Tuesday, May 06, 2008

Gas tax follies (Paul Krugman et al.)

In a reasonable world, the amount of noise and attention generated by the overblown mini-controversy about a proposed gas-tax holiday would be amazing. I suppose that at least it's a substantive issue, which lifts it one step above the idiotic pseudo-scandal about Obama's "bitter" remarks in San Francisco. As Steve Benen of Politico put it:
One of the awkward realities of the Democratic presidential race is that Hillary Clinton and Barack Obama really don’t disagree on much. Their platforms are not identical, but in several key areas, the two Dems are generally on the same page. This, as much as anything, leads the campaign [JW: and, more to the point, news coverage and public discussion of the campaign] to focus on trivia, mini-scandals, personalities, and process questions like “electability” — because it’s easier than highlighting the relatively few differences between them.

With this in mind, I am absolutely delighted to see a new, genuine, Grade-A policy conflict between the two candidates emerge. It has nothing to do with a gaffe or a flip-flop or guilt by association. It’s an actual disagreement over substance. I think I’m feeling faint.
But in itself it's a relatively minor issue, with more symbolic than intrinsic significance, and it's ludicrous and discouraging that it should be blotting out discussion of so many much more important & urgent issues. Well, so it goes. Better this than William Ayers or Reverend Wright or flag pins or Hillary's laugh or bogus race-card baiting, I suppose.

On the substance of the matter, there seems to be a remarkable degree of consensus among sensible analysts that Barack Obama is right to oppose this idea, that he deserves credit for explaining why it is an empty political gimmick, and that both Clinton and McCain are guilty of shameless demagogic pandering on this issue. (And in this case the consensus happens to be right, in my opinion.)

The way that the Clinton campaign has responded to economists' near-universal condemnation of this proposal with pseudo-populist economist-bashing and fake anti-"elitist" rhetoric has only made matters worse. That whole gambit is stupid, embarrassing, and pernicious. (And if it turns out to be electorally useful, that doesn't make it any less stupid, unhelpful, and reprehensible.)

At the same time, it's also worth noting--since this point often seems to be lost in the discussion--that Clinton's version of the gas-tax proposal is different from McCain's original version. As Paul Krugman put it a week ago:
John McCain has a really bad idea on gasoline, Hillary Clinton is emulating him (but with a twist that makes her plan pointless rather than evil), and Barack Obama, to his credit, says no.
It's also interesting to note that, so far, Clinton has been the target of almost all the criticism on this issue, while McCain has pretty much gotten a free pass. Double standards? I suppose part of the reason may be that, as long as the bulk of attention in the news media (and the blogosphere) is focused on the Democratic nomination contest, McCain is relatively inconspicuous ... which has advantages as well as disadvantages from his perspective.

=> With respect to the underlying substantive issues, Paul Krugman pretty much nailed it in two recent items on his New York Times blog--see below. (Regarding a few passages, readers might want to bear in mind that Krugman is a Clinton supporter.)

=> And for further elaboration on the Big Picture ... last week Mark Kleiman (an Obama partisan, but--like Krugman--someone who is seriously concerned about the substance of public-policy issues) posted a useful roundup of pieces explaining why the gas-tax proposal is a bad idea not just in itself, but also in terms of its larger implications. Here are some highlights from a few of them.

James Fallows:
The pandering and ignorance-across-party-lines represented by the John McCain-Hillary Clinton united front for a temporary reduction in the gasoline tax should make Americans hold their heads in their hands and moan. No one who has thought about this issue thinks that it will actually reduce prices or -- more important -- help the the people disproportionately hurt by $100+/barrel oil and $4 gasoline. And to the extent it has any effect on America's long-term approach to energy policy, transportation, oil dependence, and climate change, the effect will be perverse.

I can imagine that John McCain, who boasts about his sketchy command of economics, might consider this a good idea. But the master of policy, Hillary Clinton??

Please. This is embarrassing. [....]
Steve Benen:
Now, it’s worth remembering that Clinton and McCain have similar approaches to this, but their plans are not identical. McCain would waive the tax over the summer, and let the Highway Trust Fund suffer with less money. Clinton, in contrast, would impose a new tax on oil companies to make up the difference, so the Highway Trust Fund would be fine. Her approach is obviously more fiscally responsible.

That said, in the broader sense, Clinton and McCain are on one side of this debate, with Obama on the other. In this case, I think the evidence is overwhelming that Obama’s right.

Indeed, I’ve been criticizing McCain for the idea, so it’s only fair that I criticize Clinton for adopting the same idea. A “gas-tax holiday” wouldn’t address the real problem, and might actually make matters worse. [....]

Everything about the McCain-Clinton proposal is just a mess. It wouldn’t address the problem at hand; it would encourage consumption instead of conservation; it would boost oil company profits; it pushes a bogus conservative frame (government taxation is partially responsible for high gas prices); and at least under McCain’s version, it would undercut much-needed transportation funds. Ultimately, it’s part of a search for a short-term quick-fix, but in this case, it’s likely to make matters worse, not better.

It’s nice to be arguing about something substantive for a change, though, isn’t it?
Tom Friedman (when was the last time Mark Kleiman approvingly linked to Tom Friedman?):
It is great to see that we finally have some national unity on energy policy. Unfortunately, the unifying idea is so ridiculous, so unworthy of the people aspiring to lead our nation, it takes your breath away. Hillary Clinton has decided to line up with John McCain in pushing to suspend the federal excise tax on gasoline, 18.4 cents a gallon, for this summer’s travel season. This is not an energy policy. This is money laundering: we borrow money from China and ship it to Saudi Arabia and take a little cut for ourselves as it goes through our gas tanks. What a way to build our country.

When the summer is over, we will have increased our debt to China, increased our transfer of wealth to Saudi Arabia and increased our contribution to global warming for our kids to inherit.

No, no, no, we’ll just get the money by taxing Big Oil, says Mrs. Clinton. Even if you could do that, what a terrible way to spend precious tax dollars — burning it up on the way to the beach rather than on innovation?

The McCain-Clinton gas holiday proposal is a perfect example of what energy expert Peter Schwartz of Global Business Network describes as the true American energy policy today: “Maximize demand, minimize supply and buy the rest from the people who hate us the most.”

Good for Barack Obama for resisting this shameful pandering.

But here’s what’s scary: our problem is so much worse than you think. We have no energy strategy. If you are going to use tax policy to shape energy strategy then you want to raise taxes on the things you want to discourage — gasoline consumption and gas-guzzling cars — and you want to lower taxes on the things you want to encourage — new, renewable energy technologies. We are doing just the opposite. [....]

While all the presidential candidates were railing about lost manufacturing jobs in Ohio, no one noticed that America’s premier solar company, First Solar, from Toledo, Ohio, was opening its newest factory in the former East Germany — 540 high-paying engineering jobs — because Germany has created a booming solar market and America has not.

In 1997, said Resch, America was the leader in solar energy technology, with 40 percent of global solar production. “Last year, we were less than 8 percent, and even most of that was manufacturing for overseas markets.”

The McCain-Clinton proposal is a reminder to me that the biggest energy crisis we have in our country today is the energy to be serious — the energy to do big things in a sustained, focused and intelligent way. We are in the midst of a national political brownout.
The pieces by Benen and Friedman, in particular, are worth reading in full ... and Krugman's discussion below.

Yours for reality-based discourse,
Jeff Weintraub
The Conscience of a Liberal
Paul Krugman's New York Times blog

April 29, 2008
Gas tax follies

I’ve been on the road (actually doing a public dialog with Barney Frank on financial reform), so I’m just catching up. Anyway, John McCain has a really bad idea on gasoline, Hillary Clinton is emulating him (but with a twist that makes her plan pointless rather than evil), and Barack Obama, to his credit, says no.

Why doesn’t cutting the gas tax this summer make sense? It’s Econ 101 tax incidence theory: if the supply of a good is more or less unresponsive to the price, the price to consumers will always rise until the quantity demanded falls to match the quantity supplied. Cut taxes, and all that happens is that the pretax price rises by the same amount. The McCain gas tax plan is a giveaway to oil companies, disguised as a gift to consumers.

Is the supply of gasoline really fixed? For this coming summer, it is. Refineries normally run flat out in the summer, the season of peak driving. Any elasticity in the supply comes earlier in the year, when refiners decide how much to put in inventories. The McCain/Clinton gas tax proposal comes too late for that.

So it’s Econ 101: the tax cut really goes to the oil companies.

The Clinton twist is that she proposes paying for the revenue loss with an excess profits tax on oil companies. In one pocket, out the other. So it’s pointless, not evil. But it is pointless, and disappointing.

Add: Just to be clear: I don’t regard this as a major issue. It’s a one-time thing, not a matter of principle, especially because everyone knows the gas-tax holiday isn’t actually going to happen. Health care reform, on the other hand, could happen, and is very much a long-term issue — so poisoning the well by in effect running against universality, as Obama has, is a much more serious breach.

May 6, 2008 - 9:19 am
Gas tax hysterics

OK, this has gone overboard.

Hillary Clinton’s proposed gas tax holiday is not, in my view, a good idea. But the furor over what is, when all is said and done, a small and temporary policy proposal is entirely disproportionate. What’s going on?

Part of it, clearly, is the fact that many people in the media really, really want Obama to win and Clinton to lose — read Kurt Andersen — and have seized on the gas tax as their latest proof that she is ee-ee-vil.

But there’s also something going on with economists, a phenomenon I recognize wearing my other hat: the tendency to place excessive weight on issues where professional judgment differs from lay opinion.

The classic example is free trade versus protectionism. Economists are justly proud of the close reasoning that produced the classical case for free trade, and love to skewer dumb protectionist arguments. I’ve done it myself.

But all too often, economists then become like the little boy with a hammer, to whom everything looks like a nail. Because protectionism is an issue on which they believe they have some special insight, they inflate its importance, and make free trade versus protectionism THE crucial issue in economic policy — which it isn’t. Trade barriers are a minor issue for the United States today; even small wrinkles in health care policy, like overpayment to Medicare Advantage plans, probably matter more to public welfare than all the trade restrictions now in place.

Yet economists talk much more about trade than they do about health care policy, because they think they know something about it in a way the laity don’t.

The gas tax holiday is in this category. Economists really do know something about tax incidence that the laity don’t. So when a presidential candidate says something that conflicts with economistic wisdom, it becomes THE MOST IMPORTANT ISSUE EVER. Except, you know, it isn’t.

There’s a lot of troubling stuff in both Democrats’ proposals. Mandates aside, Obama is seriously low-balling the cost of health care reform, and promising way too much in middle-class tax cuts. Clinton’s numbers don’t quite add up either, though she’s probably closer to the mark — and both Dems are towering figures of responsibility compared with McCain. Amid all this, the gas tax holiday is a real issue, but a small one; don’t let economist’s tendency to overemphasize their areas of expertise distort your view.