Environmental Economics

Those wacky Hoosiers

From NBC5.com in Chicago:

A Valparaiso man climbed atop a convenience store with a guitar and megaphone Monday night to sing a song protesting high gasoline prices. Police halted the impromptu 15-minute concert at a Family Express store and took singer Jay Weinberg to jail.  Weinberg's song, called "Price Gouge'n," resonated as he sang from above pumps dispensing fuel at $3.78 per gallon. Dozens of supporters chanted: "I can't afford it. I'm banging on my dashboard. I can't believe they think I'm a fool."

If anybody can find a video, I'd love to see it.

What should I do?

From the snail mail inbox:

The G & B Energy Budget Payment Plan is now coming to a close for the plan year 2007-2008. ... Our records indicate that your account has a CREDIT balance of $-259.72 as of April 30, 2008. You have two options available to your [sic] regarding your credit balance:

1. You may request a refund of all or a portion of this balance and a refund check will be mailed to you, or
2. You may elect to "roll over" this credit balance to the upcoming budget, reducing your monthly budget payments for the 2008-2009 budget year.

Graph of the day

Any bets on the numbers for May '08?

Capping gas prices: The right way?

Price caps are never a good idea.  Arbitrarily restricting prices so they can't rise to where the market determines sounds good in principle--who doesn't like lower prices?  But in practice, artificially low prices lead to shortages, and really mad people.

That's why capping gas prices is a bad idea--unless you're trying to sell more cars.

Another inelastic demand example (this time it's not gas)

From the Columbus Dispatch:

FirstEnergy will spend six years and $1.5 billion by 2011 to settle a pollution lawsuit and meet federal clean-air rules at one of its power plants.

By then, three massive scrubbers and two huge filters will operate at its W.H. Sammis coal-fired power plant along the Ohio River, helping remove thousands of tons of pollutants that cause smog, soot and acid rain...

All the work must be completed by 2015 to comply with federal law. Much of the cost will be passed to customers.

Supply decreases, prices go up.  By how much depends on the elasticity (flexibility) of demand.  Since the demand for electricity is inflexible, much of the cost increase is passed through to consumers.  Now whose fault is that?

Battlefield Ohio

From the Columbus Dispatch comes this report of opposing Ohio alternative energy proposals:

[Senator] Voinovich's bill would establish a goal of limiting greenhouse-gas emissions in 2020 to those emitted by the United States in 2006. But under Voinovich's bill, the federal government could not impose a cap-and-trade system until 2030 if the incentives in the measure do not lead to deep reductions of carbon dioxide.

[Senator] Brown's bill would have the government spend money over five years -- starting with $1 billion in the first year and ramping up to $10 billion by the third -- on grants, loans and other investments aimed at spurring new energy technologies. He said he would get the money for his proposal by using some of the revenue produced by an eventual climate bill, though he does not yet favor the Lieberman-Warner Bill and was not familiar yesterday with Voinovich's bill.

Can you guess who is the Democrat and who is the Republican?

Demand vs quantity demanded

From the Washington Post:

Backing up Obama's position against Clinton's proposal to suspend the 18.4-cent-per-gallon tax for the summer is a slew of economists who argue that the proposal, first offered by Sen. John McCain, the presumptive GOP nominee, would be counterproductive. They argue that cutting the tax would drive up [quantity] demand[ed] for gas at a time when the supply is tight, which would mean that the price at the pump would drop by much less than 18 cents per gallon.

The [bracketed terms] have been added for correctness.

Does Mankiw get the gas tax issue right?

From today's Washington Post:

Harvard professor N. Gregory Mankiw, who has written a best-selling textbook on economics, said what he teaches is different from what Clinton and McCain are saying about gas taxes. "What you learn in Economics 101 is that if producers can't produce much more, when you cut the tax on that good the tax is kept . . . by the suppliers and is not passed on to consumers," he said.

I'm hoping that the "..." leaves out some important stuff that Mankiw said, because what I teach in Econ 101 is a little different.  I'm not saying Mankiw is wrong, just the above quote seems incomplete to me. Read on, and then tell me I'm an idiot. 

More on Obama's goof

From the comments:

This is Econ 101. With a near-vertical supply curve--which is the case during the summer--a tax cut has no effect on the market price. The only consequence is an increase in the producer surplus. I drew up the relevant supply and demand graph on a post at our [Economists for Obama] site.

My reply:

Thanks for the comment, I've made this a separate post. And what do you think about the Obama's notion that lower prices will increase demand?

Note to everyone: This isn't about politics for me ... all 3 candidates are butchering economics right now but today's favorite butcher is Obama.

Obama goofs on gas demand

Omigosh, omigosh, omigosh (Obama assails ...):

Barack Obama didn't back down yesterday in his opposition to a so-called gas tax holiday this summer, becoming more vocal in calling it political pandering and slamming John McCain and Hillary Clinton for proposing it.

He told voters in Winston-Salem, N.C., that suspending the 18.4-cents-a-gallon federal gas tax between Memorial Day and Labor Day would save them only about $25 to $30. Some economists, he said, believe the proposal could backfire and actually raise prices by increasing demand. "We don't know that the oil companies will actually pass on the savings," he added.

Wrong, wrong, wrong: A lower gas price causes quantity demanded to increase as consumers move down the demand curve. The only things that cause gas demand to change are changes in income, prices of substitutes and complements, tastes and preferences and expectations (e.g., fill your gas tank in Louisville, Ky before Derby Week). I demand a retraction.

Who are these "some economists" that Obama is talking about? Did they get their degrees from an SEC school or something? Name names so that we can have an econoblogosphere beatdown! Out these blasphemers!

Note: I think Obama got the $25 to $30 number correct.

Hat tip: Larry Ellis.

Update: Here is the YouTube clip.