Stupid tax policy? Count me in!

The New York Times published a piece by Bryan Caplan supporting the Clinton/McCain gas tax holiday. He concedes that the savings will be realized by oil companies rather than drivers; in fact that is his main reason for advocating it. The holiday will placate the ignorant voting public, he writes. For only $9 billion, the government can get Joe Sixpack off their backs and not do any real harm.

The government's response to the '70s gas crisis was counterproductive, says Caplan, so we should be happy with a policy that doesn't really do any good (or harm) but appeases the misguided public. This kind of cynical public policy really shows how stupid Washington thinks the public is. While I'm increasingly convinced that the average American really is that poorly informed, my inclination is to try to remedy that ignorance (silly liberal that I am). Caplan seems positively excited about wasting billions of dollars accommodating the public's ignorance.

Caplan then moves on to the most disturbing part of his argument: we owe the oil companies big time for what we did to them in the last gas crisis. I shit you not. Caplan says that the obvious solution is to let Big Oil invest those profits in expanding capacity. The free market got us into this mess, and it will get us out, he says. Unfortunately, there is no reason to expect that oil companies are going to expand their capacity to produce gasoline. Big Oil posted record profits throughout 2007 and continues to enjoy generous federal subsidies, but still has not seen fit to build more refineries. In fact, numerous government studies have found that gas companies have worked to restrict supply and maximize profits since the 1970s. Large companies have used their market power to drive smaller companies out of business, further restricting supply.

There is no impetus under the free market to expand refining capacity. Yet again we see how ridiculous it is to talk about the free market as if it's Winston Wolf coming in to dispose of the blood-stained Cadillac of a gas crisis. The long-term solution is to invest in alternative energy sources; we could expand our refinery capacity in the middle term, but that will not account for the rising price of crude oil. The sooner we kick the oil habit, the better. Handing Big Oil another tax cut isn't benefiting anyone but Big Oil.