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McCain & Clinton Fail Economics 101

I don't know why, but I always seem to be surprised by the pandering of politicians. I guess that makes me somewhat naive.

The latest bit of idiocy from two of the three candidates for the highest office in the land was a suggestion that federal gasoline taxes -- 18.4 cents a gallon -- be suspended from Memorial Day to Labor Day. To his credit, Barack Obama dismissed this as counter-productive gimmick.  I don't have a horse in this race, but I am heartened to see at least one candidate is not clueless. (Note: Please don't email me saying why I should support this idiot over that one; I am not rooting for any of them -- although if this keeps up, I may shift from the neutral column).

A quick lesson in Supply & Demand 101 for the Maverick McSame and Yoko: Strong demand and limited supply of a product lead to price increases. If you artificially lower the price of something -- i.e., waive taxes for a period of time -- all you will have accomplished was stimulating more demand. The higher demand and increased consumption eventually lead to even higher prices.

Hence, the expression the cure for high prices is high prices.

Put this plan into effect and long before summer's end, gasoline prices would have risen to the pre-tax holiday levels. Then, we slap that tax back on, and the electorate is pissed at you. Then, neither of you gets elected. Not only bad economics, but bad politics.

We have no energy policy, and none on the horizon. Candidates serious about the issue of high energy prices should be discussing increased CAFE standards, capital gains tax waivers for alternative energy investments, greater offshore drilling, Pigou taxes, rapid nuclear plant approvals, a huge increase in the basic R&D the government does on energy -- a Manhattan project for energy and transportation science.

Instead, we hear proposals about waiving an 18 cent tax.

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On a related but very different issue, if any of the campaigns wants some free advice as to a major theme/issue no one has tapped into yet, give me a call. Hint: It has to do with reality. It probably works best for the Obama campaign (a blue collar issue that will help him with the elitist charges) but I could not care less who pushes it -- only that it gets pushed. (Longtime BP readers should be able to figure it out).

The caveat: I know nothing about politics, but a little something about data analysis, markets and the economy.

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courtesy of NYT

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See also:

Oil Price Rise Fails to Open Tap      
JAD MOUAWAD
NYT, April 29, 2008      
http://www.nytimes.com/2008/04/29/business/worldbusiness/29oil.html

Tax cut could push gas prices higher
Steve Hargreaves, CNNMoney.com staff writer
CNN Money April 29, 2008: 11:59 AM EDT
http://money.cnn.com/2008/04/29/news/economy/gastax_cut/index.htm

Dumb as We Wanna Be
THOMAS L. FRIEDMAN
NYT, April 30, 2008
http://www.nytimes.com/2008/04/30/opinion/30friedman.html

Thursday, May 01, 2008 | 07:22 AM | Permalink | Comments (59) | TrackBack (0)
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Comments

When I was a kid, I saw gas rationing and lines around the block for gas. They implemented MPG standards for cars that would rise through the years. It actually worked well for awhile. Then some politician (correct me if I wrong, but I think this was all under Clinton) decided an SUV was not a car, but a truck and was thus exempt. This was the single biggest blunder in the history of energy policy. SUV sales boomed, MPG standards were basically out the window and this country is now addicted to gas guzzling vehicles. Furthermore, Detroit was pummelled by foreign SUV makers.

Posted by: Steve Barry | May 1, 2008 7:34:10 AM