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ECONOMIC ANALYSIS: Candidates' gas plans are just a lot of exhaust

May 19, 2008

It is an election year, and gas prices are high. Though this is not a mixture that is conducive to candor, the level of policy schizophrenia is amazing. It isn't that any one policy is necessarily bad; it is simply that the nonsense spouted by the big three candidates has reached a new level.

Sen. John McCain's call for a summer gasoline tax amnesty would certainly provide a bit of cost savings for American families who use this time to travel. The problem is that McCain also argues that the United States should be more self-sufficient in its energy use. But lower gasoline prices will not increase our energy self-sufficiency.

Sen. Hillary Clinton made the same policy recommendation. Like McCain, she calls for the United States to take steps to be less dependent upon foreign oil. This and efforts to address global warming are, according to her official campaign Web site, "top priorities." That may be so, but it would seem that gathering votes and appeasing disgruntled motorists have edged out energy independence and global warming as top national priorities.

Sen. Barack Obama has wisely argued that the gas tax holiday is a gimmick. However, like a medieval physician, he made the right diagnosis but prescribed bleeding as a cure. His proposed windfall profits tax on oil companies might make consumers feel better (though you would have to be pretty vindictive, if not downright stupid, not to choose the tax cut alternative). One thing Obama's proposal will not do is cut gasoline prices. Indeed, it will serve to increase prices at the pump by reducing supply. This is hardly the road to energy independence.

We have three candidates for the world's most important elected office. In the measure of their policy recommendations, it would seem the simplest economics of energy policy seems as difficult for each to comprehend as theoretical physics. Here are some simple, but not easy, policy choices.

First, if you want to reduce the nation's dependence on foreign oil and reduce greenhouse emissions, simply raise the national gas tax. The higher and faster you raise it, the quicker we can achieve both goals. There is a lot of pretend sophistication about raising the fuel-efficiency standards on cars and trucks. That just serves to hide the tax in a less-efficient regulatory scheme within the higher production costs of these new models.

Second, if you simply want to make the United States less dependent on foreign oil, you also can increase domestic sources of energy. A huge subsidization of nuclear power facilities and drilling for Alaskan oil would serve to cut our dependence on foreign oil.

Third, if you want to punish oil companies, do it the old-fashioned way. Start your own oil company, gather investors, buy up the oil, and undercut their prices at the pump. The only problem you'll have is that the investors are going to want to enjoy those profits. That is economics, like it or not.



Hicks is director of the Bureau of Business Research at Ball State University. His column appears weekly. He can be reached at bbr@bsu.edu.
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