The Gas Tax and the New Economics of Shame
My gas tax challenge still remains unanswered: Try to find any coherent economist willing to support Senator John McCain’s proposed gas tax holiday.
In May, George Stephanopoulos posed my challenge to Hillary Clinton, who famously responded that she was “not going to put my lot in with economists.” I didn’t like her response, but at least it was honest.
On Sunday, Stephanopoulos posed the challenge to McCain and elicited a truly bizarre response.
Stephanopoulos: Not a single economist in the country said it’d work.
McCain: Yes. And there’s no economist in the country that knows very well the low-income American who drives the furthest, in the oldest automobile, that sometimes can’t even afford to go to work.
McCain’s response — attack the economists — has now become a recurring theme of the campaign. I agree that we economists need to understand the lives of the folks we study. But my understanding of Average Joe is not going to help me better understand the impact vs. incidence of a gas tax. Empathy cannot change an elasticity.
And then Stephanopoulos continued, pushing the economic argument:
Stephanopoulos: But they all say that … the oil companies, the gas companies are going to absorb … any reduction.
McCain: … they say that. But one, it didn’t happen before, and two, we wouldn’t let it happen. We wouldn’t let it — Americans wouldn’t let them absorb that.
Stephanopoulos: How would you prevent that?
McCain: We would make them shamed into it. We, of course, know how to — American public opinion. And we would penalize them if necessary. But they wouldn’t. They would pass it on.
Stephanopoulos: Let me ask you about …
McCain: But let me just finally say, Americans need trust and confidence in their government.
McCain’s response — that tax incidence is a function of shame — is completely novel to me. Does shame really determine oil prices? If so, why aren’t the oil companies already feeling ashamed of high oil prices? I don’t get it.
And if shame doesn’t work, Mr. McCain would “penalize them.” Is he suggesting price controls? Or something else? Help me.