Markets vs. Politicians

As the average price for a gallon of regular gasoline moves into the $3.50+ range, a remarkable chain of events is occurring. The first is lo and behold the demand for gasoline is decreasing thereby proving that in fact demand is price elastic. Isn't it remarkable the way markets work their magic.

The second shift is in the consumer appetite for large/SUV vehicles vs. smaller more fuel efficient and even hybrid cars in spite of their higher initial cost. The auto makers can't seem to produce enough of the latter type and the former are building in dealer inventories. Not to mention that the whole RV industry is being killed by the high price of gas.

What both these trends remind us is that in the US free market system markets do in fact work. They may not respond as quickly as some would like but they do work. They are working to discourage the use of gasoline and to increase the average fuel efficiency of the operating fleet of cars - thereby reducing carbon and other emissions - all without the help of our Washington DC politicians and bureaucrats.

Against this backdrop we have both Clinton and McCain arguing for a suspension in the federal taxes on gasoline. What a terrible way to pander to the electorate. This is exactly the wrong thing to do. On this issue Obama has it right.