Category Archives: Economics

Economics of Gas Taxes

Peter Franchot, the MD State Comptroller, has floated the idea of a gas tax holiday over one of the upcoming summer long weekends.

While gas prices have dropped about 10 cents per gallon over the last week, the Maryland average is still about $3.85 a gallon — about a dollar more than the same time last year.

A high-ranking state official who has vowed to fight soaring gas prices is floating the idea of a gas tax holiday, according to 11 News reporter David Collins.

Comptroller Peter Franchot plans to pitch a three-day gas tax holiday to the Maryland General Assembly, Collins reported Thursday.

“We think it would put Maryland on the map, and it would more than pay for itself through increased economic activity,” Franchot said. “Most of all, just give Maryland citizens a break.”

The current state gas tax is 23.4 cents per gallon. At one station Collins visited Thursday, a 15-gallon purchase would cost $56.25. With the gas tax lifted, the bill would have been reduced by $3.50.

I heard Franchot on the radio yesterday, explaining that certainly we can’t do it permanently, because of the revenue loss, but over a weekend the loss of $6 Million in revenue would be offset by increased economic activity, and would be a net gain for state tax revenue, as well as good for residents of the state.

How is it possible he understands eliminating the tax for a short period of time would have a net positive benefit, but doesn’t understand that it would have a positive benefit if it were eliminated permanently?


Cribs

The Consumer Product Safety Commission is banning drop side cribs, a product that has been on the market for decades. 

Why?

Because 3.2 children per year die in incidents related to the cribs.  The CPSC isn’t clear on how many of those 3.2 deaths are also associated with an idiot caretaker who probably would have killed the child anyway.

If the cribs were really that dangerous, wouldn’t people just stop buying them? 

The cost to just the day care industry:  $550 million.  If the life of a crib is 10 years, the cost to just day care centers is more than $17 million per potential life saved, assuming a 10 year lifespan of a crib, and assuming the deaths were actually due to the cribs, and not an idiot operating the crib.

I don’t want to sound harsh, but is that really worth it?  Doesn’t the marketplace already solve this problem?


Is Obama Keynesian?

This is awesome.  There are a lot of angry ignorant people.


It’s really about getting other people to buy you stuff

Carpe Diem points out the cost of insurance for a young person in Michigan.

It points out what’s been clear to thinking people all along:  Passing health care reform was always about using force to make one group of people buy something for another group of people.

If you choose between health insurance and a cell phone (much less an iPhone), that’s your doing.  Not mine.  I should not have to subsidize your cell phone, or your vacation… which is what these folks really want.

But no one would ever pass a law making me pay for cell phones or vacations.  Health care, on the other hand, well not paying for that is just mean.


More Evidence of Failure

According to some Economists, the recession ended in June of last year, before the “stimulus” money started hitting the economy.

So why no recovery?  The article points out one big reason:  Uncertainty.

How slow? The Organization for Economic Cooperation and Development figures the U.S. economy will grow 2.6 percent this year. It would take growth twice that fast to drive down unemployment by a single percentage point.

Unemployment usually keeps rising well after a recession ends. That’s because it takes time for companies to gain confidence in the economy, know that customer demand will last, and add jobs.

But for the past few recessions, it’s taken longer and longer for unemployment to come down. In 1982, for example, unemployment peaked the same month the recession ended. After the 2001 recession, the gap was 19 months.

This time around, it’s been 15 months, and economists don’t expect unemployment to come down significantly anytime soon.

Companies are always a little uncertain coming out of a recession.  Coming out of this one, much like coming out of the recession in the early 30’s that became the Great Depression, government has created additional uncertainty.  That will prolong the recovery at a minimum, and might send us back in to another recession.

And the administration and Congress can only think that expanding the role of government and making things even more uncertain is the only answer.

It didn’t work in the 30’s, and it won’t work this time.  What will work is eliminating the uncertainty so businesses are confident they can grow again without unexpected government intervention and increased costs.


One Way

All the traffic is coming North.

There’s no secret why.


The People Making Policy Do Not Know Enough

This great read, “Corny Capitalism” by Matt Purple shows very nicely why the government shouldn’t make energy policy, the market should.

There’s just one problem: Ethanol fuel is wildly inefficient. The amount of corn required to soak the fuel supply is massive. To shift America’s car culture entirely from gasoline to gasohol would require 700,000 square miles of land growing corn exclusively for ethanol production. That would mean converting one-fifth of the United States into a sprawling corn farm.

Then again, the government never found a green boondoggle it didn’t love. For five years now, Congress has been mandating that the fuel supply be diluted with ethanol. The Energy Policy Act of 2005 required 7.5 billion gallons of ethanol in the fuel supply by 2012. A Democratic Congress went a step further in 2007, mandating 9 billion gallons by 2008, 15.2 billion by 2012, and 36 billion by 2022.

Unfortunately, that whole Economics 101, supply-and-demand thing got in the way. The maximum amount of ethanol that can be produced to meet demand, called the “blend wall,” is expected to level out at 15 billion. That will make it impossible to meet the government’s mandates.

The agriculture industry, represented primarily by Archer Daniels Midland and Growth Energy, spied an opportunity. Why not increase the legal gasohol concentration from 10% ethanol to 12% or even 15%? That would immediately ignite ethanol production and allow the government to meet its mandate. More importantly, it would make Big Agriculture some serious money.

The EPA looked ready to raise the limit until science finally intervened. A study surfaced by the National Renewable Energy Laboratory from 2008 that found E15 ethanol caused a raft of problems in cars, including a loss of fuel economy and spikes in exhaust temperatures. Meanwhile the higher concentration of ethanol did nothing to reduce tailpipe emissions. The study also found problems when E15 fuel was used in lawn trimmers.

Read the entire thing, it’s enlightening, and highlights the point in yesterday’s post that we really are idiots if we continue to let the government interfere in markets that those who govern can not possibly understand.

Link via Karen De Coster


Not Solving the Problem

Please don’t take this the wrong way, as I’m all for reducing the tax burden on small businesses.  But The One is not of a great economic mind, even though everyone seems to think He is all knowing.

The problem most small businesses face is not one of a lack of cash.  The problem also isn’t that a credit crunch is keeping small businesses from growing, as they certainly are able to finance growth through borrowing.  Alas, small businesses, as well as lots of big businesses, are holding (hoarding) cash.

The reason companies are hoarding cash and not growing, which is very odd, has to do with all the other stuff the Administration and this Congress have done.  Companies are not going to grow, and they are not going to hire people, when they have no idea what the costs of those investments (or the tax rate on the returns of those investments) will be.

No one knows what the health care mess is going to cost (other than knowing the answer is ‘more’.)  No one knows what Cap and Trade might do to tax rates.  No one knows if they will start taking the private property of businesses or individuals in addition to taking income.

Put that on top of the uncertainty on the demand side of the equation, where individuals are also hoarding cash instead of buying stuff (in the case of the wealthy, for the same reasons as businesses), and you get a nice little cycle of worry that slows (stops) recovery.

It all traces back to the madness we’ve seen these last 18 months.  And while tax breaks to businesses certainly won’t hurt, I don’t think they will help in this case.  (Which will be fodder for the 2012 elections, as the Left will point to the failure of tax breaks to fix the economy as a reason to raise taxes).

The only way we see things get started again is a sweep in November to remove power from the Democratic party, and the overturn of the health care bill in the courts.  When that happens, tax breaks on investment will be welcome and effective.


Gridlock is good

Carrying over the theme from the Mark Cuban post below, Mark Perry has an interesting graph on why gridlock is good.

So here’s hoping!


De Coster on Lemonade

This is a fantastic piece by Karen De Coster.

To replace commerce with government planning carried out by a small class of people who think they know what is best for the rest of us is brute force against our person and property.

Read it.  And put her blog in your RSS reader.


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