A monthly archive: September 2005
|# articles in archive: 16
Subject: Economics Post Katrina: the need for a gasoline tax
Before Katrina, the U.S. faced a crunch in gas supplies primarily due to a shortage of refinery capacity. After Katrina, this bottleneck got even tighter.
What this means, is that the supply of gasoline (to the entire nation) will be diminished, and there is very little that can be done about it. In particular, increases in the retail price of gas will not induce a significant increase in gasoline supplies (though imports of gasoline may be somewhat responsive to this price increase).
Therefore, the most fundamental principles of economics tell us that something has to give -- demand exceeded supply before, and its even worse now. Roughly speaking this imbalance can be resolved using two mechanisms.
What this means is that in order for demand to equal supply, consumers must pay this price. Anything less, and demand exceeds supply, and we have gas lines etc. (a form of rationing). If you do not want gas shortages, then consumers must pay this price. Must.
However, it does not matter what makes up this equilibrium price. In particular, it does not matter what fraction of this price is composed of gas taxes. Gas taxes could 0, 10, 50, 80 percent-- the key point is that the conusmer ends up paying the equilibrium price.
There is no escaping this.