Regarding The Economy

The U.S. has seemingly avoided a recession. The technical definition of a recession is two consecutive quarters of declining GDP growth. The new economic numbers from the BEA show that the U.S. GDP growth stabilized at 0.6% for the first quarter of 2008. After real GDP growth dropped from 4.9% in the third quarter of 2007 to 0.6% in the final quarter of 2007, many analysts began using the word "recession" quite freely. However, the economic numbers prove that the U.S. economy was resilient and avoided technical classification as a recession.

Born In A Small Town

Dr. Charles Wheelan puts forth three primary reasons why the economies of small towns are hurting:

1. The need for fewer farmers because of increased agricultural productivity
   
2. Difficulty being a highly skilled professional and living in a small town
   
3. The current farm subsidy system compounding the problem
   

Gas Tax Holiday! Hooray?

Today's Editorial in the Scranton Times-Tribune details the economics behind Senator McCain's recently proposed "gas tax holiday."

Senator McCain's plan, as the editorial presents, is based on some rather unsound economics. Removing the $0.184 cpg tax may provide immediate relief at the pump, but it would incentivize increased consumption. McCain recommends implementation of the gas holiday over the summer; however, this period is already when demand is at its greatest. A proposal which would increase consumption during an already extended period would not make sense in the grand scheme of things. McCain certainly could make the argument that removing the gas tax would act as a stimulus, and the forgone federal revenue is the consequence of such a stimulus action. However, an economic stimulus which increases demand on such a supply-sensitive good like oil is risky and could pose long-term complications outweighing any short-term benefits.

Economics of the proposal aside, for those who support a gas holiday, it would be more important for states to act. Most states have a larger tax than the federal government imposes. Take Pennsylvania for instance, the tax is currently $0.312 cpg. While not even the largest state levied gasoline tax, Pennsylvania's tax is almost 60% larger than the federal governments. States have implemented such relief independent of the federal government in the past (i.e. Georgia after Hurricane Katrina). Even though the lose of these state revenues may be more detrimental than federal revenue, those looking to lower the immediate price at the pump as priority number one should look at the state taxes first.