Distractions from political leaders make it more difficult to focus on relocalizing the economy. When politicians who know better propose solutions to high oil prices that ignore the fundamental causes of the high prices, then the time it takes to debunk them eats away from the limited time during which we have abundant energy to use in relocalizing the economy.

Bernie Sanders and Peter Welch are good examples. They are making noises about the oil that goes into filling the US Strategic Petroleum Reserve, about 70,000 barrels per day, and saying that it is the cause of high prices. In a world using around 86,000,000 barrels per day of oil, the filling of the SPR accounts for 0.08% of world oil consumption. Even though world oil supply is tightly constrained and demand is price inelastic, less than 1/10 of 1% more or less isn't going to make much difference in world oil prices.

Or, put it another way, filling the SPR has not caused the the price of oil to increase from $12/barrel in 1998 to $120/barrel in 2008. It's limited supply and growing demand that have raised prices, and the most effective measure to lower our oil cost is to use a lot less. Even if the Goldman Sachs economists they rely on are correct that stopping flows to the SPR would lower prices at the pump 4-24 cents, taxpayers would have to pay for future additions to the SPR at even higher prices.

The McCain-Clinton gas tax holiday proposal has received more attention than the Sanders-Welch proposal to neglect the Strategic Petroleum Reserve. John McCain proposed to stop collecting federal gas taxes on any gasoline sold during prime motoring months, from Memorial Day to Labor Day. Hillary Clinton soon signed on, though she advocated making up the lost revenue by increasing taxes on oil companies. One hundred fifty economists, including some winners of the economics prize in the memory of Alfred Nobel, have signed an open letter (PDF) decrying the proposal as flim-flam.

I spent some time today reviewing my basic economics, to understand a point the economists make: "First, research shows that waiving the gas tax would generate major profits for oil companies rather than significantly lowering prices for consumers." For those interested in the details, here are some pictures that explain it.

It all comes back to the supply and demand curves, and how steep they are. Reducing the price moves the supply curve down and to the right (orange curve in Fig. 1). Demand follows the demand curve, supply increases, and the price decreases. However, the new equilibrium point is $3.39 for the first demand curve drawn; use has increased and the price has not come down the entire 18.5 cents of the gas tax. So the consumer receives some of the benefits and the oil companies receive some.

Figure 1

Though I constructed the graphs just to illustrate the principles, without using any real data on supply and demand, the division between the oil companies and consumers is pretty similar to what Jeffrey Perloff of UC-Berkeley found with his models, presumably using real data. It's also in line with Illinois and Indiana's experience (PDF) in declaring a sales tax holiday on gas in 2000.

With a less elastic (steeper) demand curve (green curve in Fig. 1), more of the gas tax reduction would end up in the pockets of consumers.

Paul Krugman says that suppliers cannot provide any more gas than they already would, because refineries run flat out in the summer already. In that case, the supply curve looks more like Fig. 2. Drop the gas tax, and there's no room for increasing supply and following the price down the demand curve, so the price returns to its pre-tax-holiday level (orange curve in Fig. 2).

Figure 2

There are a lot of other reasons to oppose the McCain-Clinton proposal, including that it sends a signal that Washington will try to keep the happy motoring continuing, when it has virtually nil capacity to affect either worldwide supply of oil or demand elsewhere, two huge factors affecting price. As the graphs above show, it's also not likely to do much or anything to lower gas prices for consumers.

UPDATE: Add at least 91 members of the Vermont House to the list of those misdirecting public attention from the world oil situation to the Strategic Petroleum Reserve. And David Strahan puts my point pithily in his headline, "Oil is expensive because it is scarce."