In Praise Of Obama’s Economics

The New York Times reports:

Senator Hillary Rodham Clinton lined up with Senator John McCain, the presumptive Republican nominee for president, in endorsing a plan to suspend the federal excise tax on gasoline, 18.4 cents a gallon, for the summer travel season. But Senator Barack Obama, Mrs. Clinton’s Democratic rival, spoke out firmly against the proposal, saying it would save consumers little and do nothing to curtail oil consumption and imports.

The price of gasoline is set by supply and demand, meaning that if you remove taxes, the price will (atleast in the short term) still rise to the same level – with Iran, Saudi Arabia, and other big oil producers benefiting from the lost tax revenue. For more on the economics of this, see here. Greg Mankiw has more. Paul Krugman has more.

Update: Megan Mcardle has more and more. Kling has a simpler explanation.

6 Responses to “In Praise Of Obama’s Economics”


  • I suspect Obama has no greater understanding of economics than do McCain and Clinton, he is just less likely to play politics than they are. In other words, it would truly surprise me to learn that either McCain or Clinton actually believe in what they are proposing – it’s a cynical grab for votes by them, nothing more. That says something for Obama.

  • In such a short term, I doubt demand would be affected much; American car consumption is a small fraction of world oil consumption, and even with the tax holiday gas will still be quite expensive.

    But in the longer term, we should probably _raise_ gas taxes and drill domestically. This would reduce gas consumption and reduce oil imports, strengthening the dollar. If we raised taxes, we should offset the tax by a revenue-neutral, front-loaded payroll tax reduction to take the stress off the poor, where the gas tax will hurt most.

    (That said, no way I’m voting for Obama: he’s a hardcore leftist and the second coming of Jimmy Carter…)

  • LAURENCE B

    Maybe we should have Bush for another 8 years, as Im sure the MBA president with his superb economic team would get us out of the current mess HIS ECONOMIC POLICIES CREATED…

    I see a grab for votes telling the American people that there tax cut plans would dissproportionately go to the poorest Americans, when the opposite was in fact what happened…Cutting taxes by the Bush team rally reallly stimulated growth these last 8 years

  • Regarding Foobarista’s remark, doesn’t the US account for about half of world consumption? At any rate, this idea that we’ll reduce the price bubble (if it is indeed a bubble) by stimulating consumption during the season of highest demand is ludicrous. Of course, this won’t happen (to my knowledge, neither McCain or Clinton have introduced bills and if they did, they wouldn’t pass anyway) but this pandering to populist sentiment gives us a taste of what we can expect from a McCain or Clinton presidency. This seems especially problematic for McCain who has gotten to where he is based on the perception that he’s some sort of “maverick” who is deeply principled.

  • Looking up the figures, it appears that the US consumes 25% of the world’s oil and has about 2% of the world’s reserves. This being the case, the McCain/Clinton taxcut on gas is probably one of the most effective policies they could dream up if our goal is to send (even more) US dollars overseas.

  • Gerardo,

    I’m curious – are you arguing that tax cuts, yes even Bush’s tax cuts, don’t stimulate an economy? And/or, are you arguing that somehow those tax cuts helped get us in the ‘current mess’? If so, please elaborate on how you come to those conclusions…how do you connect the dots?

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