Economy Turning?

There are some subtle hints that the economy may already be turning around. The dollar, for the first time in a long time, is beginning to show some strength and many are predicting a turn for the Euro. Jobless rates are holding steady and the latest economic factors show that the economy continued to grow despite the incessant insistence that we were in a major recession. And, despite record gas prices, Americans continue to travel and buy products without the pain you would expect. But don't expect the American press to immediately say the economy has rebounded. They still hope for long-term suffering for the news stories...but I would say that we are already rebounding from the self-imposed suffering.

Now, on to more economic stuff...let's talk about the gas tax "holiday" that is being proposed by one Hillary Clinton. First, gas prices are set by supply and demand. If you demand more gas and the supply is low, well, price goes up. If you cry about supply, you can thank your local legislators who have refused to allow more refineries to be built and refused to allow more drilling for oil. So there is a cap to the amount of gas that can be refined and demand continues to rise. Therefore, prices will rise due to low supply and high demand.

So, if we eliminate the federal gas tax over the summer, what will that really accomplish? It will save the consumer about $.20 per gallon of gas. That's nice. But it could also push up demand. Which will cause gas prices to rise due to low supply and higher demand. It will simple postpone the pain by $.20 and could postpone moves to find alternatives. And because demand will be so high over the summer, by the time the government puts the tax back on gas, you will be that extra $.20 in addition to the $.30 or $.40 that is added on due to the high summer demand.

In closing, while eliminating the gas tax over the summer sounds like a novel idea that would help the consumer, at the end of the day it will cause more harm than good. If the government really wants to help the American public, they will allow increased refinery capacity, allow more drilling and fund real research into better fuel alternatives (not ethanol).