09 May 2008

An Economist Supports the Gas-Tax Holiday

George Mason economist Bryan Caplan supports the temporary suspension of the gas-tax. Imagine my surprise. But here are his reasons;

1. "the tax holiday is a relatively cheap symbolic gesture that makes truly bad policies less likely." I.e., no price controls, windfall profits taxes, rationing, etc.

2. "even a 'giveaway' to the oil industry sets a positive course for the future. During the last crisis, the industry was a scapegoat for scarcity." That is, a gas-tax holiday is better than whipping up an anti-business frenzy.

So, notably, he doesn't support the gas-tax on its own terms, just as a clever political move that prevents even more stupid actions.

But I disagree with him, for two reasons. First, Hillary Clinton is proposing to use the windfall profts tax to ensure that businesses pay the tax, not consumers. So the windfall profits tax idea is on the table. Second, she is trying to make the oil industry the scapegoat, and point the finger at them.

I think the gas-tax suspension, while not a huge issue in its own right, will actually make more anti-free market actions more, rather than less likely, because it misdirects people from the real issue of scarcity, and encourages them to think that big bad business is the whole problem, and that there are easy political solutions.

When the gas-tax holiday fails to increase supplies and bring down prices to under $3 gallon, people will just demand the next stage of government intervention. With due respect to Caplan, he's a fine economist, but not a great political scientist.

1 comment:

James K said...

I agree with your assessment. Mind you, its hard to work out when Caplan is kidding sometimes. Perhaps his highly cynical praise was a sarcastic way of pointing out just how stupid it is.