No one i'm aware of thinks the gas tax holiday is a good idea, but as usual CNBC has a disturbingly wrongheaded and just grossly misinformed explanation of why

Steve Liesman does what seems to be a sound explanation.... you have to stick with this video a bit....but at the 1:45 mark he brings up the supply curve and states that the gas supply curve is a straight line up, meaning no matter the price refiners will produce the same amount of gasoline.

I'm not sure how pervasive that idea is, but anyone who thinks that is true should 1) learn what the crack spread is 2) read into the EIA reports about gasoline import volume and more importantly 3) read into The EIA reports about refiner utilization (the amount of gas they use vs the amount they could use) and 4) The reports from the refiners about how much supply they take offline and extra maintenance they do when the crack spread is low.  In brief refiners bring gas production way down if the crack spread is low (its very low right now esp for this time of year) imports are historically high but appear to have a ceiling around the current level (meaning that supply is up with price but with a limit)

Another thing I thought of while watching this is an extrapolation from his argument: if taking away the gas tax doesn't affect the price then raising the gas tax would have to have the same effect... and if that was true boom national deficit solved, Nobel Prize please.

But an even bigger error in this is that the gasoline demand curve is an actual economic textbook example of inelastic demand (meaning the demand is roughly the same no matter what the price is) this can be seen by looking at the data from this year where gas averages ~3.60 vs last year where gas averaged ~3.00 and demand is almost exactly equal.  Or you can look at the 5 year averages of demand and price and both are trending up.....thats not a demand curve to make standard economic arguments about.  For reasons I'm not sure of I thought liesman was smarter than this but I guess now I know better

For yet another obvious point he ignores the fact that the actual price of gasoline is set by nymex traders not anyone actually involved in the supply or demand process.  I'm way to lazy to do this but I would bet that the price of gas correlates very well to the price of crude oil and not very well to the US demand

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In my opinion the gas tax holiday would do exactly what hillary mccain and obama say it would.  It would lower prices for consumers as the proponents say but as per obama's team it would save the average person in the low/mid double digits (~$30) and do significant damage to the federal programs that the tax funds

In studying CFA material one common thing they teach is to always break things down into their core components.  A simple example is you go get your tires replaced, you pay X , X can then be broken down into 2 parts y - the cost of the tires and z - the cost of labor

You can then go one step farther and say that y - the tires can be broken down into y1 - cost of rubber, y2 cost of manufacturing the tires, y3 cost of shipping, y4 the cost of labor etc and with proper analysis you can assign weights to everything and identify what is important and what is not.

For gasoline the factors at the moment would be something like:  G = .8 C + .1 R + .05 S + .05 F

Where G = Gasoline, C = Crude cost R = refining cost [1] , S = State tax, F = Federal Tax

Gas where I usually go is currently 3.89, I would bet almost any amount that it will tick over 4 by memorial day, so if they passed this gas holiday and removed .17 it would go all the way back to... 3.83 which is where it was on tuesday is that going to make anyone feel better?    And to belabor the stupidity of liesmans presentation is demand going to go up 5% because of that change in the real price? thats just an absurd notion with no data support at all

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As a side investing note one thing I've concluded is that refiners are basically as uninvestable as airlines.  They both have a major cost component that they have ZERO control over in the long run [2].  They both have intense competition and thankfully for consumers seem to exhibit little price fixing/collusion (look out above for the price of flying  in the next couple years though).  And the worst part is that for refiners they mostly don't even control the end price for their product, they are at complete mercy of guys in the NYMEX pits for their profit margins and that is not a good business model unless you own NMX or hedge away all that risk which isn't really possible.  A lot of airlines like Jet Blue have hedges on  the heat crack which is nice in theory but if crude shoots up the heat crack isn't the problem so there isn't really a reason for them to hedge that part of the price component.

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Another awesome example of CNBC's terribleness can be seen in this video .   Again you have to stick with it but at about 2:00 they put up a chart of natural gas consumption called "Rising Demand". This is nice except the chart shows what appears [3] to be pretty flat demand from '03 to '07.  But worse than that is the fact that the left axis has no label.  So the takeaway is that from 2003 to 2007 US nat gas demand was between 20 and 25 somethings per something.....

[1] including transportation and brand/marketing ie whatever the reason is that Chevron is more than Amco

[2] Southwest showed that you can hedge away the costs over a number of years but they are still exposed over the long run in that they have no alternatives

[3] You could definitely argue that since price is way up in that time period demand in an economic sense is way up as well but that is giving them too much credit and there would need to be a discussion on the elasticity of the natural gas demand curve to back that up.