Taking a holiday from good economic sense

Both Hillary Clinton and John McCain are supporting the idea of a summer 'holiday' from the federal gas tax. Most economists - and, I'm happy to say, Barack Obama - think that this is a bad idea. It may be a popular idea - doesn't cheaper gas sound great? - but it is indeed a worthless and stupid solution.

It's economics 101: what happens to consumer incentives when the price of a good goes down? There is an incentive to buy more of that product. And what happens when consumers buy more of a product with a limited supply, like oil? Supply shrinks. And when supply shrinks but demand doesn't, prices go up. So essentially, by the end of the summer 'holiday', the price of gas will have risen to its previous level anyway. The difference is that instead of some of that revenue going to the government, it will be going into the pockets of the oil industry. The net effect of this brilliant scheme is that the government is taking our tax money and giving it to oil companies. (At least that's so with McCain's version of the plan. Clinton's version involves taxing the oil companies more after the fact, which basically taxes the consumer via the company - since the company will raise prices to make up for the tax - rather than taxing the act of consumption directly.)

As Paul Krugman points out in his blog, the McCain gas tax holiday would be "a giveaway to oil companies, disguised as a gift to consumers," whereas Clinton's holiday would be "in one pocket, out the other... pointless, not evil."

By opposing an idea that is both popular and bad, Barack Obama is demonstrating that he is willing to do what is in the people's best interests rather than what appeals to their visceral sentiments. If that's elitism, it's just the kind of elitism we need!