Cartoon: TANSTAAFL

1st Rule of Economics: TANSTAAFL

1st Rule of Politics: Ignore the first rule of economics.

Pigou Club: Raise Gas Taxes

Oil's climb to $122 a barrel has policy makers and presidential candidates scrambling for quick, feel-good solutions. Trouble is, their ideas are exactly the opposite of what straightforward market economics says is needed.

John McCain and Hillary Clinton want to send cash-strapped consumers on holidays from the federal gasoline tax. But the law they can't rewrite -- the law of supply and demand -- suggests it would backfire. Lower taxes would encourage people to drive more, meaning more demand that would push prices higher again. That would fatten the bottom line of Big Oil and suppliers like Venezuela's Hugo Chávez and add to global carbon emissions.

What the U.S. really needs, if it seeks a real fix to its energy-consumption problem, is less demand, not more. Mr. Market says there's a simple way to do that: Jack up the gas tax. Don't lower it.

Economists call it a "Pigovian Tax," in honor of English economist Arthur Pigou, who early in the 20th century examined economic activity that hurts innocent bystanders. To stop behavior that's not in the public good, you tax it more, not less.

Of course, a higher gas tax would hurt working-class Americans who rely on their cars, though other taxes, like the federal payroll taxes or state sales taxes on food, could be lowered to offset it.

Harvard economist Gregory Mankiw, President Bush's former chief economic adviser, has proposed raising the tax by 10 cents a year for 10 years, to give the economy time to adjust.

read the entire article

Colbert on the Gas Tax Holiday

(HT: Greg Mankiw)

Gas as a Percent of Your Budget

from Carpe Diem

And You Think the US has High Gas Prices

another great chart from Carpe Diem

Cartoon: Gas Tax Holiday

Are Voters Stupid Enough to Sell Their Votes for Just $27 and Change?

Clinton's idea, which is also endorsed by Republican presidential hopeful Sen. John McCain (R-Ariz.), is to suspend the 18.4 cents per gallon federal gas tax for three months in order to give cash-strapped motorists relief at the pump. Assuming that dropping the tax would actually lower the price per gallon by the full 18.4 cents, how much would this actually save the average family?

Let's make a rough calculation, using an average commute of 20 miles per day in an automobile with a 15 gallon tank getting the corporate average fuel economy (CAFE) mileage of 27.5. A commuter would then fill up every 20 days. There are 98 days between Memorial Day and Labor Day, so that means five fill-ups over the summer. Five 15 gallon fill-ups at 18.4 cents per gallon less would mean that motorists would save a total of $13.80 for the summer. Let's double that for vacation driving and shopping and that comes to a grand total of $27.60 in savings. About enough to buy five Big Mac Combos.

read the essay

My Comments: Unfortunately, I think the answer is yes.

Ron Paul on the Current Crisis

Every action the Fed takes sends a signal that the U.S. dollar will continue to be inflated and therefore debased, which is why the correct action is no action at all. Lower interest rates and liquidity injections are viewed with alarm by foreign markets, while higher interest rates and money tightening are anathema to many domestic investors. The Fed is between a rock and a hard place, and its insistence on inflating the money supply to manage the brittle economy will likely be our undoing.

Until we realize that the Federal Reserve system itself is flawed, and until we recognize that no one economic maestro or committee of economic experts can set prices and plan the economy, this nation will continue to flounder about in an economic malaise. Ending that may take a much more serious downturn than anything we’ve seen yet. It is beyond doubt that our economy is in recession, and the only rational response is for the government to allow malinvested resources to liquidate so that we can return to a stable economy.

While the Fed should take a hands-off approach, Congress should aggressively cut taxes and spending and repeal regulations that stifle economic growth, such as the Sarbanes-Oxley Act. This country has enormous economic potential, an industrious work force, and an enviable history of innovation and entrepreneurship. If the government would learn from its past mistakes and abstain from further interference, we could get back on a solid footing and grow to our full potential.

My fear is that the Fed will continue with its policy of inflation and Congress will be pressured to continue to stimulate the economy with government spending, probably extending to even more outright taxpayer-funded bailouts of financial institutions, subprime mortgages, and government-sponsored enterprises that are “too big to fail.” These debt-funded efforts reward the recklessness of some institutions at the expense of the productive sectors of our economy. Until the federal government acts to extricate itself from intervention in the markets, economic activity will be hindered and true recovery will not take place.

read the entire essay

Gerald O'Driscoll on the Current Crisis

The U.S. economy is in the midst of an old-style credit crunch brought on by a combination of bad policies and incredibly lax underwriting standards at financial institutions. The biggest policy failure was the decision by Alan Greenspan’s Federal Reserve to hold interest rates too low for too long. That led to a tsunami of credit that inundated the economy with cheap money. Mortgage lenders in particular were flush with funds and searched for deals wherever they could be found. Heretofore unqualified borrowers suddenly “qualified” as underwriting standards relaxed and then disappeared...

There is a wonderful parallel here to the collapse of the Soviet Union. As the great Austrian economist Ludwig von Mises argued almost 100 years ago, central planning inevitably fails because there are no market prices to allocate resources. Market prices can only be the outcome of actual market transactions among buyers and sellers. Planners used mathematical formulas to value resources, especially capital. Now Wall Street wizards have imported Soviet thinking to allocate financial capital. Is it any wonder that it failed?...

The Fed needs to understand it is facing a capital crisis, not a liquidity crisis. The very low interest rates on safe assets show there is ample liquidity in financial markets. The Fed should not supply capital. That is the job of markets, and they are doing it.

read the entire essay

Cartoon: Stimulus Package

Cartoon: Shortages

Cartoon: Recession

Cartoon: Gas Tax

Inflation

click here for interactive graph

Greg Mankiw on Bailouts

If you start bailing the firms out when they lose, you have to regulate the gambles they take. You can no longer count on the creditors to limit the firms' leverage, as the creditors are counting on Uncle Sam if things go wrong. But the more regulated these firms are, the lower their productivity will be.

The bottom line: The Bear Stearns bailout may have saved the economy from an episode of financial contagion in the short run, but in the long run it will likely leave us with a more regulated and less vibrant financial system.


source

My Comments: Bear Stearns should have been allowed to fail.

How Different Investments Did Last Week

Big Green Egg: Ribs and Boston Butt

Here are the last two BGE cooks.

Two slabs of ribs. 5 hours. 3-1-1 method at 260.


The ribs just before I took them off the BGE.


Friday/Saturday cook. A Boston Butt. 17 hours at 250 degrees. Internal temp hit 208.

Below is the Polder Thermometer

I had a 9.3 pound butt. I got a good fire going, rubbed the butt, and tossed it on the Egg. The entire cook was dome closed. No peeking. "It you are looking, you ain't cooking."


Cook fat side up. Nice crispy bark and falling apart tender.

Cartoon: Election and the Economy

Cartoon: Stimulus Check

Cartoon: Gas Prices

Quarterly GDP Charts