Someone teach Clinton and McCain some economics please

Ok folks pay attention. I’m going to be discussing one of those subjects that made your eyes glaze over, and your head ache in high school and college….. Economics.

In the final days of the run up to the Indiana and North Carolina primaries we have three candidates slugging it out over a supposedly simple idea of removing the $0.184 federal gas tax for the upcoming three months of the summer. What surprises me more than anything about the entire discussion is how the two candidates favoring this “gas tax holiday”, John McCain, and Hillary Clinton, seem to be under the impression that a vast majority of us voters have less understanding of simple economic theory then what little they appear to have.

First let’s look at John McCain’s proposal. Just drop the federal gas tax, and don’t do anything else except promise to put the estimated $8.5 BILLION dollars in lost revenue for the Federal Highway Trust, back in from the general fund. I thought there were supposed to be fiscal conservatives in the GOP? So McCain wants to tack on another $8.5 billion dollars on to the already nearly $10 trillion national debt. If we calculate the additional interest payments on the additional $8.5 B, we are adding an additional $255 million dollars at just a 3.0% interest rate (pretty cheap interest eh?). From a economic principle viewpoint, this is not an incredibly sound idea. The US dollar is already falling in value against world currencies with our increasing debt and foreign debt ownership, that it may be impossible to ever have a “strong dollar” monetary policy again. And what does a weak dollar do to us average working Joes and Janes that the gas tax holiday is supposed to give some relief? It makes every barrel of imported oil more expensive when paid in US dollars. Now here is where a little economics come in. If the raw materials (imported oil) cost more to acquire (due to falling US dollar value), the end product costs more to purchase. So not only does the tax holiday put us farther in the hole with the national debt, but will likely end up actually causing an increase in imported oil. There are times when I really believe that John McCain was telling the truth when he said he didn’t understand the economy.

Now let’s look at Hillary Clinton’s proposal. Drop the federal gas tax, but put a “windfall profits” tax on the oil companies so that they pay the tax instead of you and me. So first off the process of taking the federal gas tax money from gasoline suppliers and depositing directly into the FHT will have to be replaced by some system of applying a “profit” tax on oil companies, collecting it, and then making sure that it gets into the FHT. So theoretically, we get that $0.184 off at the pump, but oil companies know that uncle Sam is going to be coming around to get it later from them, so to ensure that their shareholders aren’t getting shorted (after all, corporations really only answer to their shareholders), quickly pass on all or most of the gas tax back to their customers, which eventually ends up right back on the pump saving us absolutely nothing. Meanwhile everyday Joes and Janes thinking they are going to get a little more gas for the money, start driving more than they planned, and demand goes up. Now this is where we get back into economic theory again. If you have an already short supply product which is driving prices up do to over demand, and you increase the demand, the price continues to go UP. So not only are the oil companies making us pay the gas tax by passing their additional tax cost on to us consumers, the increase in demand simply continues the rapid push of prices upwards, making it worse than it was before.

But even with all this fundamental economic reasoning for the gas tax holiday being a really dumb idea, the problem becomes even bigger at the end of the three months when there hasn’t been any decrease in demand, the tax has been passed on to us anyways, and we have increased our national debt by $8.5 B. At the end of the three months, what then? Who is going to be the one to tell the American people, “well we gave you a break, it didn’t really help much, but we are sorry, we have to add the gas tax back in at the pump now”? Does anyone honestly think that during an election campaign for president that either Clinton or McCain are going to be willing to ADD the $0.184 back into the mix prior to the election?

I think not.

Now I’m concerned that neither McCain, nor Clinton, know anything about the economy. The only one of the three current candidates that seem to have this whole idea figured out right, and is against it, is the one that supported a similar idea in Illinois, until they found out it didn’t work. And they say he has no experience? At least he learned from previous attempts at this gas tax holiday hocus pocus.