Tuesday, September 27, 2005

Georgia Governor Misses the Mark on Gasoline Prices

Governor Sonny Perdue of Georgia recently rescinded the state’s gasoline taxes in order to provide “relief” to the citizens of the state. And last Friday, Governor Perdue asked all state school systems to take two “early snow days” on Monday, September 26 and Tuesday, September 27. By taking two early snow days, the governor contends that school systems will save more than 225,000 gallons of diesel fuel per day. Four consecutive days of school building closures, from Saturday to Tuesday, will allow further heating and cooling energy conservation he argues. Does the governor want conservation or does he want to score political points?

These two contradictory actions make no economic sense. One problem with resending the state gasoline tax is that it discourages conservation of a resource that is now in short supply due to Hurricanes Katrina and Rita. Some economists might even argue that what the governor should have done is to raise the tax to help alleviate the shortage. Furthermore, one can show that unless consumers are entirely unresponsive to changes in the price of gasoline (e.g. perfectly inelastic demand for you economists), the benefits of the cut will be shared by the consumer and the provider. The more unresponsive consumers are, the more of the benefit is destined for the oil companies and the service stations.

My advise to the governor is to rely on market forces to raise the price of gasoline. This will promote true conservation instead of this artificial political meddling. Markts work best without political influence.

1 comment:

Charles said...

All good points. After all, if the taxes are rescinded to provide relief then the state will have a lower income making it doubly hard to pay for public services.

Better to raise it to reduce demand, or let the market play itself out. There are better ways for government to cut expenses than to sacrifice our children's education for it.

Markets may work best without political influence but alas politicians don't get elected if they don't do something perceptively positive.