01 May 2008

Dept. of Uninformed Politicians:
Debate? We Don't Need No Stinkin' Debate

SO JOHN MCCAIN wants a moratorium on the federal gas tax to provide consumers with relief from the current gas prices now averaging around $3.62 per gallon. Hillary Clinton wants to do the same. Barack Obama, apparently the sole voice of reason in this "debate," thinks the whole idea is a political stunt. Indeed, Obama has hit the nail on the head here, preferring sound economics to sound politics. The proposal supported by McCain and Clinton does very little to actually stem the rise of prices. In fact it will do precisely nothing. Why? As has been explained by countless commentators (and as would be understood by anyone who took Microecon 101 in college), eliminating the tax does nothing to prices, as prices, broadly, are set by (wait for it)...SUPPLY and DEMAND. Get rid of the tax and the oil companies will adjust. For oil companies, the price of a gallon of gas is ~$3.15 with the additional ~$0.47 coming from state and federal taxes. Lose the federal taxes, and oil companies will not sit idly by, but will raise their prices to maintain equilibrium. Gas will still cost around $3.62 per gallon, but the ~$0.18 that would have gone to the feds will now go to (surprise!) the oil companies.

Want lower gas prices? Drive less. Lower demand leads to lower prices. Or you could magically increase the supply of oil.

Granted my little screed has oversimplified the oil market. There are other, macroeconomic considerations (e.g., the weak dollar) that contribute to gas prices being so high. My apologies to any economists reading this.

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On a lighter note, I found this during my search for a source on the aforementioned "debate."