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Gas Price Fixes that Won't
That's IF prices actually dropped 18.4 cents per gallon. However, there's every indication that they wouldn't. Here's why: According to the basic principles of supply and demand, cutting the price of an item causes people to buy more of it. That's why stores put items on sale. But when something is priced too low, consumers will buy it faster than it can be manufactured, which leads to shortages.
For gasoline, this means that cutting the price by 18.4 cents per gallon -- even though that's only about five percent of the current going rate -- will likely stimulate demand for more gas, economists say. Unfortunately, there's not all that much more gas that can be provided to U.S. consumers. The refineries that turn crude oil into gasoline are already working at close to full capacity. According to the Department of Energy (DOE), U.S. refineries have the capacity to process 17.4 million barrels of oil each day. Since only about 46 percent of a barrel of crude oil is converted to gasoline, U.S. refineries, operating at their peak, can produce only 8.06 million barrels per day of the stuff most cars run on. But the DOE also says that the U.S. consumes 9.25 million barrels of gasoline per day. In other words, American motorists are already using about 1 million more barrels of gasoline per day than American refineries can produce.
With the supply of gasoline pretty much fixed (at least in the short term), the increased demand triggered by the price cut will lead consumers to bid up the price of gas. Len Burman, of the nonpartisan Tax Policy Center, says eliminating the federal tax won't actually lower the price of gas because "supply constraints will push pump prices near their pre-holiday levels." He goes on to warn that "If that didn't happen, there would be shortages." The libertarian Cato Institute's Jerry Taylor agrees that a short-term gas tax holiday will have "little impact on pump prices."
For all the legislative prowess of McCain and Clinton, we're doubtful that either candidate can rewrite the laws of supply and demand. That 18.4 cents per gallon won't go to consumers. Instead, the proposal will simply shift that money from government coffers to the oil companies. We're willing to grant that if the laws of economics themselves took a holiday and the price did drop that much, the amount saved might be meaningful to many motorists, particularly those who are low-income and those who drive a lot. And there would likely be all kinds of ancillary benefits involving price reductions for food and other products that have to be transported, as well as airline tickets and the like.
But we can't find any economists who think we'll actually see that drop in the price of gasoline. Others have tried and failed as well. And the Clinton campaign hasn't produced one, either.
Plucking from the Profits
There's another catch to the McCain and Clinton proposals. Currently, the gas tax is deposited directly into the Highway Trust Fund, which is used to pay for upgrades to roads and bridges. The American Society of Civil Engineers estimates that the three-month gas tax holiday could cost as much as $8.5 billion.
McCain has responded by pledging to fund the Highway Trust Fund out of general revenues. That, of course, means adding another $8.5 billion in federal debt, which in turn means adding as much as $383 million per year in interest payments.
Clinton's plan is somewhat more complicated. She promises to impose "a windfall profits tax" on oil companies -- the mechanics of which she hasn't outlined -- and use that to fund the gas tax holiday.
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Member Comments
Posted By: weraloc @ 05/12/2008 9:49:23 AM
Comment: Do you know the difference between a moral and an economic argument? For Clinton and McClain it is a moral issue not an economic one. Economists do not recognize morality, so leave their arguments out of it.
Posted By: $2Gas @ 05/08/2008 10:05:54 AM
Comment: Demand $2 a Gallon Gas
Oil hit a new high of $120 a barrel on May 5, 2008.
The cost of making a barrel of synthetic fuel from coal is estimated to be around $55, including the sizeable infrastructure investments and the labor force necessary to operate the plant.
Petroleum poor Germany fueled WWII with synfuel from coal. It is proven technology.
America is the Saudi Arabia of coal with 1/3rd of the deposits on planet. We can eliminate dependence on foreign oil.
Reducing America???s trade imbalance, keeps money, technology and jobs here in America.
It is estimated that every billion in trade deficit equals 13,000 American jobs lost. $400 billion for oil last year: do the math.
And we can quit sending those billions to countrys that sponsor terrorism.
Synfuels are cleaner burning than gasoline and carbon sequestration can remove the CO2 hot house gases.
Visit http://governor.mt.gov/hottopics/faqsynthetic.asp
Ethanol from corn is a windfall for farmers but is it good for motorists.
After 4 months Congress is already rethinking. Unintended consequences include higher food costs for wheat, chicken, beef, pork, less grain for export, reduced gas mileage and incompatibility with older cars.
Harness your anger at the pump. Call or write your US Senators and demand a Manhattan Project to create an American synfuel industry within the decade.
If you don???t raise your voice the international companies, lobbyist and politicians will assume you are fat dumb and happy and ready to pay even more.
In Kentucky call
Senator Jim Bunning @
202-224-4343
and
Senator Mitch McConnnell @
202-224-2541
Posted By: Driver of wagons @ 05/07/2008 1:51:05 PM
Comment:
It was only a matter of time!
In this one move, the White House ended McCain's accountability for his use or abuse of the primary public financing system while putting him in position to take money for the general.
For this maneuver to have been arranged for the benefit of Senator McCain, of all people--the John McCain who has regularly, severely criticized the FEC as a "corrupt" agency--is a remarkable turn in his career as a reformer. A Commissioner who acted to enforce the law, to just raise an important question of enforcement, has been stripped of his post. This was clearly in Senator McCain's interest, this raw power play. It is also in his interest to have the FEC, back in business minus Mason, arrange for his money for the fall campaign.
He goes on to make a case that's going to be central to Obama's logic for forgoing public financing, despite his pledge to join the system: That McCain is a hypocrite on this reform issue.
For all the time that McCain has savaged the performance of the FEC, he has LED the sizeable crowd of critics who believed that the agency is too beholden, on the whole, to the narrow interests of parties and their candidates. Yesterday, Republicans could not have acted more narrowly in just this vein: effectively firing a Commissioner to immunize their Presidential nominee from enforcement action in a pending case but making sure that there is enough of an agency left to get him the money needed to finance his campaign.