Election '08: Gas Tax Holiday Is a Pipe Dream
There is an important lesson for investors in the current controversy over federal gasoline taxes. Don't confuse campaign rhetoric with public policy. Campaign proposals are quickly spawned and have a short life. Actual policies emerge from a gauntlet where many different actors can force compromises.
It is a theme that will be replayed many times in the coming months.
Berkeley economist (our regular readers know that we see this as a positive credential) Brad DeLong laments as follows: "Why oh why can't we have less dishonest presidential candidates?"
That sums it up for the economists and also for many market pundits. It is a bit sanctimonious, a position that reveals a lot of understanding about economics but little about the political system.
The Economist's View
Our work in three different environments -- the university, the government, and the investment community -- always has a common thread. We identify and use the best expertise from everyone. This includes team-taught seminars in universities, multiple perspectives on papers for government research, and our current -- and quite successful -- investment philosophy.
The academic world is actually quite insular. While we applaud the foray of economists into the public policy realm, they have a lot to learn about political science. (And the scientists and political scientists have much to learn about economics!)
As we have noted, the proposal for a "vacation" from the national gas tax is an idea of dubious economic merit. Everyone seems to have chimed in on this theme.
Phil Izzo at
The Wall Street Journal's
"Real Time Economics" page has a terrific summary of economic commentary on the gas tax holiday proposal. The key points can be summarized as follows:
- Justin Wolfers of Freakonomics put out the call for an economist who supports the plan last week, and he still has no takers.
- There is a petition signed by many leading economists showing the flaws of the proposal -- encouraging consumption, sending more profits to oil companies, providing little relief and exacerbating deficits.
- There is near-universal condemnation of this plan.
The Political Reality
Candidates are locked into a struggle to attract marginal voters. Most people (nearly two-thirds) believe that the cause of high oil prices is either Big Oil (40%) or the administration. Those who want more detail can check out
my blog for a more complete analysis.
The candidate is faced with a classic dilemma: Should one attempt to educate voters and lead or go with the flow?
It is an easy choice. Candidates believe that victory would be good for everyone -- the American people as well as themselves. If they did not have this viewpoint, they would not be running. They are well aware of that their proposals have no immediate chance of enactment, so it is a "free shot."
The real problem is the underlying distribution of voter opinion. Professor DeLong would not complain about the demand curve for housing or refrigerators or baseball tickets. It would be taken as given. It is not the job of the provider of goods or services to alter demand, although firms sometimes attempt to do so.
Such is the case in political "markets." The problem is not with the candidates but with the voters.
Expect More of the Same
As we have noted in prior articles in the election 2008 series, the electorate changes as the campaign progresses. Candidates respond to the reality of the distribution of voter opinions.
The popular term for this is "pandering," with a pejorative sense. If economists like DeLong were advising a campaign, there would be a choice to be made.
As the electoral process moves forward, the interested public expands to include those who have less information and who are more susceptible to pandering. A candidate who does not respond is at a disadvantage. This will get more extreme when the serious attack ads begin.
As participants in our democracy, we can join in the DeLong lament. We can object to negative advertising. The problem is that these tactics are effective in gaining votes.
Investors should develop a certain detachment, not allowing their personal views about the process and the arguments to affect their investment views.
Much of the current posturing does not reflect the actual policy proposals that we will see after the election. It certainly does not reflect the potential for passage.
Jeffrey Miller is president and CEO of NewArc Investments, a registered investment adviser, and Capital Markets Research.
Miller writes about the market, interpreting data, and finding the right expert at his blog, "
. He is writing about the 2008 presidential campaign and the implications for individual stocks and the market at
. His investment company, with programs for both individual and institutional investors, is
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Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Miller appreciates your feedback;
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