Shame Economics

Many analysts believe that the incidence of the gas tax falls mostly on oil companies rather than on gasoline consumers and that, therefore, a "gas tax holiday" as proposed by John McCain would do much more to increase the profitability of oil firms than to help out average Americans. Michael Cohen notes that when McCain was asked about this he gave a notably unimpressive answer not disputing the analysis, but instead underscoring that he really has no capacity to discuss domestic policy:

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.

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.

Yes, that's right, McCain will combine a tax cut with a program to shame oil companies into cutting prices.

Meanwhile, though it's true that lower income people generally spend a higher proportion of their income on gasoline, the claim McCain is making here about poorer people having higher absolute levels of gasoline consumption is wrong. Cars are pretty expensive (obviously) and consequently the carless is a disproportionately poor group. Beyond that, a relatively low-income family is more likely to be getting by with one car whereas a well-off family will have two cars for the grownups plus one for every driving age kid.

But all that aside, McCain's total non-response to this critique of one of the main elements of his energy policy is really staggering.

Photo by Flickr user North Bay Wanderer used under a Creative Commons license

Comments

Can we all just admit the truth: McCain doesn't have a clue about what he is talking about on a wide range of issues. He's not fit to be President.

For years he has winged it and gotten by in the Senate. The only thing he is really passionate about is going to war.

It's also amazing how he imagines economics to be totally governed by psychology. He imagines he can lower oil prices through psychology, and now apparently keep oil companies from absorbing more profit through psychology as well.

McCain really does buy into the economic ideas of Phil Gramm, whereby we just kind of control the economy through some sort of attitude and mind control. It's really rather bizarre, and shows no understanding of the real world factors that influence the economy.

Sure, to a certain extent psychology matters, but it is a small factor, especially in the long run.

McCain gets scarier and scarier each day...it would be a sad day for America if he ever got into the White House.

Posted by cm | July 27, 2008 10:07 PM

Even shorter:

McCain doesn't deal with reality, he just wishes away inconvenient facts.

And I kinda think we have had enough of that for a while.

Posted by DTM | July 28, 2008 10:37 AM

Is it really staggering, Matt? Even GOP strategists are calling his campaign pathetic, take a look:

http://strategy08.wordpress.com/2008/07/28/gop-strategists-call-mccains-campaign-pathetic/

p.s. the #1 reason his campaign is pathetic is because the candidate himself is. When you're convinced of your own self-worth to the degree that you can't be bothered to answer basic questions, you're not qualified.

Posted by Dan | July 28, 2008 10:39 AM

Did he really say we would shame oil companies into reducing prices and taking lower profits?

Posted by Tony Adams | July 28, 2008 10:42 AM

My theory is that McCain doesn't care about the outcome of the policy. The issue and policy are simply platforms that allow him to act "honorable" and "determined". The issue interests him to the extent that "shaming" oil companies -- whatever that means -- allows him to appeal publicly to their sense of duty and honor, the same way that "not giving up" in Iraq allows him to talk about honor and duty.

He just wants everyone in the country to act based on his own senses of honor and duty. Whatever happens as a result is pretty irrelevant to him.

Posted by Pesto | July 28, 2008 10:42 AM

But that's the problem with corporations -- you can't shame them. In the words of Andrew Jackson (?) they "have neither bodies to kick nor souls to damn".

That's why we need government regulation, etc. Libertarian types wanna go back to 18th century liberalism? Well, then we need to go back to the sort of economy imagined by 18th century liberals -- no corporations, as many people yeoman farmers as possible, etc. If you want the modern, post-industrial economy, we need to have the appropriate government to match!

Posted by DAS | July 28, 2008 10:45 AM

We here at Very Big Petroleum would like to assure the American people that we feel just awful about our recent behavior, and we promise that if you just avoid from directly regulating us or taxing us in any way, we will do our utmost to resolve this issue in our own sweet time.

Posted by El Cid | July 28, 2008 10:47 AM

My theory is that McCain doesn't care about the outcome of the policy. The issue and policy are simply platforms that allow him to act "honorable" and "determined".

I agree with Pesto's theory. There's no evidence that McCain cares about any policy issues. He likes attention, wants to be president, and feels like it's his due.

Posted by Elvis Elvisberg | July 28, 2008 10:50 AM

true, mccain is pathetic. and unethical and a liar.
and the obama campaign needs to start saying so in whatever manner it finds palatable. this above-it-all, we-cannot-be-bothered-to-point-out-how-bad-mccain-is attitude is going to cost them down the line.
the obama campaign has unfortunately bought into the conventional wisdom that the campaign is truly ALL ABOUT OBAMA, and all they need to do is make voters comfortable with barack and the election is over.
while there is a good deal of truth to that sentiment, they should never forget that this is a contest between 2 candidates, and if mccain keeps hammering at obama, and is ultimately successful in driving his narrative home - that obama is a scumbag who will say anything to get elected - obama loses.
by essentially conceding that mccain is an honorable and decent man who they just disagree with, obama unwittingly gives power and authority to the very attacks that may derail him.
if mccain is so honorable and decent, well, what he says, no matter how tough and mean...well, it just might be true...
the sooner they realize that and start campaigning against mccain the easier their path to the presidency will be.

Posted by frankie d | July 28, 2008 10:54 AM

Once again, life imitates satire....

"President Bush is doing everything he can to keep gas prices down -- from supporting nuclear energy to making oil companies so profitable that maybe they'll get sick of money and pass the savings on to you."

Daily Show: Grand Heft Auto

Posted by Royko | July 28, 2008 10:55 AM

S: Not a single economist in the country said it’d work.

M: 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.

If Stephanopoulos had blinked his eyes a few times after that response and then said, "What the Hell does that even mean?" I would have considered him redeemed for the ABC debate fiasco.

Posted by Just Dropping By | July 28, 2008 10:56 AM

"Many analysts believe that the incidence of the gas tax falls mostly on oil companies rather than on gasoline consumers..."

Matt still isn't getting this quite right. It's not that as a general matter the gas tax falls mostly on oil companies. It's that in the short term situation of fixed supplies plus high inelastic demand, any reduction in cost of supply just results in higher profits to suppliers. Proposing a gas tax holiday after summertime gas supply decisions have been made provides no benefits to consumers, but longer term gas tax cuts could provide benefits (they'd just be stupid for other reasons).

Posted by Brian Schmidt | July 28, 2008 11:11 AM

If Stephanopoulos had blinked his eyes a few times after that response and then said, "What the Hell does that even mean?" I would have considered him redeemed for the ABC debate fiasco.

I think my follow up question would have been:

"So it's your contention, Senator, that you are uniquely positioned to understand the plight of the poorest Americans to a degree that not a single economist in the country is capable of?"

Posted by mpowell | July 28, 2008 11:21 AM

I think we've reached the point where McCain's utter incompetence has become one of those things -- like FDR's polio or GWB's lack of gravitas -- that the press has decided must be kept from the American for patriotic reasons. Seriously, GWB at least had the discipline to stay on message and have two or three coherent, if dishonest, things to say about his pet issues.

Posted by pjs | July 28, 2008 11:22 AM

Hey, at least it's better than his explanation to the Kansas City Star.

In that case the experts didn't like his plan because they ride chauffeured limousines to work or live in Georgetown & walk.

There's no concept that experts might actually know something about their area of expertise.

Posted by msi | July 28, 2008 11:33 AM

frankie d: "...they should never forget that this is a contest between 2 candidates."

The failure to exploit these countless laughable soundbites from McCain is a bit puzzling -- and even strangely reminiscent of the non-response to swiftboating.

Even a rank amateur could assemble a devastating ad montage of McCain idiocies and contradictions from hours of footage available on YouTube and elsewhere.

So you gotta believe that Obama is holding back until the fall, when voters start paying more attention. So far the campaign seems to be overrating the dangers of attacking a beloved -- or so they imagine -- war hero and public servant.

Posted by Rune | July 28, 2008 11:39 AM

frankie d: "...they should never forget that this is a contest between 2 candidates."

The failure to exploit these countless laughable soundbites from McCain is a bit puzzling -- and even strangely reminiscent of the non-response to swiftboating.

Even a rank amateur could assemble a devastating ad montage of McCain idiocies and contradictions from hours of footage available on YouTube and elsewhere.

So you gotta believe that Obama is holding back until the fall, when voters start paying more attention. So far the campaign seems to be overrating the dangers of attacking a beloved -- or so they imagine -- war hero and public servant.

Posted by Rune | July 28, 2008 11:43 AM

Disengenuous and/or dishonest as McCain is on a lot of things, he's got a (muddled) point on gas usage by economic cohorts.

Building tradesmen tend to drive long distances to and from worksites, or to a succession of worksites, and typically drive low-mileage trucks and vans whose fuel efficiency is further diminished by the weight of the tools and materials they carry.

Few of these people make high wages, and a lot of their work is seasonal, so they are more likely to have side jobs. Their household incomes also are more dependent on spouses working. Still more fuel consumption.

Given their incomes, tradesmen's residential choices are either urban slums or fairly distant suburbs where property is cheaper. (In the Northern VA suburbs of DC, for example, you'll find more tradesmen living in Prince William and Stafford than in Arlington and Alexandria.) Still more fuel consumption.

Lifestyle plays into this as well: People who work outdoors tend to play outdoors (hunting, fishing, etc.), and gravitate to the outdoorsy fringes of metro areas.

So, in both relative and absolute terms, your average carpenter, plumber or bricklayer spends a lot more time driving, and a lot more on gas, than most white-collar workers.

Posted by allbetsareoff | July 28, 2008 11:46 AM

frankie d: "...they should never forget that this is a contest between 2 candidates."

The failure to exploit these countless laughable soundbites from McCain is a bit puzzling -- and even strangely reminiscent of the non-response to swiftboating.

Even a rank amateur could assemble a devastating ad montage of McCain idiocies and contradictions from hours of footage available on YouTube and elsewhere.

So you gotta believe that Obama is holding back until the fall, when voters start paying more attention. So far the campaign seems to be overrating the dangers of attacking a beloved -- or so they imagine -- war hero and public servant.

Posted by Rune | July 28, 2008 11:47 AM

Estimated gasoline consumption (US gallons) per person by income quintile, 2006

Lowest 223
2nd 282
3rd 333
4th 386
Highest 432

So, people in the highest quintile consume gasoline at about twice the rate of people in the lowest quintile.

This is based upon Consumer Expenditure Survey data and a price for gasoline of $2.618.

http://www.bls.gov/cex/2006/Standard/quintile.pdf
http://tonto.eia.doe.gov/dnav/pet/pet_pri_gnd_dcus_nus_a.htm

Posted by Fred | July 28, 2008 11:49 AM

frankie d: "...they should never forget that this is a contest between 2 candidates."

The failure to exploit these countless laughable soundbites from McCain is a bit puzzling -- and even strangely reminiscent of the non-response to swiftboating.

Even a rank amateur could assemble a devastating ad montage of McCain idiocies and contradictions from hours of footage available on YouTube and elsewhere.

So you gotta believe that Obama is holding back until the fall, when voters start paying more attention. So far the campaign seems to be overrating the dangers of attacking a beloved -- or so they imagine -- war hero and public servant.

Posted by Geaghan | July 28, 2008 11:57 AM

I agree with Rune, that the Obama campaign is likely holding all this ammo until after the convention.

What really came to light for me from McCain's sit down with Stephanopolous was that he is actually every bit as dumb and uninterested in policy as W, but -- again, having run against Bush in 2000, he is still portrayed as kind of the anti-Bush Republican by the press.

That just makes it all the more infuriating when he underlines his disagreements with Obama using phrases such as, "He has no idea..." Why he gets a free pass at calling Obama clueless is beyond me.

Posted by LIJ | July 28, 2008 11:57 AM

Meanwhile, though it's true that lower income people generally spend a higher proportion of their income on gasoline, the claim McCain is making here about poorer people having higher absolute levels of gasoline consumption is wrong.

Well McCain is also talking about the Republican formulation of the deserving poor, right? You know, the Hard Working American who lives out in the reddest part of a red state, driving his 40 year old pick up truck to work.

Republican references to "the poor" always implicitly ignore the urban poor (because they're all lazy welfare cheats, obviously), who very rarely have cars because they can, and usually must, go without.

Posted by NS | July 28, 2008 11:59 AM

frankie d: "...they should never forget that this is a contest between 2 candidates."

The failure to exploit these countless laughable soundbites from McCain is a bit puzzling -- and even strangely reminiscent of the non-response to swiftboating.

Even a rank amateur could assemble a devastating ad montage of McCain idiocies and contradictions from hours of footage available on YouTube and elsewhere.

So you gotta believe that Obama is holding back until the fall, when voters start paying more attention. So far the campaign seems to be overrating the dangers of attacking a beloved -- or so they imagine -- war hero and public servant.

Posted by Rune | July 28, 2008 12:00 PM

rune,
unfortunately, i do not get the feeling that the obama campaign has any intention of turning up the heat on mccain.
i get the impression that they are very comfortable having the campaign focus on the question of obama's readiness for the presidency.
i think they see this as a replay of 1980.
my guess is that they feel that the debates will allow them to finally, as reagan did, reassure the american people about his readiness for the presidency.
imho, i think that such a view is a gross distortion of what actually happened in 1980.
without the iranian hostage crisis, reagan never gets elected. yes, it helped that he didn't threaten to nuke the soviet union during the debates, but his election was entirely dependent upon the dissatisfaction that crystallized around the hostage incident.
what concerns me is the real lack of message discipline in the campaign.
for instance, for the life of me, i cannot imagine why any obama surrogate would neglect to start any discussion of the economy with a mention of phil gramm and whining americans and enron and the deregulation of the mortgage industry and an entire host of problems that can be tied directly to the people advising john mccain.
americans are not that dumb. they understand that bad things follow people, like gramm, who make consistently bad decisions. everyone has had an idiot boss who did dumb things that made life difficult for everyone.
the pieces of a very simple narrative involving gramm and his buddies and their crazy ideas and the resultant disaster is sitting right there, begging to be exploited.
i get the feeling that obama is going to stay away from that kind of approach and allow the election to turn on his own fitness for the office.
we'll see how successful that strategy turns out to be.
i know republicans are probably very happy with that approach.

Posted by frankie d | July 28, 2008 12:05 PM

frankie d: "...they should never forget that this is a contest between 2 candidates."

The failure to exploit these countless laughable soundbites from McCain is a bit puzzling -- and even strangely reminiscent of the non-response to swiftboating.

Even a rank amateur could assemble a devastating ad montage of McCain idiocies and contradictions from hours of footage available on YouTube and elsewhere.

So you gotta believe that Obama is holding back until the fall, when voters start paying more attention. So far the campaign seems to be overrating the dangers of attacking a beloved -- or so they imagine -- war hero and public servant.

Posted by Rune | July 28, 2008 12:15 PM

frankie d: "...they should never forget that this is a contest between 2 candidates."

The failure to exploit these countless laughable soundbites from McCain is a bit puzzling -- and even strangely reminiscent of the non-response to swiftboating.

Even a rank amateur could assemble a devastating ad montage of McCain idiocies and contradictions from hours of footage available on YouTube and elsewhere.

So you gotta believe that Obama is holding back until the fall, when voters start paying more attention. So far the campaign seems to be overrating the dangers of attacking a beloved -- or so they imagine -- war hero and public servant.

Posted by Rune | July 28, 2008 12:25 PM

frankie d: "...they should never forget that this is a contest between 2 candidates."

The failure to exploit these countless laughable soundbites from McCain is a bit puzzling -- and even strangely reminiscent of the non-response to swiftboating.

Even a rank amateur could assemble a devastating ad montage of McCain idiocies and contradictions from hours of footage available on YouTube and elsewhere.

So you gotta believe that Obama is holding back until the fall, when voters start paying more attention. So far the campaign seems to be overrating the dangers of attacking a beloved -- or so they imagine -- war hero and public servant.

Posted by Rune | July 28, 2008 12:28 PM

McCain really does buy into the economic ideas of Phil Gramm, whereby we just kind of control the economy through some sort of attitude and mind control. I

No, he doesn't "buy" anything. He just thinks that Phil is a really smart guy so he just assumes he's right. He doesn't understand that Phil's policies were implemented to disastrous effect. He doesn't understand that Phil has one goal; how to extract short-term gains at everybody else's expense.

McCain is every bit as "intellectually incurious" as Bush, and so doesn't question Phil or grasp that history has proven him to be a failure. Acceptance is SO much easier than thinking.

Posted by LFC | July 28, 2008 12:32 PM

My apologies for the multiple postings above -- I got an error message each time, but they posted anyway.

Seems to me that Obama could at least be responding in some minimal way to the latest nonissue from the McCain camp: the allegation that he doesn't care about U.S. troops because he couldn't bring the media to his planned visit to a base in Germany. The entry on the "Fight the Smears" site is effective, as far as it goes, but something more than that seems appropriate. The whole thing is bogus and it should blow up in McCain's face, though it probably won't.

Posted by Rune | July 28, 2008 12:48 PM

Brian: the incidence depends on the *relative" elasticities. If supply and demand are equally inelastic, the burden is split, with $.09 reduction for consumers and $.09 increase for the suppliers.

Posted by kevin quinn | July 28, 2008 12:55 PM

Brian: the incidence depends on the *relative" elasticities. If supply and demand are equally inelastic, the burden is split, with $.09 reduction for consumers and $.09 increase for the suppliers.

Posted by kevin quinn | July 28, 2008 12:56 PM

My apologies for the multiple postings above -- I got an error message each time, but they posted anyway.

The Atlantic message system is pretty crappy, but chances are high that if you get an error message it's been posted. Think of it as your "confirmation message" :)

Posted by JordanT | July 28, 2008 1:19 PM

Of course, the gas tax holiday will save his wife's company a lot of money !

Posted by H-BOb | July 28, 2008 1:29 PM

Obama is not much better. He implied that he believed the elasticity of demand was close to 1 when he claimed that the gas-tax holiday would not work, but then in the same statement would claim that he wants lower energy prices in the near term (which would require lower oil prices) and also plans on implementing a windfall profit tax on the industry. The problem is if you admit that you believe the elasticity of demand is close to 1 in the near term the two prior statements contradict one another, because those windfall profit taxes will be paid by the consumer at the pump.

Send Obama back to Econ. 101 for the lesson on tax incidence. Or more likely open your eyes and realize Obama is nothing but a pander bear.

Posted by Jay | July 28, 2008 3:25 PM

Fred: "So, people in the highest quintile consume gasoline at about twice the rate of people in the lowest quintile."

You must be one of those disconnected economists who doesn't understand the reality of poverty like John McCain does.

Honestly, how many servants do you have? None, I bet. Then how can you possibly sympathize with their way of life???

Posted by Grumpy | July 28, 2008 3:39 PM

Yeah, and if shaming them into it didn't work, McCain would go all seismic on them.

Posted by Cal Gal | July 28, 2008 5:32 PM