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Logical Extension
The gas tax holiday is a ridiculous idea. I agree that it will only result in gas companies raising the price of gas to make up the difference. It occurs to me, though, that if this is true, doesn't the same logic say that we could increase the gas tax and gas companies will have to lower the price of gas to keep the total price the same?
Unfortunately, Senator Clinton is proving that the vast majority of consumers won't see it that way. They'll assume that any tax hike will come directly out of the consumers' pockets, not the gas companies.
Just a thought, but I'd appreciate feedback from those more knowledgeable in the ways of the economy than I.
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Comments (7)
For a long time now many people (economic-minded folks) believe that the best way to 'force' consumers to consume less gas is to tax the hell out of it (see the cigarette tax). Raising the price beyond what the market can bear - therefore decreasing demand.
That assumes the sale of gasoline is a 'free market' and therefore a slave to the laws of supply and demand. Not exactly so... gasoline and petroleum based energy is highly institutionalized from transportation to home heating.
Considered political suicide of course - but to many, it's likely the only government intervention that will force consumers to seek higher mileage vehicles and/or alternative fuel vehicles.
Problem is: at this point it seems far more expensive to stop consuming gasoline (for average people) than it is to continue consuming it at record breaking prices.
It ends up creating class warfare - with the lower classes who can't afford to change their energy consumption habits - getting punished.
I'm only covering the basics and as I'm sure you've found out solving the energy crisis is enormously complex - no such thing as a magic bullet solution.
May 6, 2008 3:58 PM | Reply | Permalink
Forget the gas tax flap. It won't matter after tonight.
May 6, 2008 4:31 PM | Reply | Permalink
True enough.
May 6, 2008 4:37 PM | Reply | Permalink
You're mixing up free market and (in)elastic demand. Even if there was ideal free-market competition on the oil/gasoline supply side, the situation wouldn't be very different. The reason for this is twofold.
First, the supply of oil is limited. Even if one barrel was worth $1,500 the producers won't be able to magick more of it into existence.
Second, the demand is fairly inelastic. If gas was five cents a gallon, folks would waste more of it, but it's safe to assume they wouldn't actually drive ten times more. Similarly if gas was $10 a gallon, many people could not significantly reduce their consumption.
The only possible long term solution is getting rid of dependency on oil. Stupid Hillary style pandering is only good for digging a deeper hole, not getting out of it.
May 6, 2008 5:02 PM | Reply | Permalink
The experts have said that the market is currently such that a tax decrease will not result in lower prices, just more profit for oil companies.
Will this work in reverse? Will a tax increase result in constant prices but less profit for oil companies?
May 6, 2008 6:39 PM | Reply | Permalink
I honestly have no clue - but it would be a fun theory to test (in an economics lab of course, not in real life).
I will say - the main engine driving an increase in oil prices has to do with the weak dollar - not supply and demand.
I think the weakening of the dollar (compared to foreign currency) is similar to the 'reset' of housing prices.
Some are screaming 'the sky is falling' because housing prices have dropped on average 10-15%.
But ya gotta remember that housing prices have jumped up by 40% year to year in some markets.
Right now it's a reset - not quite the sky falling.
One upside to the weakening of the dollar is the increase in foreign investment in U.S. based business ventures. Their money goes a lot further here than it did in the past. Welcome to the Global Economy.
May 6, 2008 6:53 PM | Reply | Permalink
There already has beeen a test of what happens to demand for gas when the price increases. The last 7 years under Bush.
The price for a gallon of gas is now about three times what it was when Bush took office. Do you suppose that our consumption has decreased over that same period? This demonstrates codegen86's point about the demand curve for gas being inelastic.
May 6, 2008 7:40 PM | Reply | Permalink
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