Monday, June 24, 2013

Why did the government of Brazil bring out the riot police to defend a 10 cent fare increase?

Are they stupid? Were they unaware of what they might provoke?

No, not at all. Have you ever worked in the corporate world? Politicians are just doing a job. They serve in fear of their bosses. Who are their bosses? In most of the world it is the oil industry in coalition with other corporate giants.

In Brazil, oil companies are starting up massive fixed-capital investment for drilling in deep water. Low prices of oil would be devastating. They desperately need to keep demand up. One way, as recently done by Petrobras is giving away USD 8 billion of taxpayer money cheap gasoline, essentially forcing the taxpayer to buy gasoline.

They cannot afford to make public transit free. It might lower oil prices and all the deepwater oil would change from "reserves" to "resources." Reserves are oil that can be extracted at current market and may be counted as assets. Resources are just stuff in the ground for which the technology may exist to extract, but the money does not. Resources are not supposed to be carried as assets. Oil is in a delicate balance. As long as investors have faith, they can reach the deepwater oil, but a drop in price could wipe out billions of investment.

Free transit would result in a culture change away from the private auto. This is the Achilles heel of oil. They will fight it tooth and nail--but they are few, and we are many.