Gas Tax Holiday: Good Politics, Bad Finance
05/07/08 - 07:19 AM EDT
John Fout
The risk of Clinton's plan, and to a lesser extent McCain's, would be that oil companies just raise prices. This could negate the benefits of a cut. New York Times columnist and economist Paul Krugman aptly described Clinton's gas tax proposal: "So it's pointless, not evil."
If the gas tax cut is pointless, why has it gotten so much attention? Clinton and Obama have many similar proposals. Once Clinton proposed a gas tax cut, the Obama campaign saw a chance to attack her populist proposal. The media jumped on board finding absurd reasons to pillory Clinton, and McCain to a lesser extent. Unfortunately, most of the analysis has been off base. Most members of the media have no understanding of how oil markets work or what affects prices. It seems nobody has considered looking at the demand side of the picture. Gasoline demand has remained static. According the Department of Energy Web site, demand has been flat:"Over the last four weeks, motor gasoline demand has averaged nearly 9.3 million barrels per day, up by 0.4 percent from the same period last year.""Gas demand is about flat year over year and has been flat for two or three years," said Jim Williams, an energy economist at WRTG Economics. "The 0.4 increase actually represents Americans drive less because the increase of ethanol content in gas lowers driving efficiency." The Department of Energy reports here that the U.S. has built up excess inventories since the beginning of the year: "Gasoline inventories built to unusually high levels in early 2008, indicating an excess of supply relative to consumption." Some of those inventories have been reduced because refiners cut back. Most analyses fail to understand refiners have been under pressure and have little or no profit margin in refining oil at these prices when refining capacity remains in the low 80 percentile.
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