News & Features » Street Talk (Old)

Leave Gas Prices Alone, Professor Says

No government, he says, should interfere by offering tax cuts, which artificially reduce gas prices. "It's perverse. It's sending the wrong signal," Hoffer says. "It's a combination of political opportunism and political naiveté."

Natural market forces will take care of the prices, he says. When the cost of gas reached its peak two weeks ago, many motorists canceled unnecessary trips. Demand shrank as supply decreased, which ultimately brought down prices. That's the way it's supposed to work.

"You don't want to give people false signals with price," Hoffer says of cutting gas taxes.

Two weeks ago, for example, with no government intervention, higher prices forced gasoline consumption to drop 4 percent, The Wall Street Journal reported.

Besides, gas prices traditionally take care of themselves, Hoffer explains. It isn't always the fault of gas retailers when gas prices spike overnight in the wake of uncertainty, then fail to subside quickly enough when panic subsides, he says. Because wholesale prices fluctuate, retailers must get their money out of the gas in their holding tanks first.

For example, if a Crown retailer pays $3.15 a gallon to fill up its tanks on Monday, and prices drop to $3.05 on Tuesday, it won't be able to offer gas at a cheaper rate until it refills its holding tanks, probably later in the week. But the Exxon across the street that pays $3.05 on Tuesday can immediately pass those savings along to customers.

"That's why gas prices are so fast to go up and so slow to go down," Hoffer says.

If the government wants to help, Hoffer has a suggestion: Offer motorists a tax break for gasoline on their income taxes. That would offer some relief in the coming year, but wouldn't interfere with the natural forces of capitalism by forcing prices down in the short term. — Scott Bass

Letters to the editor may be sent to:

Add a comment