Monday, May 5, 2008

Hillary and John vs. The Economists

Hillary Clinton was on "This Week With George Stephanopoulos" yesterday and was asked about her gas-tax proposal. She is calling for the 18.4 cent per gallon tax to be paid by the oil companies this summer instead of the consumer, claiming this would save the average American an eye-popping $70 (McCain favors eliminating the tax entirely for the summer).

The biggest problem with this proposal, however, is that it assumes the price of gas will fall by 18.4 cents per gallon. Refineries aren't exactly holding back production. They're operating at effectively full capacity so supply is what it is. Demand isn't likely to fall during the summer driving season.

The price of gas is where it is because that's how much consumers are willing to pay for the given supply. So, there really isn't any reason to believe that gas prices would fall at all with Clinton's proposal. If we're willing to pay $3.69 per gallon right now, we'll be willing to pay $3.69 per gallon if the gas tax is "removed". Basic supply and demand.

Clinton isn't stupid, and she isn't surrounding herself with stupid people. She must know that there is no economic justification to her proposal. Unfortunately, she's simply pandering for votes.

Here's a part of yesterday's exchange with George:

STEPHANOPOULOS: Economists say that's not going to happen. They say this is going to go straight into the profits of the oil companies. They're not going to actually lower their prices. And the two top leaders in the House are against it. Nearly every editorial board and economist in the country has come out against it. Even a supporter of yours, Paul Krugman of The New York Times, calls it pointless and disappointing.

Can you name one economist, a credible economist who supports the suspension?

CLINTON: Well, you know, George, I think we've been for the last seven years seeing a tremendous amount of government power and elite opinion basically behind policies that haven't worked well for the middle class and hard-working Americans. From the moment I started this campaign, I've said that I am absolutely determined that we're going to reverse the trends that have been going on in our government and in our political system, because what I have seen is that the rich have gotten richer. A vast majority -- I think something like 90 percent -- of the wealth gains over the last seven years have gone to the top 10 percent of wage earners in America.

STEPHANOPOULOS: But can you name an economist who thinks this makes sense?

CLINTON: Well, I'll tell you what, I'm not going to put my lot in with economists, because I know if we get it right, if we actually did it right, if we had a president who used all the tools of the presidency, we would design it in such a way that it would be implemented effectively.

Whoa. Ok. So, she isn't going to put her lot in with economists. Now, I'm not one to rush to the defense of economists too often, so I won't do it here either. But let's look at a few of the folks who she does "put her lot in with".

First of all, there's Sandy Berger who was disbarred and pled guilty to stealing documents from the National Archive and then lying to the feds about it. Next, we have Roger Altman who served as the Deputy Secretary of the US Treasury, before resigning in 1994 because of a record-keeping scandal. Her recently-resigned Chief Strategist was Mark Penn who is a pollster.

I'm glad I'm not an economist! Hillary would clearly rather take the advice of the disbarred and the disgraced. As for pollsters, at least the economists offer their own opinion. Ouch.