There's been a little bit of a flap about Clinton and McCain advocating temporary reductions in gas taxes. Key questions include whether or not it's a good idea (consensus being that it's not) and whether or not it's a big deal (consensus being that it's not). Here's a mish-mash of material putting everything in context. The following blurb from the WSJ concisely sums up the problem:
John McCain and Hillary Clinton want to send cash-strapped consumers on holidays from the federal gasoline tax. But the law they can't rewrite -- the law of supply and demand -- suggests it would backfire. Lower taxes would encourage people to drive more, meaning more demand that would push prices higher again.Here is David Brooks's account of Hillary Clinton being interviewed by George Stephanopoulos, with italics added:What the U.S. really needs, if it seeks a real fix to its energy-consumption problem, is less demand, not more. Mr. Market says there's a simple way to do that: Jack up the gas tax. Don't lower it.
Economists call it a "Pigovian Tax," in honor of English economist Arthur Pigou, who early in the 20th century examined economic activity that hurts innocent bystanders. To stop behavior that's not in the public good, you tax it more, not less.
Keep in mind that Paul Krugman has been one of the most vocal critics of the Bush presidency. He has also been one of Hillary's most ardent supporters in her long and protracted battle with Barack Obama. Here is Krugman's take on the gas tax issue:She peddled her sham gas-tax holiday and repeated her attempt to blame Indiana’s job losses on outsourcing and Nafta. Stephanopoulos asked her to name a single economist who thinks a tax-holiday plan would work, and the daughter of Wellesley and Yale took the chance to shove the geeks into their lockers: “I’m not going to put my lot in with economists.”
When Stephanopoulos pointed out that Paul Krugman, a Times columnist, has raised doubts about the plan, Clinton lumped Krugman in with the Bush administration and said she wasn’t going to listen to the people responsible for the last seven years.
Finally, to cap off this incredibly long post, here's conservative Harvard economist/textbook pimp Greg Mankiw: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....
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.
Many economic issues (e.g., health care, corporate taxation, the trade deficit) are vastly complicated, with experts holding a variety of opinions. When candidates disagree, it simply means that each is siding with a different set of experts, and it is hard for laymen to figure out which set of experts is right. By contrast, the gas tax holiday is not nearly as complicated, and the experts speak with one voice.That pretty much sums up everything that I think I would ever need to know about this issue. Let's hope it gets put to bed.
Why, then, are candidates proposing the holiday? I can think of three hypotheses:
Ignorance: They don't know that the consensus of experts is opposed.
Hubris: They know the experts are opposed, but they think they know better.
Mendacity with a dash of condescension: They know the experts are opposed, and they secretly agree, but they think they can win some votes by pulling the wool over the eyes of an ill-informed electorate.
So which of these three hypotheses is right? I don't know [uh huh], but whichever it is, it says a lot about the character of the candidates [by which he means Clinton and McCain, as Obama has derided the gas tax as being political pandering].
