiness, here’s your chance. This isn’t some random pricing hiccup. This isn’t Mr. and Mrs. Average in Asia buying their first car. This isn’t even the collapsing dollar. These factors all play a role, but there has got to be something else that’s driving this gig.

I think we’re seeing a huge Middle East worry premium, for the simple and elegant reason that I can’t think of anything else to explain what’s going on. And if the smart money thinks there’s trouble brewing in the Middle East, and thus threatening oil supplies, then I’m darned sure not betting against it. Winds of war. Spooky.

More spookiness, turning back to the local scene: As things stand now, even without some bad headlines coming from Tehran or some such place, the CNMI hasn’t yet felt the full brunt of high oil prices. The airline industry hasn’t even begun to come to terms with this problem, and when reality hits, it’s going to hit hard. Want to have morbid fun? Start checking air fares from Saipan to the outside world. I spot-checked a couple, and I was not amused. And CUC bills? I don’t even want to think about that gig.

This could get worse, folks. The pain hasn’t even fully hit yet; not globally, not locally. Even if oil prices don’t go up, they are so high now that the problems will be cascading through the economy over the next six to 12 months.

We’re the bug on this one. And there are a lot of windshields coming right at us.