In the realm of energy policy, there are a great many bad ideas and a very few good ones. The usual practice of presidential candidates is to 1) sift through all these proposals, 2) separate the wheat from the chaff, and 3) keep the chaff. This year, the two parties are competing to show who is most eager to discard sound economics and long-term prudence in favor of appeasing aggrieved motorists.
Steve’s criticism of McCain’s proposal to eliminate gasoline taxes sounds a lot like some of what we have seen from some liberal economists:
McCain avoids this error in favor of a different one. He wants to stop collecting federal gas taxes for three months, which he says “will be an immediate economic stimulus—taking a few dollars off the price of a tank of gas.” It sounds like a simple, sure remedy, and it is simple and sure. It’s just not a remedy. As energy analyst Jerry Taylor of the Cato Institute points out, prices are now at the level required to balance supply and demand. Cut prices by the amount of the gas tax, and consumption will rise, pushing prices back up. So drivers would get no holiday, and the economy would get no stimulus. About the only effect would be to “transfer money from the federal government to the oil companies,” Taylor says. If the oil companies don’t deserve a windfall profits tax, neither do they deserve an additional windfall. The gas tax hiatus also would enlarge the federal deficit, since McCain would take general revenues to make up the loss to the highway trust fund—and at the moment, there aren’t any extra revenues waiting to be spent.
Steve ends by endorsing the carbon tax, which is the centerpiece of Greg’s Pigou Club.