Prometheus 6

It’s naïve to think that the oil companies have forgotten the ’70s. They know there’s a decent chance that economic populism will return. In fact, it already has: Senator Clinton’s full proposal is to combine her tax holiday with a ’70s-style windfall profits tax.

In this light, that oil companies might pocket most of the tax cut could easily be a good thing. It helps cancel out the negative legacy of the last energy crisis: public hysteria will occasionally work in your favor. 

The 18-Cent Solution
By BRYAN CAPLAN

Fairfax, Va.

BOTH Hillary Clinton and John McCain say that we should suspend the 18-cent-per-gallon federal gas tax this summer. After her beating at the polls Tuesday, there may not be much reason left to worry about what Senator Clinton thinks, but the McCain proposal is alive and well.

Most economists oppose the Clinton-McCain gas tax holiday because they can’t see how consumers will benefit. In fact, “most” is an understatement; when challenged to name one economist willing to back her plan, Mrs. Clinton’s response was to disparage the whole profession.

Why are economists so opposed? In the short run, the supply of gasoline is basically fixed; it takes a while to build a new refinery. The demand for gasoline, in contrast, is more responsive to price; we’re already seeing greater use of public transportation and brisk sales of fuel-efficient cars. When you combine fixed supply with flexible demand, it’s suppliers, not demanders, who pocket the tax cut. That’s Econ 101.

So far, I pretty much agree with the consensus. Economists might overstate the rigidity of supply — it’s possible that eliminating the tax could spur producers to find a way to squeeze out a little more gas — but they’re probably right that the Clinton-McCain proposal will not shrink the price at the pump. Nevertheless, 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.