Sunday, April 30, 2006

The Corner of Politics and Policy

by Tom Bozzo

We'll be back to the vital question of where Whole Foods relocates in Madison shortly. This is about the frantic efforts of both parties to appear to be doing something about gas prices.

After briefly suggesting on Friday that the lump sum rebate part of the Republican plan maybe wasn't as stupid as some were making out, I was relieved to see John Quiggin flesh out the idea at Crooked Timber.

I will go out on a different limb and suggest that the progressive punditocracy's paroxysms of disapproval over the perception that the Democratic proposal was pandering to the public at the expense of a policy properly promoting petrol conservation through high prices were overblown. (*)

The classic answer to any economics question is, "It depends on the elasticity" — i.e., the relative responsiveness of effect Y to cause X. U.S. gasoline consumption is usually taken to be "inelastic" in the "short run," which is to say that it takes large price increases to effect much reduction in fuel consumption. An implication is that a federal gas tax holiday, while sending the wrong direction of signal on the margin, is very unlikely to send people to their local giant SUV dealerships to replace their Corollas with new gas-guzzling Canyoneros.

This is a byproduct of the federal government having hitherto declined to use fuel taxes as a means of encouraging conservation: the tax is so small that getting rid of the whole 18.4-cent thing (**) would hardly be perceptible amid the sort of price fluctuations that have been seen over the last year.

Is it great policy? No. But arguably the bigger failure of both parties' initiatives is their tokenism. The Democrats could take their gas tax holiday, raise it an additional lump sum tax cut to close the gap with the true pain that's been inflicted by soaring energy prices, find plenty of socially worthless corporate welfare to pay for it, and have a result that should be considered acceptable politics and policy — putting an end to elements of the K Street Project's kleptocracy on the table would arguably be more valuable than the consumer side of the program. Of course, good progressive policy would entail generous funding of transportation alternatives to ensure that people who want to get out of their cars, can.

Effectively killing their own proposal by tying it to ANWR drilling, meanwhile, is bad politics on the Republican side. This is, after all, the one tax cut that wouldn't require arm-twisting to pass in the present environment as a stand-alone measure. If Democratic strategists were really smart, what you'd hear is how the Republicans are so feckless that they can't even put together and pass a clean temporary tax cut.

Addendum: According to the NYT, Sen. Debbie Stabenow strikes back on both the tokenism and tying issues.
Ah, good. Now I don't have to rant here about how DeLong is wrong.
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