Gas tax holiday

The best, tightest explanation I've seen about why McCain's--and now Clinton's--proposed "gas tax holiday" doesn't make any sense is at Krugman's blog:

Why doesn’t cutting the gas tax this summer make sense? It’s Econ 101 tax incidence theory: if the supply of a good is more or less unresponsive to the price, the price to consumers will always rise until the quantity demanded falls to match the quantity supplied. Cut taxes, and all that happens is that the pretax price rises by the same amount. The McCain gas tax plan is a giveaway to oil companies, disguised as a gift to consumers.

Is the supply of gasoline really fixed? For this coming summer, it is. Refineries normally run flat out in the summer, the season of peak driving.

So the actual price of gasoline this summer is going to be what it's going to be, whether a portion of that price is paid to the government (in the form of a tax) or not. Eliminate a tax of 5%, and the price will rise 5%.

If you actually wanted to save the consumer money--which is what McCain and Clinton cynically claim the "gas tax holiday" will accomplish--you would have to introduce price controls. That is, you would have to have the government enforce some kind of maximum above which the price of gasoline could not rise. But of course, this wouldn't really work: though you'd save the consumer money, you'd also cause gas shortages that would hinder the consumer from getting gas at all.

At the end of the day, the price of gasoline is being driven up by scarcity--world demand is increasing significantly faster than world supply. No legislative gimmickry or tax holidays are going to change that basic fact.

Obama, at least, has had the backbone to speak this truth to the American people.