I’m not an economist and don’t even play one on TV, so I didn’t get quite as worked up as my economist friends on Sunday when Hillary Clinton said, in defense of the gas tax holiday first dreamed up by John McCain, that there’s no need to listen to all of the economists who think it’s a wretched idea. But the fact that two of the three remaining candidates have endorsed the idea is depressing, to say the least. As the economists point out (see the succinct explanation on Brad DeLong’s blog here), because the short term supply of oil is essentially fixed, and the suspension of the tax would increase demand, gas prices might well stay right where they are. And even if they dropped a little, encouraging people to buy gas is just about the last thing we need to be doing right now.
In my view, Barack Obama deserves the kudos he’s received for declining to pander on this issue, but his proposal (also endorsed by Clinton) to tax the oil companies’ on their “excess” profits isn’t the answer either.
Although it’s frustrating to watch the oil companies make stupendous profits ($10.9 billion for Exxon Mobil, a 17% increase from last year, just this quarter) while so many Americans are suffering, trying to identify and tax the ostensible windfall would invite all kinds of mischief. This is the kind of maneuver developing countries often try, and the usual effect is simply to give the affected companies an incentive to disguise their profits any way they can. The result is less corporate transparency (for an extreme example, think of Russia), and often less money in the national coffers.
Unfortunately, the best approach to the spike in oil prices is probably to watch them rise, to let the oil companies charge the prices they’re charging, and to hope that this will force us to get serious about using less oil.