The Sensible Knave

"I do not see that we are further along today than where Hume left us. The Humean predicament is the human predicament." - W.V.O. Quine

Monday, October 24, 2005

More On Price Gouging

Or is it moron price gouging? An oil supplier would indeed be moronic to raise prices above market rates, for competitors could keep their prices lower in response. By undercutting the gougers, the competitors could reap enormous profits. Bill O'Reilly, among others, doesn't understand this.

O'Reilly is right, however, to take the New York Times to task for supporting a federal gasoline tax that would maintain prices at recent high levels. Such a tax, it is argued, would shore up revenues while allowing for equitable income tax reform (i.e., lower income taxes for the poor). Isn't it ironic that one would try to further tax equity by calling for one of the most regressive forms of taxation imaginable? If poor people and wealthy people spend comparable amounts on gas for traveling to work, picking up the kids, etc., then you would find poor people paying much higher percentages of income in taxes then wealthy people would. As a progressive tax, the Federal Income Tax does just the opposite.

It also bears mentioning that gasoline taxes are especially burdensome for the poor. They of course tend to own older and worse maintained vehicles that consume gas less efficiently.

Putting the matter of distributive justice to one side, we should also note that a gasoline tax is not likely to increase revenue in the long run. As Richard Posner discusses in Catastrophe: Risk and Response, such taxes might spur innovations in fuel economy that would reduce overall gas consumption rates. So gasoline taxes might be a good thing, but not for the reasons the Times offers.