Presidentonomics

Continuing his push for a gas-tax holiday, Sen. John McCain told a town-hall session last week that he “trust[s] the people and not the so-called economists to give the American people a little relief.”

So who do “the people” trust to give them economic relief? By a margin of 50 percent to 44 percent, it’s Sen. Barack Obama, according to a CNN/Opinion Research poll conducted June 3-4,

Then again, in a poll published May 30, voters said they trusted McCain over Obama on economic stewardship 47 percent to 41 percent.

How can public opinion swing so quickly?

Maybe it’s because people are not terribly good at predicting their own future choices. Or maybe it’s because people have become convinced that a gas-tax holiday is in fact ridiculous.


Brett Dunbar

#28 Connor

An American liquid gallon is rather smaller than an Imperial gallon; it is about 3.79 litres, so the price in Ireland would be about $7.60 a gallon. There is also a US dry gallon which is about 4.50 litres. Three different units all with the same name, what a incoherent confusing mess the customary units are.

Conor - ireland

DJH, unfortunately you appear to have a slight case of myopia on this gas-tax issue... The solutions proposed by economists to solve any (rapid) increase in price are as stated earlier by Michael Hern (#25), increase supply, or lower demand...

Unfortunately, increasing supply is difficult because oil-producing nations have little incentive to do so a) because it would lower the price of oil whilst b) simultaneously depleting their future stocks. The OPEC countries must ration their exports of oil until they can develop their economies to the point where they are no longer dependant on oil as the source of jobs, wealth etc.

On the demand side, economists have been shouting for at least 20 years about car-pooling, public transport, gas-taxes, using bicycles etc. etc. etc, heck, even a casual reader of Freakonomics should have spotted one or two articles about hyper-milling in the past few months? DJH, if you don't adopt at least some of these behavioural changes now then when fuel prices hit $200 a barrel you will really feel the pinch. Having to pay $30 instead of $20 to fill your tank is not that same as having a thief take $10 from your wallet, because you are CHOOSING to fill your tank...

Here in Ireland, we have an average 'Petrol' (what you call Gas) price of $1.35 per litre, which is well over $2.10 at today's exchange rate. This translates to roughly $9.50 per gallon (1 gallon = 4.54 litres). However, as most of this is a flat tax (i.e. the tax is constant regardless of crude prices) it means that for every doubling (100% increase) of the price of crude oil, we only see approximately a 45% increase at the pump. In this way, the Irish government stifles demand, and ensures a healthy tax take from those who drive, whilst not penalising those who chose not to... This incentive is what is crucial to the gas-tax argument; we must let the price increase so that people change their behaviour.

In fact, I would bet that most of the economists who read this blog would favour taxes being increased on fuel rather than removed.

Please excuse my European spelling... J

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aaron

I've create a post on the sharp decline in fuel efficiency this year.

High gas prices are causing higher gas prices. How's that for a positive feedback?

W Barnes

I'm puzzeled. Presidentonomics seems useless unless to invoke discussion. But if discussion were its purpose I'd think the reader should be alerted that that choice of the two conclusions posed does not logically follow. The 1st conclusion could (but does not necessarily) accompany the reported survey results. The second conclusion would NOT logically follow from the survey results.

If the Times wishes to report economics it might address a significant economic proposal--e.g. Obama's proposed change in social security. This would involve outlining the specifics needed to implement that change. Simple mechanics, phasing and blending with the tax code, themselves pose serious issues. Such changes have been contemplated in the past and the actual implications warrant a discussion.

If the Times wishes to examine Presidential surveys do it seriously, e.g. the source & validity of the estimates of reported standard errors.

W Barnes

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aaron

T-Bone. Gas consumption is barely down at all. It's probably best described as flat compared to last year. See the Energy Information Administration (part of DOE). They calculate gasoline consumption, the term they use is Finished Motor Gasoline Product Supplied (excel data availible here. Comparing the first three months of this year with last year, consumption is down only .22% (compare with estimates of 4.3% less miles driven this year).

Michael Hern

To DJH,

Economists tell it like it is. If they wanted to create policy, they'd be politicians.

Economics isn't meant to dictate how people maximize their financial situation in the short run. The reason you seem them frown upon the McCain tax holiday is because it's just a temporary means of intervening in the market just to make life a little easier for gas pumpers.

The same goes for throwing cash at developing countries with absolutely no guidance. It's just a temporary solution that doesn't nip the problem in the bud.

So what solution would an economist propose to decrease the price? Increase the supply, or lower demand.

T-Bone

DJH,

I think economists due indeed suggest solutions. I think that if that's not very visible, it's because proposals only become visible when politicians propose them. Then they are either supported or criticized by economists.

The best economist I've every followed is Robert Reich. To this day, I've never heard him saying anything I've disagreed with in the slightest, and I'm quite picky on every detail, even the way things are stated. I don't like to hear anything unsubstantiated or political like you often see from someone like Paul Krugman. Reich keeps it pure, well-reasoned, amazingly concise economics.

Anyway, you should check it out for yourself:

http://www.robertreich.blogspot.com/

On June 6th, he explains the problem of weak consumer spending, and explains solid solutions. June 3rd has him explaining a few specific steps needed regarding public transport. His May 20th post suggests establishing a national capital budget that ranks infrastructure projects in order of priority so that the projects with the highest returns get funded without being dependent on random earmarks that have little relation to priorities. He calls it a "win-win-win".

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scott

Wow. Maybe, just maybe, the American people get it: that McCain really does not have a grasp on economic matters. Or that he does not have a grasp on energy matters in general. He is just another drill-our-way-out-of-it Republican. What we need is a floor price on gas, extension/enlargement of the alternative energy credits, a Marshall plan where the local/state/federal governments put solar panels on every building they have, new LEED building standards required.....we have got to get serious folks, not talk about a silly gas tax holiday.

Carl

What exactly is a "so-called economist", and how does a so-called presidential candidate tell one apart from an actual economist?

T-Bone

DJH, mass transit doesn't actually have to be used by someone for them to benefit from it. Install mass transit where other people will use it will lower demand for gas, lowering the price even for the person who doesn't use mass transit. And since the price of transporting food is a factor in the price, this also helps reduce food prices. Same thing with nearly any other service or consumer item that relies on gasoline.

Regarding declining gasoline usage, is that just in the US? Because developing nations like India and China are rapidly increasing their usage. Oil is a worldwide commodity, governed by worldwide supply and demand. I wouldn't think speculators could have any long term effect on prices unless they were taking the oil off the market, hording it. I don't believe that's happening. The are simply buying future contracts for oil if they expect the price will be hire at that time, and then sell the oil at that time at the current market price. They only profit at the expense of those who sold the futures (basically speculators betting that the price would go down). If prices were lower than what they paid, they'd lose money. But there is still the same amount of oil on the market, regardless of what speculators do, and so the same laws of supply and demand apply.

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DJH

CORRECTION: I should have typed "reductio ad absurdum" not "argumentum ad reductio."

Imad Qureshi

"trust[s] the people and not the so-called economists to give the American people a little relief."

As silly statements go, this one takes the prize. So next time for his health problems he should listen to what people say rather than his doctor's advice.

Charles D

Are polls ever considered very reliable information? Most of these presidential polls are going to boil down to "Are you voting for Obama or McCain?"

RZ

Isn't the whole point of a free market to "trust the people" rather than having government govern economics? With this housing bust, seems to me that there shouldn't be too much confidence in the people!

BIGJT

DJH, you make some great points but there are a few things that I am not clear on, and could probably use some further explanation.

Do we have evidence that all economists as a whole have no ideas? Or is it more likely that either you are not aware of them because they have not entered the mainstream political discourse? At this point I would bet on firmly the latter.

Also, I do not see how it follows that if you disagree with someone you would be required to provide an alternative course of action.

Finally, even in the unlikely case that economists as a group have no ideas, it would be wrong to infer motives as to why none are forthcoming. It is quite a leap to suggest that they are indifferent to the status quo.

Your frustration is understandable, but I am not sure that I agree with your conclusions as to causes or a course of action.

McCain has put forward nothing more than a political ploy that has no grounding in either theory or practice. The fact that it is the only idea on offer(that you or I are aware of at this moment) does not make it a good one.

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Charles

Why to politicians continue to try to solve our problems? I think we need a screener agency that looks at all the ideas and labels them "stupid" or "worth a shot". Modeled after the FDA - nothing gets approved in less than 2 years of review.

Thankfully our political system is designed for gridlock. There is now a push for oil speculation regulation - says CNN. Check out the question Durbin poses..and I answer with "yes you missed all the writings of N.N. Taleb." There's nothing worse than a happy faced politician who's inadvertently killing you as he tries to help you.

"In two days, the price of oil rose $16," said Sen. Richard Durbin. "Did I miss something, was there some war in the Middle East?"

"No, something is going on besides supply and demand, and it could be excessive speculation."

T-Bone

Matthew R., I don't think these poll questions are simply loaded questions. They are different questions. I've seen other polls that seem slightly contradictory, but aren't really.

For example, when asked if they personally pay too much in taxes, most people say yes. But if asked if they'd be willing to pay more in taxes personally to have more people covered with health insurance, most people said yes also.

I think these polls can give good information as long as you can recognize what common answer the question might lead to. Then you just see the difference between what you expected and what you got.

DJH

The idea that gas is expensive because of supply and demand is, in a word, hokum. Demand is actually DOWN from a couple years ago (there've been notable declines over just the last few months), yet supply has been constant or increasing, over the same period. Still, prices continue to rise ... despite a recent downturn in demand. So it's literally IMPOSSIBLE for supply & demand to be the cause.

The real cause is that oil speculators have made themselves a bubble, and they're exploiting it for all they can get. Their suppliers in OPEC are also enabling them, because high speculation prices enhance their profits too.

It really is just that simple.

While I'm not an economist, I do understand "the profit motive." Anyone who thinks this is not in play here, is naive at best, possibly deluded, or at worst dishonest. An economist who denies it ... well ... I have no idea how anyone could be an economist and not know "profit-taking" when s/he sees it.

As for mass transit being the answer to high US gas prices ... no dice! People who live in one suburb but work in another, which accounts for a significant portion of the working population, generally cannot use mass transit. Places like the Bay Area and BART are great, but BART doesn't reach across the country. And building a countrywide BART does not appear to be in the offing.

My initial comments, moreover, were about the OVERALL loss of buying-power for the US consumer. I used gas prices as ONE example of that. Gas prices are NOT the ONLY problem. Mass transit is NOT going to help rising food prices. It is also NOT going to help other sectors of the economy which will in turn be affected by rising energy and food prices.

Anyone who responded to my comments by concentrating only on gas prices, missed what I said completely ... which unfortunately does not surprise me. I'm not sure why people conflate the example with the problem -- and thus end up responding with a fallacious argumentum ad reductio -- but it's a common reaction.

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Joel

The gas tax relief is pure pandering. Its a drop in the ocean as far as our countries debt service goes, but a swing of a few votes here and there would help McCain greatly.

Don't get me wrong, its an awful idea. But a lot of awful ideas get bandied about in politics.

DJH

Here's what I don't get about economists. In the US, we have rising energy and food prices, which are eroding consumers' buying power. That is a fact, it's happening, it's real.

Granted, politicians have offered a lot of stupid ideas to deal with that and supposedly correct it. Let's set aside that none of these proposals will work (since, let's face it, politicians rarely want to really solve problems at all).

But I know of no economist who's proposed any solution. I can only conclude, from this, that economists consider the loss of consumers' buying-power in the US to be a good thing.

This is extremely odd. Surely they are as affected by this erosion as anyone else in the US? Perhaps since most have above-average-paying jobs, they can better afford to have their buying-power eroded. Maybe it doesn't mean as much to them as it does to the rest of us.

But consider: A year ago I could fill my gas tank for $20. Now it costs $30. That's as if someone is swiping a sawbuck from me each time I fill up. If a robber were taking money from people's wallets while they paid for gas, that person would be arrested, tried, and imprisoned for it.

Economists who refuse to offer any solution are, essentially, arguing in favor of that thief lurking at the gas station, if it were a person taking that extra money rather than "economic forces."

However, I fail to see any qualitative difference between losing money to an abstract "economic force," or to a real thief. Losing money is ... well ... losing money! A loss is a loss is a loss, no matter where it comes from.

This may be a wild assumption, but I presume most economists would NOT be too happy if a thief sneaked a sawbuck out of his/her wallet each time s/he filled up with gas or went to the grocery store; s/he would want that thief prosecuted. So I find it difficult to believe they largely are uninterested in getting back the buying power that they -- and everyone else in the US -- have lost.

This makes me wonder what sort of incentives may be in place which encourage economists to think positively of economic downturns. Are they somehow profiting from the loss of buying-power on the part of the American consumer? (Hmm. "Incentives." Sounds almost like economics, no?)

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