04
Feb
2015
Potpourri
==> At IER, I tag Steve Landsburg to jump in on the gas tax question.
==> David R. Henderson brings to our attention this excellent analysis about the controversial pass call on the goal line. One of the things that most annoys me about Facebook is that everyone suddenly becomes a better football coach than the guy who brought his team to the Super Bowl. (Full confession: I did something similar when I repeated a joke making fun of the screenwriters of the J. Lopez thriller, where the boy next door hands her a copy of the Iliad and says it’s a first edition. Collectors were pointing out that they could’ve meant a first edition of a certain translation, so it wasn’t necessarily as stupid as a bunch of us thought.)
I know I might sound like one of those people on facebook who think they are a better coach than the guy who brought his team to the super bowl when I say the following, but I dont´t mind making a fool of myself.
I think it is less harmful to implement a gas tax now, while people are still not used to lower prices than in a couple of months when have gotten used to it. The reason I think that is not (or not only) because prices are lower now than they were a few years ago, but because the average consumer did not see this drop in prices coming (I cannot defend that claim btw – maybe I was the only person who did not see it coming).
If someone buys a Ford f350 today thinking that gas prices are going to remain low and then a gas tax jacks gas prices up to a level where the guy can not even afford to drive it, his car will remain idle (at least more often than without the gas tax increase) and his “investment” will turn out to be “unprofitable”.
But people who bought big cars 3 years ago did so under the assumption that gas prices will be about what they would be with a gas tax today so they could still afford to drive it even with the gas tax (unless they lost their job or got a pay cut). And many people did buy more fuel efficient cars because they thought gas prices would ramain high or even go slightly up (again I could only offer anecdotal evidence for that).
So raising gas prices (by taxing it) is LESS harmful now than it would be in a couple of months when people will make car purchases based on the expectation that gas prices will ramain low.
Using your logic, couldn’t we just add 10$/gallon tax to fuel? That would even further reduce harm. And, if we used this logic since combustion engines were first produced, wouldn’t gas be 99.9% tax by now and it would be 100$/gallon, most of us wouldn’t be driving at all and those that did would only drive short distances, since that was the expectation set by the model T.
@ dsailer,
I think you did not understand my argument.
I learned English (mainly) by watching South Park, so I think your misunderstanding is due to the fact that I did not choose my words carefully enough – I´ll try to be more clear this time.
I do NOT favor an increase in gas taxes. I agree with 95% of what Mr Murphy said. I think his (or Landsburg´s) argument about externalities is convincing. If Summers or Krautheimer want to increase the gas tax (or a tax on carbon emmision) because they think the benefits exceed the costs the burden of proof is on them and not on Murphy to demonstrate the opposite.
If it seemed like I was claiming that an increase in the gas tax is less harmful relative to no gas tax increase, I apologize for the imprecision of my statement.
However, there is one claim Mr Murphy makes that i disagree with.
He said: ” the “case” for a higher tax is just as good—or just as lousy—now as it was last summer”.
I don´t think that argument is correct.
If it is a bad idea to raise the gas tax now (which it might be) it must have been an even worse idea 3 years ago.
Again I think the burden of proof should be on Summers or other people in favor of an increase in gas taxes.
People who bought new cars 3 years ago did so under the assumption that gas prices would remain high or even increase.
My entire argument lies on this claim, which could easily be challenged by (for example) showing that newspaper articles TV documentaries or polls of the last years were making the argument that gas prices would decrease.
A person who would have bought a F350 in 2012 if gas prices had been lower but bought a “clown car” instead because he thought he could not afford to drive a big car (not because of the purchasing price but because of the gas price) could still afford to drive his clown car with a 1$ gas tax (assuming that he made no miscalculations and that he did not lose his job). But if a person buys a F350 today assuming that gas prices will remain low and then AFTER he made the purchase gas prices hike unexpected due to taxes, he MIGHT not be able to even use his investment (or less frequently).
You asked about a 10$ tax or even more and my answer is no following my logic makes no claim about such an event. I don´t know why you even bring the model T or the expectations of dead people up. If I have ever seen a model T it must have been in a museum.
But let´s make your example less extreme and talk about cars with low gas milage which were built in 1980. There might be cars which are used more frequently now due to the drop in gas prices than they were a few years ago and a 1$ tax might cause those cars to be idle more often again. Ok this would be a harmful effect of the tax but IF you have the choice to raise gas taxes now or wait until people will have gotten used to it and made car purchases based on the assumption that prices will remain low then some of the 1980 cars AND some of the 2015 cars will be used less frequently than they would be if you raise gas prices right now and let people buy cars with that knowledge in their mind. People you think they can still afford to drive a F350 would buy one and people who could not would still be able to buy european clown cars. Will they be hurt? YES. But better a small car that you can affor than a big car that you cant even drive.
The analogy I think I would use is if Obama alked up to you and told you he ill raise the min. wage to 20$ an hour in 2016 (its already decided; he bribed congress) and he lets you decide if he should tell the public now or a day before it becomes a law what would you do? I would prefer no min. wage increase but if it is a given I would people to know about it so they can plan accordingly.
I think your point is basically that stable prices are good, because people can plan. Raising taxes now would keep prices at the moment more stable than no tax. This makes it less likely that people will buy gas guzzlers now and then be unable to afford to run them when prices rise. However, if and when prices rise again, the tax would be increasing the instability, as prices would rise even higher than they would have done. people may not be able to afford to run even economical cars. The answer would be to then reduce the tax.
No my point is not that stable prices are good, because people can make plans.
Had prices gone up but not as much as people expected them to go up I´d be making the same argument.
And also I´d not be disagreeing with Mr Murphy´s Computer tax analogy if my argument was about price stability
I know i have not done a good job at explaining what I mean, but its not a strong argument anyways so ill just leave it at that
Two things:
A) Why is it price gouging when fuel is $4-5 a gallon through market forces but not when it is taxed that high?
2) We assume that this is primarily about autos and the pollution they cause, but there is absolutely nothing that is not affected by the price of petroleum or taxes associated with it. Remember, there are no corporate or business taxes, they merely act as tax collectors from the end user. Tax fuel and your food costs goes up. Tax fuel and just about everything goes up. Change to the alleged alternative energy sources and the price goes up even more as they are less efficient and reliable..
c) (I know, I’m a heavy tipper) You say harmful tax, aren’t all taxes harmful?
4) Every time I am at a ball game or somewhere that one is on TV everybody knows better or can do better, yet they are in the stand or the bar foregoing that multi-million dollar salary.
“Why is it price gouging when fuel is $4-5 a gallon through market forces but not when it is taxed that high?”
It is because states cannot gouge. Any so-called “gouging” states engage in are out of either an “endogenous” process of people taking their own money and paying it back to themselves while singing kumbayah, or it is done out of political self-interest, which is more noble, moral, and honorable than commercial self-interest, despite the seeming critical attitudes displayed from the you know who’s in order to appear as “fair and balanced”. Thus, we reserve the pejorative term “gouging” to describe commercial self-interest, while political self-interest is “corrupting a good thing” at worst, and it is always associated with commercial self-interest as the “underlying” motive force. After all, it is impossible for anyone in the world to be motivated by political ambition. Everyone in the world who seems to want political power, are in fact mind controlled by commercially self-interested capitalists. No exceptions. Of course, pointing this out will be met with claims to the contrary, but only during those times. When it is not mentioned, the unstated or stated assumption is always commercially self-interested property owners pulling the strings.
So if gasoline is taxed very highly, it MUST be a politically noble reason. Nothing to do with political self-interest. Well maybe a little, but “at the end of the day” it is an OK self-interest because it aligns with the anti-commercial noble self-interest that is in our destiny to achieve. Oh! I know! A noble thing is to tell a story of a future world of fire and brimstone, and to present raising taxes on gasoline as a big help, but a drive towards saving the world, given we have to work with evil greedy commercially self-interested oil barons, and you can throw in myopic consumers into that mix too. What would you choose? Another vacation using gasoline to visit your third home in the Mikanos and death by blazing inferno of hell, or future paradise by way of suppressing our present Earthly urges? God I swear I hears this story before…
Is the analysis on the Seahawks really excellent? The writer is talking statistics like he’s referring to the roll of a fair die.What about the law of large numbers, and that bit about human action?
The basic argument for what Pete Carroll did was it gave him the chance at all four downs, and an element of suprise. If he runs it with Lynch on 2nd down (the one that was intercepted) and they don’t make it, the Seahawks are forced to use their final timeout. If they were to run again on 3rd down and not score, there wouldn’t have been enough time left to line up an run a 4th down play. Knowing this, the Pats could expect a pass on the hypothetical third down, as an incompletion stops the clock with time for a final play. The Seahawks thought that the best time to pass was on 2nd down because it gave them the element of surprise (or so they thought).
My armchair coaching analysis is that the decision to pass was fine, but the best scenario would have been to line up in a run formation and run a play action, with a flat route in the near corner of the end zone. If it is not there, throw it away and you still have two downs to score. But, they obviously felt confident in that play, and if you look at some of the screenshots it was initially wide open. The only reason it was intercepted was because Brandon Browner did an incredible job of jamming the second receiver (something that has gone almost unnoticed in the media) preventing him from running in between Butler and Kearse, Donald Butler made in incredible break on the ball, and an equally incredible catch.
Bottom line: pro football is so competitive that who wins the Super Bowl has been almost a coin toss for most of the last decade or two (going back to Elway’s Super Bowl wins). The Patriots themselves could have been either 6-0 or 1-5 in their recent Super Bowls had 2 or 3 plays gone differently.
It’s a religion, burning oil is sinful; what’s the optimal amount of sin in the world?
Sorry to go back to the TIE, but these externality/social cost curves have made me think again. I thought I had it, but now I have confused myself again. Someone please point out where I go wrong.
The proposal is that we tax carbon and use the revenues to reduce income tax. Some say we get a win-win, not only social benefit of carbon accounted for, but also a boost to the economy from lower income taxes. What’s the problem?
Tax has a deadweight loss. This increases with the size of the tax, so a 10% tax on a narrow based good has more deadweight loss than a 5% tax on a wider based good for the same revenue.
So if we tax gas and use the revenue to reduce income tax, we will increase deadweight loss, because the gas tax will be more like 10% on a narrow base and the reduction in income tax will be more like 5% on a wide base.
This means we cannot get a win-win out of taxing carbon and reducing income tax.
However, looking at the supply curves, it seems that the externality of carbon (which we are for now all assuming) results in a deadweight loss itself. The carbon tax, rather than introducing a deadweight loss, is instead reducing this existing deadweight loss. This results in carbon being used at precisely the economically efficient level, so there is no deadweight loss after the application of a properly priced carbon tax. Thus, the fact that it is on a narrower base has no effect, because there is no deadweight loss at all! It seems the win/win is back on the cards.
I am sure this fits well with the armchair coach discussion. It is easy to think you have the answers from a position of relative ignorance, but wherehave I gone wrong?
Just gone back to the original TIE posts and answered my own questions. In the intervening time I had forgotten what it was all about. It pops out of a general equilibrium model, so there is no easy answer. It seems we must rely on models to determine policy -both for the climate and the economy.
Aren’t blogs, in general, frequently about people who can out perform the guy who actually owns the blog (whatever the topic: economics, theology, sports, rhetoric). I’ve seen trolls on Landsburg’s blog who actually thought they had stronger arguments than he (but, obviously, not the confidence to run their own blog).
I think you’re being too forgiving of the Iliad collectors. One should not, for instance, be too impressed by a “first edition” of a Bible unless it is identified by the edition: the King James version, the Gutenberg bible. A quick Google search shows there are plenty of 1st edition Iliads available in paperback for $1.00. Not exactly the stuff of a thriller: a “1st edition de luxe watson provenean” from 1956 described as a vintage item from the ’40s, adapted from the Greek classics of Homer selling on-line for $250. No, stay with the $1.00 paperbacks.
On the topic of “Potpourri” this is a very interesting talk, made more interesting because it’s from 2013 but turns out to have somewhat set the roadmap for the new Greek government.
https://www.youtube.com/watch?v=A3uNIgDmqwI
Yanis Varoufakis talks about his background as a Marxist trying to infiltrate university economics departments, problems with capitalism, reasons why to keep capitalism despite the problems, why mathematical models don’t work for economics, the future of Europe, how to negotiate with the IMF, and other stuff.
Big download (1.1G) but he’s a difficult guy to categorize, a genuine eclectic, a genuine radical and intellectual voyager.