Monday, February 20, 2006

Gas Relief

I’m generally opposed to raising taxes on gasoline to discourage consumption. I’m all for things like higher CAFE standards but the tax-to-reduce-consumption plan just seems regressive and economically damaging in the short run. However, I do wonder this: given the right circumstances might such taxes actually result in LOWER gas prices.

Here’s what I mean. Say gas is taxed as it is now and it’s running at $2.50/gal. Then there is suddenly a huge disruption is supply and or huge increase in demand. Maybe Iran embargos and Venezuela joins in just for fun while India and China roll out unbelievably cheap domestic cars (an Asian Yugo). Whatever, the market becomes really tight and gas zooms to $6.50/gal. But let’s say a year before that the federal government imposes a $2.00/gal. tax on gasoline spread out incrementally over a year. We’re then paying $4.50/gal. Consumption goes down 15% over the course of that year. When the Iranians and Venezuelans embargo and Asia gets it’s Yugo, the following crunch results in gas prices only going up .50 cents a gallon so we are paying only $5.00 (instead of the $6.50) and the shock is minimal.

OK, I’m sure anyone with any working knowledge of economics is probably laughing their ass off at my attempt to play economist but it does make me wonder if taking the hit on our own terms wouldn’t be a better strategy or, at least, a better hedge against what could happen. I’m still against it but I do wonder.

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