More Mixed Policy Signals Over Gas Prices

To continue the theme of mixed messages coming from Washington, we see this story from today’s Cincinnati News-Enquirer:

Rep. Steve Chabot says motorists who are being pummeled by sharp increases in fuel prices should get $500 to $1,000 in tax credits to help defray the cost.

Chabot, R-Westwood, planned to introduce a bill today that would create the tax credit for those who use gasoline or diesel.

Prices for both have skyrocketed in recent months.

The overall price tag of Chabot’s bill was unclear, but it was expected to be in the billions of dollars.

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Compare that with President Bush’s comments from yesterday urging Americans to consume less (from Yahoo News):

“We can all pitch in … by being better conservers of energy. I mean, people just need to recognize that the storms have caused disruption and that if they’re able to maybe not drive … on a trip that’s not essential, that would be helpful.”

There is no better way to get people not to conserve gasoline than to be giving them a special temporary tax break for buying gasoline. What many politicians have ignored in the current debate over fuel prices is the role of prices as an information mechanism. High fuel prices signal to consumers to conserve on gasoline, and signal to producers to boost fuel supplies.

Unfortunately, many policymakers are sending the entirely wrong policy signals in their effort to aid gas consumers at the pump.