Rossputin.com: Rational Thinking About Our World

Much political buzz lately has revolved around support by Senators Clinton and McCain, and opposition by Senator Obama, to a "federal gas tax holiday".

According to year-old data from the Department of Energy, "The average American uses 500 gallons of gasoline every year." So, the average American uses about 9.6 gallons per week. Let's round it up to 11 gallons for the summer driving season.

The federal gasoline tax is 18.4 cents per gallon. And, let's assume that if a "gas tax holiday" were implemented, it would be between Memorial Day and Labor Day, as McCain and Clinton have called for. That's a total of 98 days, or 14 weeks.

As of April 28, 2008, the average retail price across America for regular gasoline was $3.60 meaning the average driver spends just under $50 per week on gas.

If the gas tax were implemented, and making the unlikely assumption that 100% of the gas tax reduction would find its way to the price at the pump, that driver would save $2 per week, or about 5% of the total spending on gas. (More likely, only a part of the gas tax would make its way to the pump price, with the actual savings to drivers closer to $1.25 per week.) Even a liberal Democrat could not believe this amount, $2 per week, will be economically significant in terms of
consumer spending.

That said, the total amount of revenue forgone by the government would be approximately almost $8 billion. With consumer spending of $2.8 trillion estimated for the 98 days of the holiday, the gas tax savings, we're looking at Americans keeping an amount under 0.3%, and more likely under 0.2%, of their spending for that period. Again, not enough to make a difference in anyone's economic behavior.

But we can predict what will happen after the gas tax holiday is over: Federal and state governments, construction unions, and other groups with a vested interest in increasing highway spending will tell us that the highway trust fund is dangerously underfunded. We will be told that cars will be collapsing into sinkholes on interstate highways and that more bridges will collapse unless we make up the shortfall. So, Congress will propose an increase in the gas tax. It won't sound like much, maybe just 2 cents a gallon...and who will blink at 2 cents when the gas price is already over $3, but that increase is forever. In a couple of years, all the benefit of the "holiday" will have been wiped away, with gas taxes permanently higher. It's like taking a holiday to the tropics and having a great time only to come back and learn you've contracted malaria...the kind that lives with you forever even if it doesn't produce acute symptoms every day.

The "gas tax holiday" is a bad idea. It's obvious political pandering with no clear economic benefit, and a reasonable chance for it to cause problems in funding federal road and bridge maintenance. If anything, Use Taxes (i.e. you use the road, you help pay for its maintenance) are among the most fair taxes we have.

It's not surprising that one Democratic candidate would come out for it; either Obama or Clinton had to, just to try to differentiate himself or herself from the other. And it's not surprising that McCain would support it because he has admitted that he doesn't know much about economics. (I just wish he'd stop proving it so often.)

Clinton and Obama pressed the issue in Indiana, Clinton adding the twist of wanting to "take some of the windfall profits of big oil to pay to suspend the gas tax this summer" even though raising taxes on oil companies would simply boost pump prices, effectively raising taxes on all Americans who drive. Obama properly calls it a "classic Washington gimmick".

The fact that two out of three presidential candidates think the "gas tax holiday" makes good politics shows their low estimation of Americans' understanding of economics and the rule of law. But Clinton's tiny margin of victory in Indiana shows that, for once, people were not fooled by her Robin Hood costume.

This is the fourth in a series of articles with "Stand-up Economist" Yoram Bauman taking the pro-global-warming-alarmism position and being debated by me and other more expert people such as the Cato Institute's Jerry Taylor and the Heartland Institute's James Taylor. The entire series should be able to be found by searching my blog for "Bauman", with this link:
http://www.rossputin.com/blog/index.php/a?s=bauman&sentence=AND&submit=Search

If you missed it, please read Yoram Bauman's reply to Jerry Taylor, at this link:
http://www.rossputin.com/blog/index.php/a/2008/05/09/jerry_taylor_responds_libertarians_and_g#c19663

Here is Taylor's response:

Fine – it’s Dr. Bauman. I meant no offense.

While I don’t think libertarians (or economists) have anything to contribute to the scientific debate as libertarians (or economists) – and while I don’t think accepting standard narratives from the IPCC conflicts with libertarian principles – I do think that environmental scientists have erred frequently within their own field. See the link I provided earlier regarding professional biases for a good case-study of those errors when it comes to soil erosion. The same story could be told by veterans of the cancer wars which once raged around industrial chemical use; by veterans of the hysteria that once raged over “the population bomb”; or by veterans of the debate surrounding the resource limitations to growth. Scientific alarmists didn’t err by treading into fields (like economics) that they knew nothing about. They erred in their assessment of the threat and those errors were made in their own fields of expertise.

Whenever politics is freighted with science, these errors seem to pop up (read this essay by climate scientist Roger Pielke Jr. for a good explanation for why that is). For a non-environmental example, see the link I provided earlier to the bit about information cascades. For decades, nutritionists have been wedded to the idea that dietary fats are the great heath Satan when, in fact, the dietary evil appears to lie elsewhere. Deferring to experts in fields you have no training in is, of course, a necessary evil, but history suggests that consensus – particularly when we’re dealing with issues that have political or cultural implications – is less “argument settling” than some might otherwise think.

Moreover, skepticism is always a healthy thing in whatever field we find ourselves in. Whenever I see people getting red-faced and angry at the very existence of skeptics, I have to wonder whether we’re leaving a world of science for a world of religion. The scientific method is all about the skeptical treatment of hypotheses and science couldn’t exist without skepticism – nobody would critically examine anything! Religious cults, on the other hand, can’t survive within a culture of skepticism.

Note – I am not accusing you, Dr. Bauman, or anyone else in particular of cult membership. I simply hope to rebut the idea that healthy skepticism about scientific pronouncements in political arenas is a hanging offense for non-scientists.

What to do when the science is uncertain? There is no obvious or objectively correct answer here because it depends on what your risk tolerance might be, your willingness to pay to reduce risk, and your discount rates. All three matters, however, are subjective preferences where no “right” or “wrong” answer exists.

Regardless, uncertainty does not necessarily imply the need for ambitious public policy insurance. If it did, we would all be enthusiastically endorsing the Bush foreign policy, which is predicated on the very same precautionary principle that many embrace as an important guiding principle for climate change policy.

Would foreign aid and other cross-border wealth transfers assist in the global adaptation to climate change? You clearly think so, but what evidence do we have to suggest that past efforts to promote “good policies” or “good projects” abroad have had any positive impact? Goklany remains on agnostic on this issue, but I am a bit more … skeptical.

These qualifiers aside, let me reiterate: I agree with your argument that libertarians who blindly refuse to even consider the possibility that climate change is happening, that industrial emissions are an important cause, and that public policy might be required to address it, are demonstrating their own cult-like instincts that don’t reflect well on libertarianism. I also agree with you that such libertarians (and conservatives, for that matter) exist. But informed and thoughtful skepticism is a different matter entirely.