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Greed-o-Meter
November 12, 2013 Economic Illiteracy

Just wanted to update my readers on the amount of greed in the economy.

  • In March of this year, the average retail price of gasoline was $3.85.
  • In the first week of November, the average retail price of gasoline was $3.34.

So, I guess gas and oil companies are feeling 13% less greedy these days! Whew.

By the way, for those of you who advocate a carbon tax, an “optimal” carbon tax would be estimated to add about 30 cents per gallon to the price of gasoline. You can compute this yourself once you figure out how much CO2 is emitted when we burn a gallon of gas – about 20 pounds. If the “optimal” tax is about $30 per ton of CO2 (I like to double things, based on my experience for my own work on my house) or perhaps $60 per ton you’d find that one gallon of gas emits 0.01 tons of CO2. Thus at $60 per ton we’d have a 60 cent gas tax. At $30 per ton we’d have a 30 cent gas tax. The point being again that the annual variation in gas price movements is smaller than the size of the “optimal” gas tax. See last Friday’s post for a discussion. I’d like to add to that discussion a little. I have a former student who can’t help but put on rose colored glasses when it comes to “grand bargains” on climate policy. He thinks that reasonable people will one day sit around a table and institute a carbon tax in exchange for a reduction of other inefficient taxes. This is a policy that I, and MANY economists, would happily support. But we don’t live in that world. And this illustration above helps us understand why. If we DO institute even a 60 cent gas tax, the average price of gas today would still be below $4.00. Do you think the global warming crowd would sit still after such a tax is implemented, even if the tax were set correctly? Anyone care to defend the idea that we wouldn’t get additional taxes, additional subsidies, additional calls for more action, additional calls for CO2 reductions, etc? In other words, after the tax is implemented and people adjust to it, do you really think the “conversation” and policy environment would be any different than it is today? I’ll take bets on this.

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