Friday, May 2, 2008

Gas tax moratorium

Apparently John McCain is getting his economic advice from Carly Fiorina. By his own admission, McCain doesn't know much about economics. So of all the people in the world to choose as an advisor, why Carly? If McCain needed some advice on how to waste taxpayer/shareholder money on useless publicity antics, I'm sure Carly could provide some useful advice. But when the economy is in the crapper and needs a jumpstart, why on earth would anyone think she'd have a good idea?

Of all the ideas McCain has ever had, a moratorium on the gas tax has got to be among the dumbest. Over dinner a few days ago, we were talking about the horrific situation in Haiti as a result of rising food commodity prices. My nine-year-old asked a simple yet reasonable question, "why don't they lower the price of rice?" So I took the opportunity to explain to her the basics of market prices and supply and demand.

I asked her if there were ten people wanting to buy rice but only enough rice for five of them, who would get the rice?

"The five willing to pay the most," was her reply.

And if the first were willing to pay $10, the second $9, the third $8, the fourth $7, and the fifth, $6 for that rice, how much will all of them pay?

She thought for a second, then said "six dollars."

Six dollars, I told her, was therefore the market price for rice. It wasn't set by the sellers, but rather by how much the buyers were willing to pay. And so long as the supply doesn't change, the price will always be set by how much the buyer of the last available unit is willing to pay irrespective of whether that six dollars is all going towards the seller or includes taxes, tariffs, or other fees.

This made sense to her intuitively, and I congratulated her for mastering a basic economic principal that many voting adults fail to grasp.

And apparently 2/3 of viable presidential candidates fail to understand this one either, because so long as the supply of gasoline remains unchanged, removing the federal gasoline tax will do nothing beyond putting the government another $10 billion into debt. Because a given supply will sell for whatever the buyer of the last available unit is willing to pay for it. And if that 18.4 cents per gallon doesn't go towards infrastructure, it will go to those selling the gasoline. But the market price will remain unchanged.

The part about all of this that I find most troubling is not that such a half-baked idea is actually being proposed by presidential candidates. I actually don't think that any of the three are truly so ignorant as to think it would work. It's that two of the three think that the voting public is stupid enough to think that it would work, and since it's too late to actually implement the idea, it's a political gimmick that the candidates can safely use, confident that their bluff will never be called.

I have no delusions that the American people are wise and deliberate decision makers when it comes time to vote. That should be evident to anyone that takes a serious look at the idiots we send to congress. But it's insulting to know that the candidates' assessment of our collective intelligence is such that they can make a suggestion as pathetic as a moratorium on gasoline taxes a campaign issue and actually use it to sway voters in their favor. I'm sure that if it were legal, they'd hand out five dollar bills at the campaign rallies if they thought that would influence voters. And I also wouldn't be surprised if, under the right circumstances, that same five dollars is equal or greater than the value a candidate places on his or her own integrity.

If anyone really wants to do something about gas prices, go ride a bike. The supply curve isn't moving, but we can move the demand curve a step to the right.

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