Assorted links

Sometimes I wish the internet would slow down. There is just too much interesting stuff out there.

1. I don’t think I would want Bryan Caplan as a neighbor, since he seems to think pissing on my front steps is A-OK. Mike Moffatt snaps back.

2. Quiz time! See if you can spot all of the errors in this horribly glib Megan McArdle post on emissions permit allocation. Bonus points for citing previous CT posts that provide rebuttals in the comments.

3. RealClimate puts concerns about the global warming impacts from flat screen TVs in perspective.

4. “Free” roads — available for only $2.22 in gases taxes per gallon! What a steal!

5. Free Exchange is hosting a discussion on global inflation this week. Many interesting comments on the rise in energy and food prices.

6. Speaking of the food crisis, here are some sensible policy recommendations, starting with the no-brainer (and non-starter) idea of making U.S. food aid cash rather than crops.

7. I discussed the G-8 summit last week while guest-blogging at Free Exchange. Leaders at the summit have pledged to cut greenhouse gas emissions by 50% from current levels by 2050. Cue muffled laughter.  Addendum: Creative ambiguity — whether the 50% cut is from current or 1990 levels was left undefined.

Many happy returns!

Joshua Gans suggests one possible benefit of McCain’s battery prize — the U.S. can have its cake and eat it too:

One real possiblility is that someone outside of the US invents this (perhaps quicker because they have to race with US based researchers who get a prize kick). In that case, the US can send whomever does it a thank you card. They have put competitive pressure on them and haven’t spent a cent!

Assault the battery

There’s a fair amount of skepticism in the econoblogosphere about McCain’s proposed $300 million prize for an auto battery. Tim Haab wonders:

But, why does the government have to provide the incentive? Shouldn’t markets do that? What am I missing?

Well, one potential reason, and something we’ve mentioned here before, is that much economic research finds that the existence of knowledge spillovers means that the socially optimal level of R&D investment is (conservatively) two to four times the level of actual investment. In other words, we as society get more than we pay for when we fund R&D.

Other commenters argue that the prize is unnecessary on more practical grounds. Tom Lee says:

But if someone were to invent a better [battery] they’d already be poised to make a huge amount of money through its commercialization. Offering prizes for innovation isn’t always a terrible idea — for pharmaceuticals with a limited market of potential users it can make sense due to the huge costs associated with developing and testing a new drug. But everyone in the developed world needs better energy storage technology, and they need it right now. … So sweetening the pot is unnecessary. Anyone who has a good idea about how to build a better battery is already working on the problem.

I’ll admit this argument sounds pretty convincing. Given the price of oil there’s a strong existing incentive to develop better batteries. Still, the possibility of knowledge spillovers lurks in the background…

Which brings us to a comment from a Free Exchange blogger, who argues that the structure of a prize doesn’t fit the problem:

The question is, will the prize induce an increase in research activity? Where batteries are concerned, this seems highly unlikely. Prizes are better suited to areas where there is not yet a clear market application for a discovery…

I can think of one arena where better energy storage could be put to very good use, and yet simultaneously lacks a clear market signal: electricity. The grid is still essentially a regulated environment. Energy storage would greatly increase the attractiveness of many renewable generation technologies which are inherently intermittent, but the “market” for such an innovation is a fragmented patchwork of regulatory agencies.

I suspect that energy storage for the grid might be a socially desirable spillover from McCain’s auto battery prize. This means that his proposal is less bad than many seem to think — but also less good than either a direct prize for grid-based energy storage, or a reform of our transmission policies.

Counterintuitive economics result of the day

Payback For Many Hybrids Grows As Gas Costs Rise:

Higher demand has stiffened sales prices for hybrids and other cars and crossover SUVs with decent fuel economy while dealers and manufacturers are discounting less-efficient conventional gasoline models to try to move them off the lots.

That boosts the difference between the retail price of a hybrid and the equivalent gasoline model in a manufacturer’s lineup, and makes it harder for the hybrid to earn back its price premium from fuel savings alone.

The pointer is from the new RFF Library Blog, a great resource for new studies and reports, particularly from government sources.

My favorite webcomic goes green

Here is the link.

Just as interesting is the alternate text (an xkcd signature):

Electric skateboards, by cost, get the equivalent of about 300 miles per gallon. Lithium batteries just need to get cheaper.

Is this right?  I wonder if he did the calculation.  Any readers want to chime in on this?

Assorted links

1. The Lieberman-Warner bill dies in the Senate. The vote represents a “giant step forward” according to one sponsor.

2. Ryan Avent is a real live journalist now.  Here’s a new piece about the lack of political leadership on public transit issues.

3. The carbon footprint of food — buying local may not be the answer after all.

4. Pay by the pound — the future of air travel?

Where’s your network?

Ryan Avent wants to know if carbon and congestion pricing will boost the case for regional rail:

I’m of the opinion that a carbon pricing scheme would give a boost to rail travel over both driving and short-haul flying. But a potentially more important factor in some regions might be the runway congestion charges under consideration. I suspect that auctioned spots would tend to go toward long-distance flights, for which there are few good substitutes (question to the gallery: what are the high margin flights–where do airlines make their money?). Were that the case, demand for regional rail should significantly increase.

Aviation policy wonk Evan Sparks replies that short hop flights are a valuable underpinning of the airline industry:

An airline hub offers positive network effects up to the point of congestion, which varies by airport. Without the network effects of hubbing, few cities could support much air service on their own — especially long-haul international service. Sure, New York, Chicago, Los Angeles, Boston, and Miami might be OK, but even they would see cuts. Without sufficient short hops to feed the hub, marginal international destinations would face the axe. Therefore, you can’t discourage simply limit short-hops without seeing network effects. … policymakers must be cautious when tampering with the ability of airlines to take advantage of network effects in offering air service widely and efficiently. (emphasis added)

Evan knows more about the practical in-and-outs of the airline industry than I do about any subject whatsoever, so I want to be careful with my reply. But I think he is assuming that the existence of network effects implies that there are positive externalities, and it’s unclear to me that this is the case here. The examples Evan cites in his post involve private benefits that are being captured in market prices, e.g., Delta decides to use a hub-and-spoke service model because that is how it is most profitable. Network effects sometimes do have associated positive externalities. For example, if many different actors own or operate the network then each may have insufficient incentive to invest in it — the free rider problem — and so there is a case for regulatory intervention to encourage the socially optimal level of investment. But in this case it sounds like a single actor (i.e., the airline firm) operates the network.

Congestion, on the other hand, generally involves an unpriced negative externality — Delta’s use of runway space doesn’t only delay Delta’s other planes but also those of competitors — and hence there is a case for regulatory intervention.

The original question concerned which flights were high margin and if you read Evan’s response it does indeed sound like it is long-haul international flights that are most profitable. This seems intuitive to me since there are just not any good substitutes available. So I’d expect to see these flights to continue even once we price carbon and congestion. It’s also reasonable to think that pricing these externalities will decrease demand for short flights. This worries Evan:

Airlines have gradually centered themselves around hubs. … This tends to be more efficient, even if some individual flights defy logic. A couple personal examples: whenever I go to New York, I take surface transportation. But last year I flew through JFK from DC (thirty minutes) to catch a flight to London. On a trip to New Orleans last month, I flew first from Baltimore to Philadelphia — a fifteen minute flight. Such options maximized efficiency and provided me with much cheaper options than had I relied on nonstops.

Two things about this: First, I suspect that neither Evan nor any of you really care that much which mode you take to reach your nearby intermediate destination. If a flight is better — faster, cheaper, more convenient — then you’ll fly Baltimore to Philly, but if a train is better you’ll hop on board. Right now flying is cheap because it involves lots of things that neither you nor the airline pay for, like a warmer world, or other delayed passengers. If you have to pay the price for those things, however, rail might look a lot better. Second, what are these 15 and 30 minute flights Evan is talking about? I can’t imagine that these are the actual marginal increment of travel time that his short flights added to his trip. Let’s talk about boarding, taxiing, etc.

But these brings me to my final point, which is that as much as airline travel can be a hassle, it is very often even more inconvenient — or even downright impossible — to switch modes within a single trip. One of Evan’s commenters makes a very smart observation about this point:

What we really need is more of what Continental does with Amtrak - intermodal codesharing. You’ll notice that Continental doesn’t fly EWR-PHL. You have to take an Amtrak train with a Continental code on it. …

Of course, that requires a convenient plane to train connection and not many hub airports offer that. Sure, US Airways could do it in Philly if we could get a station built near PHL. That’s a long ways away and it will require a lot of money, but it’s ideal.

Which goes right back to a point which you can read Ryan making nearly every day on his blog: once we start pricing carbon and congestion, it will be much less painful if we have transportation options that are not carbon- and congestion-intensive. Rail is one of those options. This means that rail would be a smart infrastructure investment, and it also means we should get the institutional structure right to allow travelers to transfer between modes.

Assorted links

1.  The Lieberman-Warner bill has a rough road ahead.

2. CBO Director Peter Orszag testifies on infrastructure spending.  Ryan Avent summarizes.

3. Why isn’t transit a bigger part of the national discussion on energy/climate change/congestion?

4. The 230 MPG car.

Short run vs. long run

A brief anecdote:

Yesterday, I was spending time with a friend who lives in rural Maryland, and he mentioned that he’d just sent his resume out in DC looking for a job so he could move into the city. His reason? High gas prices. Driving around Montgomery County every day has simply become too pricey.

We discussed this as he filled up with $3.81/gal gas. It was fascinating seeing short run price inelasticity juxtaposed so immediately on long run price elasticity.

Path dependency

Geoffrey Styles makes a great observation about the recent run-up in gas prices:

A big part of our problem is that most Americans are still driving cars that were purchased when gasoline was under $1.50/gal., to commute between work and home locations that were chosen when fuel was even cheaper.

He also makes a nice comparison:

As of this week, nominal US retail gasoline prices have gone up by 25% in the last year and by 130% in the last five years. How does that compare to other countries? Well, motorists in the UK are experiencing prices that are now 25% higher than the average of last year, and 42% higher than five years ago, but gas hasn’t been cheap in Europe for more than a generation. Buffered by the strong Euro, gasoline in Germany has increased by a smaller percentage, 19% vs. the 2007 average and 29% over five years.

Hear that? Gas hasn’t been cheap in Europe for more than a generation. Europe’s development path — decisions about land use and urban planning and transit decisions — was determined in an environment with much higher gas prices. Not only are current price increases in Europe smaller in relative terms, but consumers there live within a system that makes it easier absorb the absolute increases as well.*

America could do its future self a big favor by realizing that expensive gas is very likely here to stay. Pricing carbon — a near inevitability in the near future — will make gas prices higher. Consumers can switch to more fuel-efficient cars but the big changes — in how we plan our communities or develop our transportation infrastructure — are going to require some policy changes. And these policy changes should include the recognition that gas will — and should — be much more expensive in the future.

You can read great arguments for these types of policies — more density in development, more investment in mass transit, etc. — almost every day over at Ryan Avent’s superb blog. Or to grab a great suggestion from Matt Yglesias,

if we were to raise the gas tax, then rebate half the revenues to citizens on some kind of flat per person basis, and make the other half available to fund transit projects, there’d be no net burden on the population, you’d create an incentive to use alternative forms of transportation where they exist, and you’d have a pool of revenue available to create alternative forms of transportation.

*Of course I realize there is an endogeneity problem here: higher gas taxes in Europe were politically tractable in the first place because Europe was already more dense and less car-based. But it doesn’t alter the fact that a counterfactual Europe with much lower gas taxes for the last 25 years would look very different.

Tight

Yes, this McCain-Clinton idea to suspend the gas tax is stupid. I think the best quote I’ve seen so far comes from Len Burman via Greg Mankiw:

Yesterday I was on the NewsHour to talk about the gas tax holiday. I asked if there was another guest and the producer said, “We tried, but we couldn’t find anyone to argue the other side (that the gas tax holiday made sense).”

The more interesting part of the discussion is not the piling on — though certainly people should be pointing out how mind-bogglingly stupid this proposal is — but the discussion about tax incidence. Most commenters are arguing that producers will benefit more than consumers from the tax holiday, because summer oil supply is very tight. As Greg Mankiw describes it:

What you learn in Economics 101 is that if producers can’t produce much more, when you cut the tax on that good the tax is kept . . . by the suppliers and is not passed on to consumers.

Or here’s Paul Krugman:

Why doesn’t cutting the gas tax this summer make sense? It’s Econ 101 tax incidence theory: if the supply of a good is more or less unresponsive to the price, the price to consumers will always rise until the quantity demanded falls to match the quantity supplied. Cut taxes, and all that happens is that the pretax price rises by the same amount.

But Tim Haab is not so sure that supply is less responsive than demand. He nails the theoretical explanation. In fact, if you really want a great straightforward description of tax incidence, see this pair of posts he wrote just last month. Pay particular attention to the chart in the second post, which graphically depicts what he says here:

Only two cases are clear cut. If buyers are price insensitive and and sellers are price sensitive (top right panel), the buyer will bear the burden of the tax. If sellers are price insensitive and buyers are price sensitive (bottom left panel), sellers will bear the burden. In cases where both are sensitive or both insensitive, the results are unclear and depends on the relative sensitivities.

But in arguing today that producers are more price sensitive than many people may think he gets some facts badly wrong. Specifically he uses this chart to argue:

So when will supply of gas be perfectly inelastic? The most obvious answer to me would be when refineries are running at full capacity over the relevant range of prices. That is, regardless of the market price, refineries can’t keep up. Is that the case? The chart to the right gives U.S. refinery capacity and gasoline consumption in gallons per day from 2002-2007. On average, U.S. refineries produce at about 50% capacity. (emphasis added)

No. Just… no.

The problem is Tim compares refining capacity data to gasoline consumption. This is an apples-to-oranges comparison. Capacity is measured by the input — crude oil — and this is being compared to a specific output, gasoline. But refineries produce many things besides gasoline — jet fuel, home heating oil, etc. — and even if every U.S. refinery were optimized to make gasoline (which isn’t the case) there would still be losses from the refining process itself.

As it turns out the EIA* actually publishes weekly data on refinery capacity margins (or “percent operable utilization” as the EIA calls it). I downloaded the series to create the chart below. Note that with the exception of Katrina (September 2005) that refineries have run at 80-98% capacity over the last few years (most typically from 85-95%). Note that there is also a seasonal pattern: utilization usually declines in winter and peaks in summer. This would imply less elastic supply in summer. Note also, however, that refineries are entering this particularly summer with the lowest capacity utilization rates we seen in spring in awhile, around 85% instead of 90-95%.

What would I conclude from all this?

1. If you wanted to maximize the portion of this tax ‘refund’ that went to oil companies, you should make the gas tax holiday during summer, when supply is most inelastic.

2. Compared to previous years, producers would probably benefit less from the gas tax holiday this year, since capacity margins are down.

3. Despite the factual errors and the incorrect implication that summer gas supply is fairly elastic, Tim is probably right when he says, “maybe the tax holiday might have some effect on both consumers and producers.” Why is that? Remember, demand for gas is also very inelastic. In other words, which world are we in? I say the bottom right case in this chart.

This guy sums it up pretty well when he says,

the gains of the tax cut will be split evenly between producers and consumers… I’m not saying that the gas tax cut is a good idea. In fact, I think it’s horrible pandering that wont help anyone in the long-run.

*Public service announcement: when using energy data about the U.S. to back up any argument, please avail yourself of the EIA. If you can’t find what you need, look again. Still not sure? Check a third time. The EIA is amazing. Use it.

Tim Kaine gets it

Meaning that he understands that driving imposes external costs on society. Gov. Tim Kaine (D-VA) is calling for a hike in gas taxes to cover a transportation/infrastructure budget shortfall. Not a perfect incentive structure — I’d prefer real-time road usage charges — but it’s not a perfect world. At any rate it’s a gutsy call to make, though there is a one-term limit on VA governors, so what’s at stake is his approval rating and the party’s image in state government. I mean, we’re living in a high oil price world, on the cusp of summer driving season, and close to (if not already in) a recession. Kaine is providing a breath of fresh air in the context of the recent gas tax pandering by Clinton and McCain.

Your mileage may vary

From the inbox:

A new website, www.fueleconomy.gov maintained by EPA and the DOE Office of Energy Efficiency and Renewable Energy is probably of interest to everyone here. It’s one stop shopping for information otherwise available in various EIA, EPA and news sources.

An entire section is devoted to gas prices. Besides gas mileage tips, it gives fuel economy information for new and used cars and light trucks back to 1985. It also provides links to sites showing the cheapest gas in your area. It has historical gas price information and helps you compare gas prices in your area with other areas.  It also has information on tax incentives for purchasing hybrid, alternative fuel and electric vehicles.

There’s also an interactive component: you can report your the mileage for your own vehicle and see how it compares to the mileage others are getting. And you can get a detailed Energy Impact Score for a vehicle showing average mileage, petroleum consumption, pollution tally and safety information. You can also compares data on up to four vehicles.

H/T: Chris Clotworthy, RFF librarian

Unsurprising unpleasantries

I don’t want to throw too much cold water on my co-blogger’s enthusiasm for the NHTSA’s newly proposed CAFE schedule. But two things need correcting. The first is clerical; the other is substantive.

First, be very careful anytime you read quotes about percent changes in fuel efficiency. Due to America’s weird fascination with reporting fuel efficiency in miles per gallon, and also because of her citizens’ nigh universal numerical illiteracy, reported percentages are nearly always wrong. An obvious example comes courtesy of the Green Car Congress post Rich linked previously:

The 35 mpg target for 2020 represents a 31% increase above the 2007 new fleet average of 26.7 mpg.

Green Car Congress a great source for environmental and energy news and it is written by some very smart people. But this is just plain wrong.

The problem is that fuel efficiency should actually be measured in how much gas it takes to go a mile rather than in how many miles you can drive on a given amount of gas. To illustrate, your crappy old car that gets 26.7 mpg will require 3.75 gallons of gas to go 100 miles. Your shiny new 35 mpg car can go those 100 miles on 2.86 gallons of gas. This is better — but it is only 24% less fuel than your old car required, not 31% less.

The second — and much more important — point comes courtesy of Geoffrey Styles. He reminds us that the improvements in efficiency being proposed should not be compared to current regulation, but rather the world as it actually is (and will be):

Turning to CAFE, the proposed timetable for implementing the 35 mpg standard that was signed into law last December would raise the overall fuel economy of the new car fleet, including SUVs, to 27.8 mpg by the 2011 model year and to 31.6 mpg by 2015. … That sounds quite aggressive, until you realize that … based on the sales mix reflected in NHSTA’s January 2008 CAFE report, the combined 2007 new car fleet delivered an average of 27.2 mpg. With SUV sales having fallen back below 50% from their 2004 high of 53%, it’s a reasonable bet that the shifting sales mix alone would allow the fleet to achieve the 2011 goal without any changes in vehicle performance. In that context, the 2015 milestone goal of 31.6 mpg overall looks more like a 2% per year average improvement over the next seven model years, rather than the 4.5% cited by Secretary Peters.

Hmm, sounds like we are already basically at the 2011 standards right here in ol’ 2008. Wonder what could be causing that?

Of course whether you think it’s a bad thing that the new CAFE standards may not actually be much of a stretch relative to a counterfactual world without them depends largely on what you think of regulation in the first place.

But we should keep this in mind before we go too far praising either Congress or the NHTSA for their “courage”. If oil prices go where some people are predicting, we’ll probably look back and wonder why we ever thought about driving those 35 mpg gas guzzlers — or should I say 2.86 gallons-per-100-miles guzzlers — in the first place.

For once, a pleasant surprise

This week the National Highway Transportation and Safety Administration issued a Notice of Proposed Rulemaking for new vehicle fuel economy standards. While the Energy Independence and Security Act of 2007 set the fuel economy target of 35 mpg by 2020, implementation of this goal actually resides with NHTSA. Thus I was pleasantly surprised to learn that NHTSA had frontloaded the requirement, achieving more than 50% of the increased fuel efficiency in the first 5 years. Under the proposed plan, “Fuel efficiency standards for both passenger vehicles and light trucks would increase by 4.5 percent per year over the five-year period ending in 2015 – a 25 percent total improvement that exceeds the 3.3 percent baseline proposed by Congress last year.”

H/T Green Car Congress.

Underserved markets

Or is it now an overserved market?

For the convenience of our bicycling fans, Nationals Park offers a FREE bike valet located in Red Garage C at the corner of N & 1st Street, SE. Access to the valet is on N Street just left of the entrance.

I am very curious about how much this service is used so far. And who do they get to serve as bike valets? Might they start offering a service where you can you get your chain oiled and brake pads aligned during the game?

I am going to my first game at Nationals Park today but I don’t think I’ll be riding my bike. The problem is that I don’t really want to ride home in the dark. I suppose I could take my bike home on Metro but I am pretty sure this is not a great way to make friends with the 15,000 other people who will all be jostling for Metro space after the game ends.

But someday I am using this service — Saturday afternoon game anyone? — at least if it doesn’t disappear first.

Rebound effect quote of the day

As in, not mentioning the rebound effect. From an (gated, sorry) E&E News story about automakers calling for national CAFE standards:

The auto groups say the increase in corporate average fuel economy standards — to 35 miles per gallon by 2020 — mandated by last year’s energy bill would effectively reduce emissions. ‘Burning fuel produces carbon dioxide, so higher mileage for vehicles means lower emissions,’ said Dave McCurdy, president of the Alliance of Automobile Manufacturers.

As has been discussed in the economics world for a while now, driving a car that gets higher gas mileage makes driving less expensive on a per mile basis. As we know from that handy law of demand, when the price of a good drops, people demand more of it. Though the rebound effect would not eat away the entire benefit of a CAFE standard, it’s certainly worth a mention, and makes Mr. McCurdy’s point less cut-and-dry than he makes it out to be. A hypothetical increase from 20 to 40 MPG on average, for instance, will not cut automobile carbon emissions in half.

Paul Portney, Ian Parry, Howard Gruenspecht, and Winston Harrington wrote an RFF Discussion Paper on CAFE standards that was eventually published in the Journal of Economic Perspectives. Section 3.2 gives a brief survey of empirical estimates of the rebound effect. It suggests that the effect nullifies about 10-20% of the raw gas mileage improvement.

Mapping affordability

The Center for Neighborhood Technology, in conjunction with the Brookings Urban Markets Initiative, has created an interactive map that displays the spatial distribution of affordable housing in 52 U.S. metropolitan areas. The two basic layers overlay either the traditional measure of affordability (rent 0-30% of area median income) or the project’s Housing + Transportation Index. The HTI (explained in some detail here) incorporates modelled transportation costs into the definition, such that the range of affordability becomes 0-48% of area median income.

Here are two maps centered on Columbia Heights, Petworth, Mt. Pleasant, and Shaw in DC, four neighborhoods that are often described as recently gentrified/gentrifying.

In the first map, blue designates unaffordable areas as defined by the 0-30% housing guideline. When we factor in transportation in the second map, little changes except that a small portion of Mt. Pleasant just left of center becomes affordable by this 0-48% definition (probably due to DC’s relatively comprehensive and cheap public transit system).

There are numerous advanced layers that provide a more finely-discretized representation of the above variables — one can also restrict the data to renters or homeowners. There are also layers for the component variables, such as average neighborhood income, average monthly rent (shown below), transit connectivity index, and so on.

Not only are these great for planners and policy wonks, but also for the DC citizenry. When I was new to DC and looking for a place with only craigslist to guide me, such graphics could have efficiently guided my search.

These maps also provide a valuable snapshot of gentrification and urban development. However, from what I can gather, the area median income is determined at the census block group level. Thus, it does provide an idea of how affordable housing is to the current residents of the neighborhood without allowing wealthy suburbs (e.g. Potomac, MD) to determine the affordability of poorer areas (SE DC). However, since it is only a snapshot, it suffers from massive selection problems. Obviously, people currently living in an area are more likely than not to be able to afford living there, at least to some extent. A big issue that often arises with regard to gentrification and urban development is that people are supposedly priced out of their homes. This static representation does not help determine whether this is happening. Hopefully, the project will continue and be able to trace trends in the future, because I think it’s a fascinating tool with amazing potential.

H/T: Magda.

Fun with statistics: the regressivity of gasoline taxes

Yesterday on Grist, Joseph Romm responded to a reader who argued that he should care more about incidence when talking about gas taxes. His response was a litany of citations suggesting that gas taxes were not in fact regressive, partially because the poor don’t own cars/ drive as much. Romm’s supporting evidence is pretty compelling. He cites a recent study by Don Fullerton (who used to be at RFF) which finds that a gas tax would only be regressive across the top half of the income distribution (BTW, Fullerton’s paper is one of the best I’ve seen on the public finance options for curbing vehicle emissions if you’re interested in that issue). Yet despite all of the evidence Romm put forth, I was still skeptical of his claim. I’m working on an incidence paper myself right now, and do see regressivity in the data. It just depends on how you define it. Below is a table with gas expenditure by income quintile from the 2007 BLS Consumer Expenditure Survey (which, btw, is the same source Fullerton uses):

Notice how different the story looks depending on whether you put income or consumption in the denominator. Both measures have their faults, and, in the policy world, people tend to flip back and forth between them depending what point is being made. Ideally economists would like to put lifetime income in the denominator, assuming that people incorporate their future welfare/ wealth into their current decision making (ie college student go into debt with the expectation that they’ll make much more money later on). For a more detailed discussion on defining incidence see this working paper by Gilbert Metcalf.

For those who don’t have time to check out the Fullerton paper, I’d also just like to point out something about the table Romm presented in his post.

However, he omitted the third column. To be fair, his point was about average effects across all people. Yet one can imagine how the second statistic might be relevant to policymakers. While poorer people are less likely to own cars/ drive, the ones that do are likely to be significantly impacted by an increase in the price of gasoline. If a household making under $20,000 a year does own a car, it’s probably because they live in an area where there aren’t any other options for getting to school, work, etc. This means that their demand response in the face of a price increase would probably be negligible, and a gas tax would simply crowd out other consumption. Thus you could imagine framing incidence in terms of rural vs. urban households, as well as simply rich vs. poor.

None of this is to say that one way is best. And I definitely support a gas tax, although I think we should be smart about implementing it. I just thought I’d point out that on this issue, like just about every other issue in DC, different people can use the same data to make different points.

Free Ride

Yesterday Greenwire had a story on Congress’s new WheelsForWellness program. The exact details of the program are still being worked out, but the general idea is to place bikes around the Hill that staffers can register to use for free. While this is a nice little gimmick, I’d really love to see DC go the way of Copenhagen, and offer free public bikes to all of us. This would be especially useful for DC tourists, as the Metro is really only practical for going long distances and the cab “system” is a joke.

Moving on, I’d just like to point out that John McCain called for a summer gas tax holiday in his economic policy speech yesterday. The man who self admittedly “doesn’t understand economics” is proving it to all of us by simultaneously calling for action on climate change and a suspension of gas taxes. I guess it’s easy to be a “maverick” when the media lets you have your cake and eat it too. What a joke.

Finally, with the Pope in town today I figured it’d be a good time to talk about the Popemobile. First of all, can you believe we call it that? Like the Batmobile. On to the vehicle. I had a hard time figuring out exactly what type of car the Pope’d be rollin in today. The picture on Wikipedia appears to be a suped up Mercedes-Benz 230 G with a giant tic-tac case mounted to the back.

While Benedict’s clearly got a bias towards ze Germans, I sure hope someone’s workin to put him in test version of the Volt.