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Archive: May 2008

Clinton on Social Stratification in America

Bill Clinton, on the campaign trail for his wife, in West Virginia last week: "The great divide in this country is not by race or even income, it's by those who think they are better than everyone else and think they should play by a different set of rules. In West Virginia and Arkansas, we know that when we see it."

I don't think that Rush Limbaugh could have said it better.

Clinton and the Economists

Hillary Clinton got it exactly right when she told George Stephanopoulos earlier this week that: "...for the last seven years [we've been] seeing a tremendous amount of government power and elite opinion basically behind policies that haven't worked well for the middle class and hard-working Americans."

Unfortunately, she chose to take her stand on an issue where she is dead wrong, so wrong that she certainly understands that she is dead wrong, which makes her stand an entirely cynical act. What economists on the left, right, and center all agree on is that a gas-tax holiday will not lower the price of gas by any significant amount, and therefore will provide little or, most likely, no relief to people struggling with higher gas prices.

The reason the tax cut won't make any difference is that the supply of gas for the summer is basically already fixed, a function of the lag time involved in turning oil in gasoline. Consumers have a maximum amount of money that they will pay for the volume of gasoline that will be available this summer. They will pay that price whether all of it goes to the oil companies or that same amount of money gets split between the oil companies and the government in the form of a tax.

The situation would be entirely different if the supply of gasoline could respond rapidly to the change in taxation. If that were the case, then the reduction in tax would encourage the refineries to increase supply helping to lower the price at the pump. Since that can't happen, lowering the tax basically amounts to a direct transfer from the federal government to the oil companies, with little, likely no, benefit for consumers.

But Clinton's position on this is even more cynical than that. She has chosen to take a stand against the economics profession on an issue that undermines the cause of progressives. It is not just that progressives --economists, environmentalists, opponents of sprawl, etc.-- rightly argue that energy should cost substantially more than it does now. It is that she could have chosen to take a stand against economists on any number of issues where economists as a block do, exactly as she said, push for policies that have not worked well for middle- and working-class Americans: welfare reform (which her husband signed in 1996); the recent bankruptcy bill (which she supported); trade policy (where her recent skepticism has been broad but shallow, and not nearly as well articulated as her position on the gas tax); a security transactions tax; and many others.

By choosing to fight her ground on the gas-tax, Clinton sends a not-too-subtle message that she isn't really serious about taking on the economics profession. Remember, just a few weeks ago, she suggested that she would deal with the housing-bubble collapse --an economic fiasco that almost the entire economics profession ignored (when they weren't positively applauding it)-- by appointing a blue-ribbon committee of Paul Volcker, Alan Greenspan, and Robert Rubin.