Comments on: How Far the NYT Had to Go to Find an Economist to Support the Gas Tax Holiday http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/05/08/how-far-the-nyt-had-to-go-to-find-an-economist-to-support-the-gas-tax-holiday/ Views on the Economy and the World Mon, 06 Oct 2008 17:43:16 +0000 http://wordpress.org/?v=2.5.1 By: Offshoring is a More Dubious Policy, When the Question is Oil Drilling | Jeff Frankels Weblog | Views on the Economy and the World http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/05/08/how-far-the-nyt-had-to-go-to-find-an-economist-to-support-the-gas-tax-holiday/#comment-1987 Offshoring is a More Dubious Policy, When the Question is Oil Drilling | Jeff Frankels Weblog | Views on the Economy and the World Tue, 15 Jul 2008 12:27:07 +0000 http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/05/08/how-far-the-nyt-had-to-go-to-find-an-economist-to-support-the-gas-tax-holiday/#comment-1987 [...] I realize that higher energy taxes are politically out of the question at this point.   But I could imagine legislation that would automatically raise energy taxes if and when oil prices fall, thereby putting a floor at recent levels and providing industry with the clear incentive to undertake the long-term investment in energy-saving equipment and technology that we badly need.  Rebate the proceeds by fixing the AMT, or removing the payroll tax on low-income Americans, one answer to the income distribution point.  In any case McCain’s proposal for a gas tax holiday is a spectacularly bad idea. [...] [...] I realize that higher energy taxes are politically out of the question at this point.   But I could imagine legislation that would automatically raise energy taxes if and when oil prices fall, thereby putting a floor at recent levels and providing industry with the clear incentive to undertake the long-term investment in energy-saving equipment and technology that we badly need.  Rebate the proceeds by fixing the AMT, or removing the payroll tax on low-income Americans, one answer to the income distribution point.  In any case McCain’s proposal for a gas tax holiday is a spectacularly bad idea. [...]

]]> By: jfrankel http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/05/08/how-far-the-nyt-had-to-go-to-find-an-economist-to-support-the-gas-tax-holiday/#comment-993 jfrankel Mon, 12 May 2008 18:30:29 +0000 http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/05/08/how-far-the-nyt-had-to-go-to-find-an-economist-to-support-the-gas-tax-holiday/#comment-993 Reply to Kevin, The price elasticity of demand for gasoline is low in the short-run, but higher in the long run. <a href="http://economics.about.com/od/priceelasticityofdemand/a/gasoline_elast.htm" rel="nofollow">Typical estimates</a>, e.g., from a <a href="http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V7G-3VCHFV0-B&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=3d74369c4c0c23619530dc59f1ccc623" rel="nofollow">meta-analysis by Molly Espey</a>, average -0.26 in the short run (defined as less than one year) and -0.58 in the long run. If one looks across countries, the inverse relationship between gasoline prices and gasoline consumption per person is dramatic. Even in the US, the experience after the 1970s oil shocks is that, with a delay, consumers started shifting to smaller more fuel-efficient cars (and then shifted back when gas prices went back down). There are <a href="http://www.entrepreneur.com/tradejournals/article/172829800_4.html" rel="nofollow">claims </a>that the price elasticity has fallen in the US since then. But I am skeptical. Analysts are often caught by surprise twice, first when the response to high prices is low in the short run, and then again when it rises in the long run. The process may be starting again now, as American consumers begin to leave their SUVs for Priuses. JF Reply to Kevin,
The price elasticity of demand for gasoline is low in the short-run, but higher in the long run. Typical estimates, e.g., from a meta-analysis by Molly Espey, average -0.26 in the short run (defined as less than one year) and -0.58 in the long run. If one looks across countries, the inverse relationship between gasoline prices and gasoline consumption per person is dramatic. Even in the US, the experience after the 1970s oil shocks is that, with a delay, consumers started shifting to smaller more fuel-efficient cars (and then shifted back when gas prices went back down). There are claims that the price elasticity has fallen in the US since then. But I am skeptical. Analysts are often caught by surprise twice, first when the response to high prices is low in the short run, and then again when it rises in the long run. The process may be starting again now, as American consumers begin to leave their SUVs for Priuses.

JF

]]> By: Kevin http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/05/08/how-far-the-nyt-had-to-go-to-find-an-economist-to-support-the-gas-tax-holiday/#comment-992 Kevin Mon, 12 May 2008 17:13:47 +0000 http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/05/08/how-far-the-nyt-had-to-go-to-find-an-economist-to-support-the-gas-tax-holiday/#comment-992 Has it really been proven that demand for gas is very price elastic? It seems to me that the whole reason people call higher gas prices an additional "tax" is because gas prices are actually inelastic. (i.e., substantial variances in gas prices does not significanly change consumption habits). In fact, I'm pretty sure that the overall amount of gas that the US has consumed has either remained stable or increased DESPITE gas prices nearly doubling over the past few years. Doesn't that mean demand for gas is relativley price inelastic? And if so, then a 5% decrease in gas prices should NOT result in increased demand for gas. I certainly don't plan on taking an extra road trip or driving around the block a few extra times if the price of gas is cheaper. Has it really been proven that demand for gas is very price elastic? It seems to me that the whole reason people call higher gas prices an additional “tax” is because gas prices are actually inelastic. (i.e., substantial variances in gas prices does not significanly change consumption habits). In fact, I’m pretty sure that the overall amount of gas that the US has consumed has either remained stable or increased DESPITE gas prices nearly doubling over the past few years. Doesn’t that mean demand for gas is relativley price inelastic? And if so, then a 5% decrease in gas prices should NOT result in increased demand for gas. I certainly don’t plan on taking an extra road trip or driving around the block a few extra times if the price of gas is cheaper.

]]> By: General Specific http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/05/08/how-far-the-nyt-had-to-go-to-find-an-economist-to-support-the-gas-tax-holiday/#comment-936 General Specific Fri, 09 May 2008 18:20:29 +0000 http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/05/08/how-far-the-nyt-had-to-go-to-find-an-economist-to-support-the-gas-tax-holiday/#comment-936 I think the fundamental problem with Caplan's political "game theoretic" (as some call it) argument is that it is most likely wrong. If the gas tax is cut, so politicians appear to be "doing something" then the odds are that the price will rise in response to demand (as Caplan admits). The consumers will then, in Caplan's world, be totally looking for the head of the oil companies because they "stole" that 18 cents. So instead of ameliorating with "bread" those stupid masses, as Caplan argues, the masses are promised bread and given nothing. Riots ensue. His argument is (a) misleading and (b) wrong. I think the fundamental problem with Caplan’s political “game theoretic” (as some call it) argument is that it is most likely wrong. If the gas tax is cut, so politicians appear to be “doing something” then the odds are that the price will rise in response to demand (as Caplan admits). The consumers will then, in Caplan’s world, be totally looking for the head of the oil companies because they “stole” that 18 cents.

So instead of ameliorating with “bread” those stupid masses, as Caplan argues, the masses are promised bread and given nothing.

Riots ensue.

His argument is (a) misleading and (b) wrong.

]]> By: jfrankel http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/05/08/how-far-the-nyt-had-to-go-to-find-an-economist-to-support-the-gas-tax-holiday/#comment-932 jfrankel Fri, 09 May 2008 13:43:58 +0000 http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/05/08/how-far-the-nyt-had-to-go-to-find-an-economist-to-support-the-gas-tax-holiday/#comment-932 Reply to Meiguoren: Thank you for your comment. (I) Regarding "Convoluted" -- It is true that a careful reader can infer that Caplan's policy ranking is (1) first best: do none of these populist measures, (2) second best: do the gas tax holiday together with the oil company windfall profit windfall tax, (3) third best, do the gas tax holiday alone, and (4) worst, do the windfall profit tax alone. He is then making the political judgment that option (1) is impossible, and so supports (2) or (3), as being superior to (4). I don't necessarily agree with the ranking of (2) through (4), and I don't agree that we economists ought to give up on the possibility of (1) which could well happen. But my main objection to his whole logic is that the main supporter of the windfall profits tax is Hillary Clinton herself. So "shilling for Hillary" [Caplan's self description] seems inappropriate in the context of gas prices. (Incidentally, I have long been a supporter of the Clintons, having worked in the White House 1996-99. But this time she has gone too far.) (II) Regarding my sentence that Caplan "should have known that readers would incorrectly infer that [he was] supporting the policy on economic grounds.” -- I believe that the New York Times' headline, callout, and decision to print the op-ed in the first place all probably gave the average reader this incorrect impression. This was predictable. Reply to Meiguoren:

Thank you for your comment.

(I) Regarding “Convoluted” — It is true that a careful reader can infer that Caplan’s policy ranking is (1) first best: do none of these populist measures, (2) second best: do the gas tax holiday together with the oil company windfall profit windfall tax, (3) third best, do the gas tax holiday alone, and (4) worst, do the windfall profit tax alone. He is then making the political judgment that option (1) is impossible, and so supports (2) or (3), as being superior to (4). I don’t necessarily agree with the ranking of (2) through (4), and I don’t agree that we economists ought to give up on the possibility of (1) which could well happen. But my main objection to his whole logic is that the main supporter of the windfall profits tax is Hillary Clinton herself. So “shilling for Hillary” [Caplan's self description] seems inappropriate in the context of gas prices. (Incidentally, I have long been a supporter of the Clintons, having worked in the White House 1996-99. But this time she has gone too far.)

(II) Regarding my sentence that Caplan “should have known that readers would incorrectly infer that [he was] supporting the policy on economic grounds.” — I believe that the New York Times’ headline, callout, and decision to print the op-ed in the first place all probably gave the average reader this incorrect impression. This was predictable.

]]> By: Meiguoren http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/05/08/how-far-the-nyt-had-to-go-to-find-an-economist-to-support-the-gas-tax-holiday/#comment-916 Meiguoren Thu, 08 May 2008 23:49:48 +0000 http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2008/05/08/how-far-the-nyt-had-to-go-to-find-an-economist-to-support-the-gas-tax-holiday/#comment-916 "Caplan’s argument is a very convoluted political rationalization..." Convoluted? Let's see. Some voters are ignorant. Some voters are distressed. Some are both. If a politician has to sell some snake-oil, better it be the non-lethal variety. "You should now write a letter to the New York Times retracting your op-ed on the grounds that you should have known that readers would incorrectly infer that you were supporting the policy on economic grounds." Erm....Caplan says: "So far, I pretty much agree with the consensus. Economists might overstate the rigidity of supply — it’s possible that eliminating the tax could spur producers to find a way to squeeze out a little more gas — but they’re probably right that the Clinton-McCain proposal will not shrink the price at the pump" “Caplan’s argument is a very convoluted political rationalization…”

Convoluted? Let’s see. Some voters are ignorant. Some voters are distressed. Some are both. If a politician has to sell some snake-oil, better it be the non-lethal variety.

“You should now write a letter to the New York Times retracting your op-ed on the grounds that you should have known that readers would incorrectly infer that you were supporting the policy on economic grounds.”

Erm….Caplan says:

“So far, I pretty much agree with the consensus. Economists might overstate the rigidity of supply — it’s possible that eliminating the tax could spur producers to find a way to squeeze out a little more gas — but they’re probably right that the Clinton-McCain proposal will not shrink the price at the pump”

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