An Economic Analysis of Gas-Pricing Policies
James Hamilton, the Econbrowser, has a very succint and superb analysis of proposals to help consumers deal with the rising gasoline prices. Anyone who has studied the rudiments of supply and demand analysis can follow what he is saying.
Regarding the proposal to reduce the federal tax on gasoline, he demonstrates that under almost all plausible conditions,
My own issues are longer run. I see absolutely no reason for gubmnts to cushion the blow of higher gasoline prices. We, as consumers, have known for a long time that there was a risk that oil (and gasoline) prices might rise. On average and in general,
For another perspective on oil/gasoline policy, see Tyler Cowan's piece at Marginal Revolution.
It all reminds me of the story of the Ant and the Grasshopper.
Regarding the proposal to reduce the federal tax on gasoline, he demonstrates that under almost all plausible conditions,
... the result would be essentially no drop in price and a big increase in oil company profits.And regarding the plan to give everyone $100, he quite rightly asks where it would come from, with some very cogent discussion.
My own issues are longer run. I see absolutely no reason for gubmnts to cushion the blow of higher gasoline prices. We, as consumers, have known for a long time that there was a risk that oil (and gasoline) prices might rise. On average and in general,
- We could have chosen to buy smaller vehicles.
- We could have chosen to own fewer vehicles.
- We could have chosen to live nearer our work or work nearer our homes.
- We could have gotten in shape and been prepared to bicycle and walk more.
- We could have saved more money to cushion ourselves.
For another perspective on oil/gasoline policy, see Tyler Cowan's piece at Marginal Revolution.
It all reminds me of the story of the Ant and the Grasshopper.
Category: Economics, Energy, Gubmnt Posted on
Tuesday, May 2, 2006 at 12:46am
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Does anybody know if ordinary folks in EU countries are demanding (through the usual channels of influence) that their politicians somehow lower prices on automobile fuels? Have politicians there been offering a rebate or tax refund scheme to the populace? Are there any MSM articles about this?
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Thanks for the article, Brian.
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I like Dan's idea of a gasoline gift card purchased at current market prices -- for say 25 gallons of 87 Octane at any Mobil station in the US -- though I'm not sure how this would work with the current refinery/delivery/retail structure, and it definitely screws up the regional pricing schemes currently implemented.
Here's a first crack at an analysis: With little storage capacity, gas station owners have little to no ability to hedge price risk, so we would have to buy cards directly from the oil companies. In turn, when we use the cards at a gas station, Exxon would have to reimburse the station owners at current posted prices, yielding a strange but powerful force for gas station owners to raise posted prices, and a powerful urge for people to buy cards over the telephone from the cheapest gasoline station in the country. I don't think a small-region-specific card scheme would be consumer friendly...
Also, gasoline blends can change seasonally, I gather with different production costs, so it's possible that some hedging could occur there. Overall, I'm not certain how Exxon could easily manage this risk...
As an aside, I know other companies can't manage the risk well. Last year I purchased for my wife a gift certificate entitling her to 5 assorted hour-long massages at a premium spa nearby. I paid the then current full market prices. Yet, when she went to the spa two weeks ago, the staff told her that the price had increased considerably, and she would have to pay the difference. The staff told her that I had only bought a "gift card" denominated in dollars, not quantity of massages. They offered her a full cash refund (without interest!), though my wife demanded specific performance, showing them the actual gift certificate denominated in "massages".
They relented...
If not at the consumer level, what about organizations like AAA? Could AAA obtain a good deal on behalf of its members, by guaranteeing a large volume of sales? Or is obtaining a large volume of sales not really a problem for gas vendors?