Thursday, May 22, 2008

Ready for higher fuel price?

Scarcity causes higher prices, and that's a good thing. Higher gas prices lead to conservation on the part of consumers, exploration on the part of producers, and innovation on the part of alternative energy entrepreneurs.
… Price controls, gas rationing, windfall profit taxes, gas tax holidays … are all bad policies that may make you (and politicians) happier in the short run but will make everyone miserable in the long run. Your solution to high gas prices is to adapt"

I wish that Indonesian start to realize how long they enjoyed BBM subsidy and what is the impact of those enjoyment. For more than 30 years, low price of BBM - due to subsidy, not only affecting national budget but also over-consumption behavior, under-production strategy, lack innovation on energy efficiency. And, another but very long run impact of such low price of BBM is our environmental quality degradation. It happened not only by giving up our natural resources - i.e. oil stock - simply for consumption, but also pollution externality and other degraded environmental depletion.

Now, you may tell me that I do not care for poor people?
I can answer you the same way you rejected increasing price of BBM, "There are still another way". There are still a lot of ways to help the poor. Keeping price of BBM low only give the poor pain killer, but not panacea. When you force us to swollen the pill of "BBM subsidy", then whether you realize it or not, you close the door for another way to help the poor.


Berly said...

The problem is the adjustment from old equilibrium subsidy to oil to subsidy to poor.

Identification of the poor and distribution to the poor. So easy to say but so hard to do.

Anonymous said...

Berly, It is true that it is hard to do.

Yet, the problem is why shouldnot the government prepare everything related to BLT first before they decide to let the price to the market?

I am not opposing the policy to increase petrol price. Yet, I really expect BLT could run smoothly such that the utility of the poor will still remain at the same level as that of before the increase of petrol price.

If they data sets is good and the distribution of BLT run smoothly, the objectives of BLT (as the compensating variance) will be effective.

I do not think this is the case in current situation in Indonesia. We do not have good datasets, bad distribution channnel. At the end, the poor will always experience the worst effect. What is the point of having a mid or long term policy if the poor are dead in the short run due to the direct effect of high petrol price (inflationary effect of an increase of oil price)



fajar said...

salam kenal