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Can you pass this economics quiz?

Posted By Michael Ackley On 03/10/2013 @ 3:05 pm In Commentary | No Comments

Editor’s note: Michael Ackley’s columns may include satire and parody based on current,  events, and thus mix fact with fiction. He assumes informed readers will be able to tell the difference.

Students, here is your mid-term examination for our class in basic economics. It is brief, but a true test of your understanding.

Question 1:

You are an entrepreneur in the business of selling can openers. Recently, difficult economic times have caused customers to buy fewer canned goods, reducing demand for your product. Thus, your revenues have dropped. In response you:

a) Raise the price of your can openers to recoup the lost revenue.
b) Reduce your can opener output and invest in other product lines.
c) Liquidate your company and retire to a tax-sheltered Caribbean island.
d) Anything but “a.”

Clearly, scholars, the best answer would be “d.” Let us move on.

Question 2:

You are a member of a government agency that sets tax rates, for instance, on gasoline. Recently, difficult economic times have caused consumers to buy less gas. In response you:

a) Raise the price of the commodity to recoup lost revenue.
b) Raise the price of the commodity to recoup lost revenue.
c) Raise the price of the commodity to recoup lost revenue.
d) Raise the price of the commodity to recoup lost revenue.
e) Raise the price of the commodity to recoup lost revenue.

That’s right, kids. The key words here are “government agency.” The so-called laws of economics do not apply to government agencies. Well, they actually do apply, but once you join a government agency, you think those laws do not pertain to you.

In California, where the price of a gallon of regular gasoline has topped $4, consumers have done the rational thing: They have curtailed their travel and are buying less gas. As a result, state gas tax revenues are not meeting and will not meet projections.

Remember, in government, projections are reality. Therefore, the state’s Board of Equalization is raising the price of gas 3.5 cents (effective July 1) to make up for the shortfall. (Well, the board is increasing the tax and gasoline sellers will increase the price, passing the cost through to you.)

This will boost the excise tax on gasoline to 39.5 cents a gallon. It’s important to specify that this is an “excise tax,” because the Golden State also levies a 10 cent sales tax. To the consumer, these are indistinguishable, but the difference is important to state government, which takes the lion’s share, leaving the sales-tax dime for local government projects.

So, students, add it up. How much per gallon do Californians pay in gasoline taxes?

a) Just 39.5 cents
b) Only 10 cents
c) Perhaps 49.5 cents
d) None of the above

Yes! It’s “d,” “None of the above.” For we have forgotten to include the federal gasoline tax of 18.4 cents per gallon. Therefore, citizens lucky enough to live in California will pay 67.9 cents per gallon in taxes. And they will pay this regardless of the effects of actual market forces. You know: supply and demand.

If prices drop and consumption rises, they’ll still pay 67.9 cents per gallon in taxes. If prices rise and consumption drops further, they’ll pay 67.9 cents per gallon in taxes.

The Board of Equalization expects its new, 3.5 cent levy to raise a half-a-billion dollars in the year beginning July 1. And those dollars will flow into state coffers – unless consumers continue to act rationally and purchase less gasoline.

Knowing government agencies as we do, we expect that rational consumer behavior will mean another irrational tax increase.


Back at it: Yours truly has been absent from this space for a few weeks, due to the installation of a new hip. I might have taken another week or two off, but for the above-mentioned Board of Equalization action on the gasoline tax.

That was one shot of adrenaline. Another shot came from President Obama and his efforts to make the sequester “cuts” as hurtful as possible to the American people. He’s trying to recover now from his overreach – no volunteer-led White House tours! – but he’ll continue his efforts to blackmail the citizenry into believing that a reduction in government’s rate of growth is a draconian cut.

He’s a liar, of course, but so are most Republicans – and the news media – who also keep referring to nonexistent “cuts.”

The one bright spot last week: Sen. Rand Paul of Kentucky.

 


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