Elections, Hot Air, and Gas

Election season is probably the best time for bad economic policies to garner support — and one of the roles of academic economists is to call the candidates out on terrible policy.

From yesterday’s New York Times, we learn that:

Senator Hillary Rodham Clinton lined up with Senator John McCain, the presumptive Republican nominee for president, in endorsing a plan to suspend the federal excise tax on gasoline, 18.4 cents a gallon, for the summer travel season. But Senator Barack Obama, Mrs. Clinton’s Democratic rival, spoke out firmly against the proposal, saying it would save consumers little and do nothing to curtail oil consumption and imports.

Greg Mankiw
‘s commentary
is spot on:

I don’t know any prominent economist who favors this McCain-Clinton proposal. More common is the reaction of a friend of mine (a veteran of the Clinton administration) who calls the idea “ludicrous.”

I’m all for giving folks a helping hand, if that is the rationale. But why give a bigger helping hand to those who drive more, pollute more, and cause more car accidents? And why encourage even greater consumption of gasoline?

Let me go a step further, and pose a challenge:

If any reader can find a coherent economist not affiliated with any of the major campaigns who thinks this is a good idea, then please add a link in the comments.

My prediction:

Perhaps some hot air, but we won’t find any economist willing to support this nonsense. Not a right-wing economist, not a left-wing economist, and not even a two-handed economist.

Critics might note (fairly) that we economists are often wrong. But when opinion is unanimous that a proposal is terrible, it is probably time for the electorate to send a message to their wannabe leaders that they expect something a bit more responsible.

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  1. doug says:

    Maybe suspend the tax for those with commerical interests (trucking and transportation), but that would mean the rich getting richer. We can’t have that.

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  2. Chris says:

    Cut gasoline tax by 25 cents per gallon. And add a sin tax to bottled water of 25 cents per bottle (regardless of size). Or just add the water tax. We need to use taxes to prevent or limit behavior that has a negative effect on our society (liquor, cigarettes, gasoline, bottled water, carbon emissions, pornography, etc…).

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  3. holt says:

    As much as it pains me to say it, Obama is right. As I look across the street now, suspending the $0.18 tax will put gas @ $3.40 per gallon. Big whoop. Just a gimmick to make us think that our elected officials are doing something (which they apparently aren’t).

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  4. John says:

    Most economists would agree that demand for gasoline is pretty inelastic in the short run. Any increase in the demand for gas caused by the suspension of the gas tax will be minimal especially considering how demand has not dropped much since we have had this recent run up in prices. Its real purpose seems to be to provide stimulus or relief to taxpayers generally, which might have been better accomplished with either more spending on infrastructure projects or through larger short term rebates, but it’s not that terrible.

    However, what bothers me about this post is that it is a less than subtle effort to promote Obama, which is silly. Obama has supported not only CAFE but the California ridiculous 42 MPG requirements. It is far more sensible to raise the gas tax and let the market it sort it out to curb demand, not to compel manufacturers to produce certain cars. I doubt you will see Obama promoting raising the gas tax as well…

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  5. David says:

    I’m no economist, but am I correct in assuming that cutting the gas tax would result in people using more gas, thereby raising demand and lowering supply, leading to even higher gas prices? To me, saving 2 bucks per fill up isn’t worth that.

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  6. Nick says:

    Chris, the assertation “We need to use taxes to prevent or limit behavior that has a negative effect on our society” is disgusting and one of the major things wrong with politicians on both sides of the aisle. Taxes are necessary to fund government activities, and should not be used for social engineering.

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  7. Lee says:

    I bet you could find lots of economists to support this idea, especially hard-core libertarian economists. They would likely care far less about the small shift in incentives than about the net lowering of taxes. From that perspective, the gas tax already inhibits efficiency and skews incentives, so a tax suspension would move things in the right direction.

    The economist might say that lowering *other* taxes would be *more* beneficial, but that’s different issue.

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  8. Anthony says:

    Let’s say we do suspend the gasoline tax (I am against), what are the effects that it will have on the economy as it is? The tax goes back into our transportation budget and if we were to suspend it, we would only be doing harm to ourselves in the long run, with regards to road improvement and “funding” alternative fuel R&D.

    Is it worth immediate satisfaction (albeit a modicum amount) for a potentially more hazardous long-term impact?

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