Pandering with a "Gas Tax Holiday"

It is rare that you get economists Robert Reich, Paul Krugman and Tom Friedman to agree on anything, but not so when it comes to the unbelievably stupid "gas tax holiday" idea advocated by the Republican ticket, John McCain and Hillary Clinton. All three economists think that it is a terrible idea and so should you:

• In his essay, "Dumb As We Wanna Be," Friedman explains,

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. . . .

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.”. . .

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.

• In his essay, "What To Do About the Oil Crisis," Reich writes,

McCain and HRC are proposing a tax holiday on gas - so this summer you wouldn't pay the 18 cents a gallon that would otherwise go to Uncle Sam. Talk about dumb ideas. This will only encourage Americans to drive more, thereby increasing demand and causing gas prices to rise even higher. Driving more will also put more carbon dioxide into the atmosphere, which fuels global warming. And this will cost taxpayers some $10 billion. It's a cheap political gimmick that does nothing to stem the rising price of oil.

You want to hold oil prices down? In the short term, strengthen the dollar. Part of the reason oil prices are soaring is because the dollar is tanking. The Treasury and financial ministries of other rich countries should buy back dollars to stop speculators who are bidding the greenback down.

Over the longer term, though, China and India's insatiable demand for oil will continue to drive oil prices up, and turmoil in the Middle East will keep them up. So there's really only one way for us to go: Alternative sources of energy - wind, solar, biomass, water, and if we can make it safe enough, nuclear.

But wait, if alternative energy is the way to go, and energy corporations are making record profits each quarter, why aren't they investing in these alternatives? Again, Reich explains,

They have more money now than they know what to do with. Their quarterly reports, out this week, will show galactic profits. But for them, basic research in alternatives is too risky. And why should we expect them to invest in alternatives to oil, anyway? They aren't even putting as much as they did five years ago into oil exploration, as a percent of their profits. They figure the best way to keep their stock price high is to use their windfall profits to buy back their shares. This may be good for their shareholders but it's terrible for America.

That's why it's time for a windfall profits tax on oil companies to finance our way to sensible and sustainable sources of energy. Forget the summer tax holiday on gas. We need a permanent holiday from oil.

• And, finally, in his piece, "Gas Tax Follies," he makes it plain,

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.

• Here is what the editors of the L.A. Times think about the gas tax holiday. And the NYTimes piece is here. And here are a whole bunch of short snippets of other reactions.


Seriously, people. The time has come for a fundamental paradigm change in our energy policy and in our relationship with the natural world. We need to kick our oil addiction and get serious about investing in alternatives. We need to find more sustainable ways to live. Like, yesterday...

Hillary Clinton has an ad up in Indiana pandering on this gas tax holiday and it is cynical as hell and oh-so-very-Republican:



Like the Republicans, Hillary is hoping voters are too dumb to think it through a little bit to see the full consequence of this ruse. Hopefully, they won't fall for it. You can do your part by spreading the word...

UPDATE: Here is Obama's response to the Hillary ad:

Krugman: "Conservatives are Such Jokers"

Recently, President Bush vetoed legislation that would have provided 3.8 million currently uninsured children with health care. Paul Krugman wrote an excellent op-ed in the NYTimes that not only addresses that issue, in particular, but also the more general unwillingness of conservatives to take even minor action to help the disadvantaged, poor or oppressed. In fact, he points out that more often than not, conservatives not only oppose and block such legislation, but also employ a rhetoric that mocks the plight of those who struggle. Not exactly "compassionate conservatism"...

Here is an excerpt:

Of course, minimizing and mocking the suffering of others is a natural strategy for political figures who advocate lower taxes on the rich and less help for the poor and unlucky. But I believe that the lack of empathy shown by Mr. Limbaugh, Mr. Kristol, and, yes, Mr. Bush is genuine, not feigned...

What’s happening, presumably, is that modern movement conservatism attracts a certain personality type. If you identify with the downtrodden, even a little, you don’t belong. If you think ridicule is an appropriate response to other peoples’ woes, you fit right in.

And Republican disillusionment with Mr. Bush does not appear to signal any change in that regard. On the contrary, the leading candidates for the Republican nomination have gone out of their way to condemn “socialism,” which is G.O.P.-speak for any attempt to help the less fortunate.

Another example: every time someone mentions universal healthcare, Republicans laugh and dismiss it as "socialistic," or raise the evil specter of a "government program," as if that simply ends the conversation. Of course, our for profit health care system has left roughly 50 million citizens completely uninsured and tens of millions more with inadequate coverage. The market has not exactly solved this problem... and there certainly is demand. The reality is that conservatives are WILLING TO TOLERATE 50+ million uninsured Americans and millions more underinsured.

The kids fight back in this ad:

On a similar note, today's NYTimes had an article on an audit of the private insurers running the new Medicare prescription drug program. Here is how that piece begins:

Tens of thousands of Medicare recipients have been victims of deceptive sales tactics and had claims improperly denied by private insurers that run the system’s huge new drug benefit program and offer other private insurance options encouraged by the Bush administration, a review of scores of federal audits has found.

Again, understand that while Medicare is a government program, the drug benefit is essentially subcontracted to private insurers, who were supposed to bring the magic of the market to it. Instead, these private interests have cashed in on old people's misery while not delivering the services and benefits they are bound to by law.

This raises a bigger question: Aren't there certain issues/systems, like health care and education, that should not be run by the profit motive? Does it really make sense - health sense, moral and ethical sense - to have doctors making decisions based on the bottom line, rather than the best treatment for your symptoms?

As I often say, there is nothing inherently good or bad about government. The key issue is WHO CONTROLS IT and TO WHAT END IT IS PUT. Currently, our government is dominated by large corporations and wealthy individuals. As such, the policies of the government overwhelmingly represent, protect and extend the interests of wealthy individuals and large corporations over all else. Make the government more democratic by removing the dominance of private wealth over public elections and you'd see different policies that reflected different interests.