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<< Previous   of   Next >> Associated Press  (click to enlarge) Keith Bjorkman waits in his vehicle while getting his gas tank filled at a station in Salem, Ore. Talk to drivers as they're filling up at the pump, and many say it'd be great if, as Hillary Rodham Clinton proposes, the federal gasoline tax were suspended this summer. Many economists say concentrating on the flood of foreclosures would be a better course of action by Congress.   ADVERTISEMENT   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Sunday, May 11, 2008 Focus on foreclosures; forget gas tax holiday By James McCusker The most important words in Federal Reserve Chairman Ben Bernanke's recent speech at Columbia University are these: "Thus, finding ways to avoid preventable foreclosures is a legitimate and important concern of public policy." The phrase "legitimate and important concern of public policy" is a powerful statement of cause when spoken by our government's top economic officer. It is a call to action, an effort to put an end to the discussions and arguments over whether we should do anything about the mess that subprime lending and the housing bubble have wrought. Those who believe unquestioningly in the efficiency of free markets have always had a theoretical conflict with economic policy. What is the point of economic policy if the market is going to solve every problem? In their view, taking action of any sort will only interfere with the market and make things worse. And sometimes, especially in retrospect, they're right. Those who study markets, though, come to realize that their efficiency is not an inherent, immutable quality. It doesn't come automatically, but depends on a lot of contributing factors, including the quality and equality of information that supports supply and demand. Because of these and other factors, it is often the case that a regulated market can be more efficient than an unregulated one. In sports, for example, we have rules and officials to enforce them. Without rules, competitive sports cannot exist. Even kids understand this: if you watch them make up their own games, they often make up the rules as they go along ... but there are rules. Essentially, then, in recognizing the need for both action and new rules Bernanke is saying to market purists: Get over it. Our national interest lies in solving this problem, not in waiting around for the market to sprinkle pixie dust on it. It is important to address the housing and mortgage finance problems because they continue to threaten the stability, and the efficiency, of our financial system. And, they are a drag on our economy just when we need a boost. Meantime, while this important issue remains largely untouched by congressional action, we have an open letter signed by more than 230 economists opposing the proposed gasoline tax holiday. (Add-on signatures now make the total closer to 300.) Those signing the letters included many distinguished economists, including one whom I revere over all the others -- my own former teacher and mentor, in whose debt I shall always remain. From an economics standpoint they are certainly correct about the gas tax holiday. While it would reduce the cost input to the price, in a demand-driven market there is no way to control the outcome. It is possible that it could benefit drivers, but it might not. Increased demand could make an initial price reduction disappear and the end result might very well be higher profits for the crude oil producers, the oil companies, the retail filling stations or anybody else in the production-distribution chain. And it would definitely reduce the funding of the Highway Trust Fund, an unhappy prospect for state and local politicians. But there are a few things that we can and should say about the gas tax holiday and about the economists now energized to invoke their analytical skills to oppose it. The first is that on the scale that the federal government does things the gas tax holiday is not big enough to bust the budget. Whether it is too small to be effective is another issue, but if the states would put their gasoline taxes on holiday, too, we might have something to talk about. Second, the Highway Trust Fund is not a constitutionally guaranteed defined benefit for states and labor unions. And it makes little sense to have a perfect highway system when nobody can afford to drive on it. The gas tax holiday may not be the best idea in history but it is an attempt to do something about a painfully difficult situation. Third, where were the economists when we needed them? We have now endured two years of a mortgage finance disaster, preceded by over three years of an obviously unstable housing bubble. There were no petitions or open letters. Apparently, the impending collapse of the world's financial system doesn't attract the attention of these guys, but a temporary cut in gas taxes ... well, that's another story. In our crazy, wonderful world it is possible to be absolutely right, but so focused on minutiae that, in a sense, we're wrong, too. The gas tax holiday isn't going to make a crucial difference one way or another. But we need to stanch the flood of unnecessary foreclosures before our future is foreclosed. If you want to write letters, write that one to Congress. James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Snohomish County Business Journal.

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