April 29, 2008

Are gas prices too high?

A lot of people are bitching about how high gas prices are. I don't drive so I think I have a pretty objective view on this issue: Gas prices aren't too high. If anything, taxes on gas should be higher. This way the cost of gas can better line up with the cost of consuming gas (here is Steven Levitt on all the negative externalities that low gas prices impose).This, however, seems lost on Hillary and McCain. Both are proposing to temporarily reduce the federal gas tax. This is a particularly dangerous proposal because there is no reason to believe that gas prices will be coming down in the near future. Once you remove a tax like this, good luck ever putting it back in place. Not to fawn over Obama (or I could give all the credit to Editor's Blog man crush and Obama economic advisor Austan Goolsbee), but you have to respect a politician that is in such a heated race and makes such a principled stand on an issue like this. And, right on cue Hillary is throwing everything she can at Obama on this issue:

...his position allowed Mrs. Clinton to draw a contrast with her opponent in appealing to the hard-hit middle-class families and older Americans who have proven to be the bedrock of her support. She has accused Mr. Obama of being out of touch with ordinary Americans who are struggling to meet their mortgages and gas up their cars and trucks.
Classy.Update: Here is what Greg Mankiw, founder of the famous Pigou Club has to say about the Hillary-McCain proposal:
I don't know any prominent economist who favors this McCain-Clinton proposal. More common is the reaction of a friend of mine (a veteran of the Clinton administration) who calls the idea "ludicrous."