Monday, July 28, 2008

What happens when politicians set prices

The oil company BP, known for thorough statistical analysis of energy markets, estimates that countries with subsidies accounted for 96 percent of the world’s increase in oil use last year — growth that has helped drive prices to record levels.


Malaysia’s government incited public anger on June 4 when it raised gasoline prices by 40 percent. The prime minister, Abdullah Ahmad Badawi, announced the following week that he would retire, although he has since said that he will not do so until 2010.

Before adjusting the prices, Malaysia was spending 7.5 percent of its entire economic output on fuel subsidies, a greater share than any other nation. Indonesia follows with 4 percent.

China and India are up there too. Read the rest here. In other words, as a percentage of GDP, many Asian countries spend as much on fuel subsidies as we do on defense.

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