US consumers finally said enough is enough, and started to permanently (temporarily?) alter their energy consumption behavior. One could certainly say that it wasn't just the price at the pump but rather combination of several economic woes was what has lead consumers to finally cut back, and I actually agree, but only to a point. I don't think it was by accident that sectors that declined the most recently (auto manufactures, airlines, convenience stores, casinos, hotels, car rental companies, restaurants etc) have one ingredient in common- they are particularly affected by high energy prices...

So instead of debating the rationality of current oil prices ("peak oil" supply theory, China's "permanently growing" demand concept or "offshore drilling" and "solar credits rationale") I think that we should all thank Ben Bernanke and Co and Wall Street for finally showing us how this oil dilemma could be actually be solved - by "making sure that prices for energy stay high long enough".

I think it could only be accomplished by making sure that the prices for the most widely used petroleum product- gasoline, never again decline below the level that seems to have triggered change somewhere around $4 a gallon. Yes, that's exactly what I said- raising taxes today would likely make things better not worse. Before cheerfully sending another "I hate taxes" e-mail- consider instead sending a letter to your politician asking him/her to actually raise taxes.
However illogical it might sounds- once again look at the facts. Damage to the most energy sensitive sectors has been done already and all US consumers are already paying the "hidden oil tax" today. But instead sending of our money to Washington, we are now sending it to the other governments around the world, and it's not a small bill to put it lightly- in 2007 US petroleum bill came to an astounding $330B and for the first 5 months of 2008 we have already paid $122B...

Yes, even though I personally believe that government intervention is usually a very bad thing, establishing a variable gasoline tax that assures that gasoline never declines below the "magical" $4 a gallon ever again, could potentially alter the entire dynamics of the current world economic situation and ensure that US economy maintains its economic leadership status for the years to come.

As one of the most prominent proponents of the Pigovian tax on gasoline - Gregory Mankiw estimated - $1 tax on gasoline could potentially raise $100B in new tax revenues that could and should be used to reduce the ridiculously high US corporate tax rate, which should in turn lead to more jobs and potentially better pay in all domestic industries...

"Target price", "variable" tax on gasoline, would also accomplish another important objective- the "emotional"-"prices might come down one day and thus I shouldn't care about my short term pain" one. Knowing for certain that gasoline prices are never coming back to the $2 a gallon level, both consumers and manufactures are likely going to accelerate rapidly the recent shift towards more fuel efficient vehicles. This would in turn once again reduce long term gasoline demand expectation and could lead to potentially lower short term energy prices for the struggling "energy sensitive sectors" of the US economy. I certainly don't expect any politicians will actually have enough courage to propose this logical "raise gasoline taxes" solution during an election year, but who knows, maybe if plenty of us ask, they'll at least listen.

So for now the direction of the entire US stock market and the economy will once again be more likely determined not by economic or earnings news, but rather by the direction oil prices are heading. And given how painful last week's losses must have been to the seemingly bullet proof Wall Street "buy energy" -"short financials" strategy, one would expect that Goldman Sachs and Co are now busy preparing another "Oil prices to hit $200 by Labor Day" report and writing big donation checks to the powerful ethanol and environmental lobbies that might just lead to another "super spike" and more nervous breakdown admissions at London's clinics...

Stay safe out there, feel free to e-mail me at skepticalcapitalist@gmail.com