Environmental Economics

I would rather a free market economist support a gas tax holiday by saying that all taxes are bad

Bryan Caplan supports the McCain-Clinton gas tax holiday in the NYTimes today:

I think it’s an idea worth supporting. In fact, I’ve got two arguments in favor of it, though I doubt that either candidate will want to repeat them in public.

The first idea is a maxi-min strategy: Of all the wrong things that politicians could do to respond to high gas prices, a gas tax holiday is the most benign. Got that?

The second idea is more strange: The knee jerk reaction when gas prices are high and oil companies are earning record profits is to impose a windfall profits tax. Most economists agree that a windfall profits tax is a bad idea. So, if that is the knee jerk reaction, a policy that gives oil companies more profits, such as a gas tax holiday, is a good thing. Got that?

In conclusion, Caplan writes:

This sounds cynical, but I’m just being honest.

Bizarrely cynical. And I'm being honest.

Update: From EconLog:

I'm in the New York Times. Sweet!

P.S. I may be on CNBC some time today to talk about the piece; look here for updates.

Student question on farm subsidies

From the inbox [edited for length]:

Dr. Haab

My name is [blank] and I was in your AED Econ 200 class this past fall quarter. One of my classes this quarter was Rural Sociology 378 which focuses on globalization of the world's economy and how it affects the rural populations of countries...My professor proceeded to tell the class that the main cause of [the expolitation of Jamaican grain farmers] was the farm subsidies given to US farmers...I was wondering if maybe you had any more information regarding subsidies (how they work, who gets them, why they are good/bad). I feel that they are a good thing for most US farmers. I know the professor got some of the information wrong and I called him out on it but I feel really uneducated about them...I wanted another opinion on the issue because my rural sociology teacher is obviously not an economics professor. I'm just curious to hear your take on the issue of farm subsidies.

You asked for it...

Oppose the gas tax holiday your own dag-gone-self

Krugman's words of caution:

Economists really do know something about tax incidence that the laity don’t. So when a presidential candidate says something that conflicts with economistic wisdom, it becomes THE MOST IMPORTANT ISSUE EVER. Except, you know, it isn’t.

That's my point exactly, it's no big deal but the CANDIDATES ARE MAKING IT OUT TO BE.

In spite of all that, I'm headlong into a gas tax holiday monomania. Do-it-yourself at http://gastax08.blogspot.com:

ANY ECONOMIST INTERESTED IN ADDING THEIR NAME TO THIS STATEMENT PLEASE EMAIL gastax08@gmail.com WITH NAME AND AFFILIATION

I did it myself and hopefully I'll be added to the list very soon.

More campaign gas tax arithmetic

The Chairman of the Clinton campaign says that it would save "an extra hundred bucks." via Freakonomics.

What, is he adding Obama's and Clinton's estimates?

30 + 70 = 100

Update on the biofuels subsidy

From Environmental Capital:

What a difference a few months make. America’s plan to ease dependence on foreign oil and burn cleaner fuels by massively increasing the use of biofuel has collided with higher food prices, as well as lingering concerns about biofuels’ environmental impacts.

The result? A rebellion in the ranks.

John McCain and more than a score of fellow Republicans called on the Environmental Protection Agency to scupper, or at least reconsider, the ethanol mandates passed in the last energy bill. The bill calls for a five-fold increase in U.S. ethanol production through 2022. President Bush reiterated the need for more “renewable fuels” in his Rose Garden climate speech last month.

I told you so (I hope).

Clinton vs Obama: $70 vs $30

Democratic voters in North Carolina today are expected to overwhelmingly endorse Sen. Obama over Sen. Clinton. My guess is that they are singularly focused on the gas tax issue (sarc). Sen. Obama says a gas tax holiday would save drivers "only" $30 while Sen. Clinton says it:

... would save the average American $70, even more for truckers, farmers and those with long commutes.

I previously calculated the amount saved as about $22, so I can see where Sen. Obama is coming from, but where does Sen. Clinton get the $70?

Suppose gasoline demand is perfectly inelastic (i.e., consumers are totally unresponsive to price) and you use 500 gallons of gasoline every year (aboutish 12,000 miles driven each year, aboutish 24.5 miles per gallon, from the EIA Kids Page). Saving 18.4 cents per gallon amounts to an annual savings of about $92.

In order to save $70, you'd need to use about 380 gallons of gasoline while driving 9321 miles (getting about 24.5 miles per gallon) between Memorial Day and Labor Day. Who are these intense, crazy drivers that Sen. Clinton is referring to? I'd need to drive from Boone, NC to Juneau, AK (click on the thumbnail) and back this summer in my 2004 Subaru Forester (about 24.5 miles per gallon), and then drive 2223 more miles around town the rest of summer (about 25 miles per day).

Note: a $70 savings ain't all that either.

150 economists couldn't be wrong*

From Jabberwonk, An Open Statement Opposing Proposals for a Gas Tax Holiday:

In recent weeks, there have been proposals in Congress and by some presidential candidates to suspend the gas tax for the summer. As economists who study issues of energy policy, taxation, public finance, and budgeting, we write to indicate our opposition to this policy. Put simply, suspending the federal tax on gasoline this summer is a bad idea and we oppose it.

There are several reasons for this opposition. First, research shows that waiving the gas tax would generate major profits for oil companies rather than significantly lowering prices for consumers. Second, it would encourage people to keep buying costly imported oil and do nothing to encourage conservation. Third, a tax holiday would provide very little relief to families feeling squeezed. Fourth, the gas tax suspension would threaten to increase the already record deficit in the coming year and reduce the amount of money going into the highway trust fund that maintains our infrastructure.

Signers of this letter [see below] are Democrats, Republicans and Independents. This is not a partisan issue. It is a matter of good public policy.

7 minute man

From William J. Polley:

While looking for something else, I came across this from the Congressional Budget Office...

Various media reports are incorrectly attributing to CBO a figure (that the average driver would save about $30 this summer) associated with a gas tax holiday. CBO has not published such a figure and the citations to CBO are inaccurate.

This misattribution raises a larger point. CBO is a nonpartisan organization, and we are not in the business of scoring or evaluating campaign proposals. In some cases, CBO may have previously estimated or evaluated a proposal similar to one subsequently proposed in a campaign and those estimates generally are available on our website.

The bottom line: If you read something suggesting that we have issued numbers or an analysis about a campaign proposal, you should be skeptical — and also let us know.

It doesn't really take the experienced analysts at the CBO to analyze the impact of the gas tax holiday. I was able to do it in about 7 minutes.

The political season is wonderful

I just realized that I'm not blogging, I'm coasting. From Newmark's Door:

Ms. Hillary: "This issue of energy and global warming has the promise of creating millions of new jobs in America. It can be a win-win, if we do it right."

James Pethokoukis: "Of course, many economists will recognize 'the green is good for growth' trap that Obama and Clinton have stumbled into. It's just a modern iteration of the famous "broken windows fallacy" where people mistake the shifting of wealth and resources for the creation of new wealth and resources."

Ms. Hillary: "This issue of energy and global warming has the promise of creating millions of new jobs in America. It can be a win-win, if we do it right."

James Pethokoukis: "Of course, many economists will recognize 'the green is good for growth' trap that Obama and Clinton have stumbled into. It's just a modern iteration of the famous "broken windows fallacy" where people mistake the shifting of wealth and resources for the creation of new wealth and resources."

An economist that supports the McClain-Clinton gas tax holiday

Need an economist to support a tax removal? Go to George Mason U. From the Chronicle:

What economist will vouch for Hillary Clinton’s proposal to cut gas taxes?

Bryan Caplan will. At EconLog, Caplan, an associate professor of economics at George Mason University, offers his “economic case for the tax cut.”

A summary of his summary: A cut would politically crowd out the notion of price controls, or worse; if, in times of crisis, tax cuts are as likely as cost controls, oil companies are “more likely to keep searching for new energy sources during crises”; and even if there’s little elasticity in world supply, tax cuts in America would still benefit consumers at least a little.

But “with arguments like these,” Caplan writes, “I doubt that I’ll be getting any phone calls from Hillary’s team. Her proposal is defensible; it’s just not defensible using arguments that the American people want to hear.”

What economist will vouch for Hillary Clinton’s proposal to cut gas taxes?

Bryan Caplan will. At EconLog, Caplan, an associate professor of economics at George Mason University, offers his “economic case for the tax cut.”

A summary of his summary: A cut would politically crowd out the notion of price controls, or worse; if, in times of crisis, tax cuts are as likely as cost controls, oil companies are “more likely to keep searching for new energy sources during crises”; and even if there’s little elasticity in world supply, tax cuts in America would still benefit consumers at least a little.

But “with arguments like these,” Caplan writes, “I doubt that I’ll be getting any phone calls from Hillary’s team. Her proposal is defensible; it’s just not defensible using arguments that the American people want to hear.”