Motion for a Recess » economics

Learn to Love High Gas Prices

cshenoy — Tue, 03 Jun 2008 05:24:06 +0000

In a previous post, I advocated increasing taxes on gasoline to wean our country off oil and start spurring up interest in public transportation or alternative sources of energy. At the time, Hillary Clinton and John McCain were pushing for their own (failed) gas tax holiday plan. Most economists and policy wonks (as well as any person who possesses logic) thought it was a joke. Nonetheless, it seemed that calling for a higher gas tax would incense Americans who are already struggling with higher food costs. But as gas prices are on the rise, more and more people are recognizing the need for higher gas prices.

Economist Greg Mankiw published an article in the NY Times yesterday mostly dealing with the notion to decrease corporate taxes from 35% to 25%. Doing so would, of course, result in lower government revenue and a bigger deficit. So Mankiw conceded:

Indeed, if we increased the tax on gasoline to the level that many experts consider optimal, we could raise enough revenue to eliminate the corporate income tax. And the price at the pump would still be far lower in the United States than in much of Europe.

Don’t laugh. I’m serious.

Then again, think about it. With higher gas prices will come the need to innovate and create sustainable energy sources. Once these are developed, our interest in the Middle East is all but dwindled. Why do we need to be friendly with some of these hostile nations if they have no leverage? The only need for us to deal with them would be to protect Israel’s livelihood. Even Venezuela fits into this scheme.

There are many other reasons to love high gas prices.

The Rich Feel the Pinch

cshenoy — Sun, 11 May 2008 20:08:43 +0000

We all know our current economic situation is a major concern as the housing market still looks very bleak and will probably continue to stay that way for a little longer. But while the average American feels that way, how do the wealthy feel about their wealth? According to “The Fidelity Millionaire Outlook” survey sent out to those with at least $1 million in assets, they too have begun to feel the squeeze. It’s an interesting effect to see that the ones with a lot of money feel they aren’t as rich (or shielded) in this type of market, especially the wealthier ones.

People with more than $10 million to invest other than their home and retirement savings have a more pessimistic view than those with less than $2.5 million.

It also shows how these so-called wealthy individuals have managed to spend more money than they are able to actually pay for, a problem most prevalent with the average American. And with the rising costs of food, health insurance, mortgages, education, and other necessities, there will undoubtedly be a greater burden on every American rich or not. The annual savings rate is already at historic lows meaning we have no other place to bail ourselves out from this hole.

The Gas Tax Repeal

cshenoy — Thu, 01 May 2008 07:35:04 +0000

The federal excise tax on gasoline has been the cause for major buzz in all the presidential campaigns recently. John McCain and Hillary Clinton are proposing a temporary lift on the tax (an 18.4 cent one, mind you) for the summer so that a partial burden is lifted off the American people’s shoulders. Seriously? Barack Obama, who seems like the only candidate to understand the difference between political expediency and forward-thinking policies, has spoken against this repeal saying it does nothing to curtail consumption. And most economists agree.

Thomas Friedman writes:

This is not an energy policy. This is money laundering: we borrow money from China and ship it to Saudi Arabia and take a little cut for ourselves as it goes through our gas tanks. What a way to build our country.

Paul Krugman provides us with a quick lesson in economics:

The McCain/Clinton gas tax proposal comes too late for that. So it’s Econ 101: the tax cut really goes to the oil companies.

Lovely. So two of the three potential presidents are supporting a plan that does little to help us, if not hurt us. What I don’t understand is what their economic advisers are actually advising them with. I understand that politicians want quick fixes that seem to help out average Americans while overlooking the long-term effects but when economists and like-minded individuals unanimously agree that its a terrible policy, why keep pushing it?