Party of Stupidity Watch II

The Republicans. Tim Haab is on the case:

Environmental Economics: Read this Quick: Gas Rebate Proposal: GOP senator are proposing a $100 tax credit to "offset the pain of higher pump prices for gasoline." I have to post this quickly because there is an economic lesson to be learned, but this thing is likely to be voted down before I can finish typing.

So what's the lesson? Consumers respond to prices at the margin--that is behavior changes when the price of the last unit of a good purhased changes. Imagine the local street hot-dog vendor us trying to get you to buy more hot dogs. Which is more likely to increase hot dog sales--the vendor giving you $5 or the vendor dropping his price by 10%? Now, I've already argued that the evil gas producers can't lower their prices on a whim, but the government could if they wanted to--by reducing the per gallon gas tax. Now that would be just plain silly--right?

My point is, this gas tax rebate proposal will have absolutely no effect on gas prices or gas consumption behavior. It will simply give everyone a $100 bonus to do with as they see fit.

If the goal of the Senate is to reduce the burden on those spending the most on gas, a lump-sum rebate won't do it. IF the goal is to just give everyone $100 and see what happens, this looks like the perfect proposal. And as John has repeatedly and convincingly argued...IF the goal is to reduce dependence on gas powered vehicles, then we need an increase in the gas tax.

This thing is dead in the water because the tax rebate proposal contains an amendment allowing drilling in ANWR.

Comments

[a different chris]

Uh, Technical Glitch here at least in my corner of the Net:

This post comment link originally took us all to POS WI comments, which I thought was deliberate because it made sense.

But now both this and POS WI comment links take us (or just me?) here, and we therefore can't access the old thread.

[ogmb]

Blog Software of Stupidity aka Typepad cannot distinguish between Party of Stupidity I and II.

[BW]

Take the idea further. Raise the gas tax high enough so that it raises say $500 in revenue per household and give each household a $500 tax rebate. People who consume no gas are $500 richer. People who consumes tons of gas are worse off. Overall gas consumption drops - probably by a lot more than most people would expect.

Mind game: If the govt taxed a barrel of oil by $10, it would raise a lot of revenue. If it taxed it by $200, it would raise a lot less revenue, at least over the medium term (Laffer curve-like). With a $200 tax, the OPEC countries would get a quick lesson in the word monopsony.

[Karlsfini]

Brad, I'm on the Mac now (Safari), so it's not Opera, but the post showed 41 comments and when I got here there are only three.

(Not complaining, BW's comment is worth at least 40 average comments, but I know you're always experimenting, trying different things, and thought you'd like the feedback.)

[chuck roast]

Thanks, Brad Delong and Tim Haab for giving us the analogy of "the local street hot dog vendor and the evil gas producers." Marginal price theory will never be the same.
I thought that this was a reality based blog?

[Dirk van Dijk]

Seems to me the reason that people are still buying SUV's is that they expect that the current rise in gas prices is temporary. If they were convienced that high prices were permament, they would trade in the Tahoe for a Tercel in a heartbeat. Yes high prices are causing lots of pain now, so a $100 rebate would be very nice. For once a tax cut that would go to the people who need it, not to those who have more money than they know what to do with. Still given the budget defict, this is not the time for any more tax cuts, but better this rebate than the elimination of the inheratance tax thats for sure. Longer term, what if we set the gas tax so that the price at the pump would never fall below say $2.50. If prices fall below that level, the tax would automatically rise penny for penny. Right now it would have no effect on peoples wallets, but it might make them decide to buy a more fuel efficent car the next time the go to the show room, and maybe move closer to work the next time they decide to move, rather than moving 50 miles from the city to build their McMansion. Not an immediate solution since so much of the demand is structural (the Chevy Suburban bought last year will still be on the road for a long time) but over time might help.