Moderadical

As Economist Dean Baker has pointed out, the proposal being floated by Hillary and McCain to lower the gas tax over the coming summer would:

• Not lower prices at the pump one bit
• Just put more money into the pockets of the oil companies

How can this be? It’s simple supply and demand. With refineries claiming to be operating at full capacity, no more gas can be produced. Gas prices are determined by market forces - as long as there is continued demand and supply is maxxed out, prices will not decline.

So while there would be a momentary drop in pricing when taxes were suspended, the lower price would increase demand, thus leading to the price at the pump rising right back to where it was before the tax was suspended, if not higher.

Brilliant idea, huh?

Of course, an astute politician might take note that gas prices have risen due to skyrocketing oil prices and that oil prices have gone up due to:

• The dollar’s decline (which was in turn powered by the Fed’s lowering interest rates)
• Extreme speculation in the oil markets (brought to you by the very same hedge fund managers who brought you the real estate bubble)

So basically, the Fed has bailed out the irresponsible hedge fund managers and banks in part with lower interest rates. This in turn has led directly to the escalation in gas prices. As a result, politicians have proposed “helping the consumer” by putting billions right into the pockets of oil companies.

This is the government we get when we allow corporate and other special interests to drive policy, and, worse yet, to literally draft legislation.

Technorati Tags: gas tax, hillary, mccain