I try to avoid discussions of specific policies when teaching (after all, I don’t teach public finance), however, I will often remind students that the most important question to ask regarding policy is “and then what?” The tendency to look at policies in a static framework masks the long-run implications of policy.
In the current campaign for president, economic populism is all the rage. For example, our friend Jimmy P. recently summarized Sen. John McCain’s big economic speech in which he proposed a summer suspension of the federal gas tax. This seems like a great idea on the surface. It is a tax cut that favors those closer to the bottom of the income scale and it provides relief at the pump. However, in actuality, the reduction in the gas tax would lower the price of gasoline thereby increasing the demand for gasoline and, consequently, the price. Certainly, I suppose, one could make a normative judgement that it removes money from the hands of the government. However, it would do little to relieve the stress on one’s pocketbook.