El Presidente Repeals Law of Supply And Demand

( – promoted by buhdydharma )

cross posted from The Dream Antilles

This past week we were all treated to a proposed executive repeal of the venerable Law of Supply and Demand by McCain and Clinton.  Today, not to be undone, El Presidente made it clear that they were too late, he had already issued an executive order nullifying the Law of Supply and Demand.  And by golly, he was going to take credit for that.

According to Bloomberg:

Hillary Clinton and John McCain are both pushing a “gas-tax holiday” to give consumers an 18.4- cent-a-gallon price break. Clinton says the plan will take excess profits from oil companies. McCain says it will help families buy school supplies.

Economists have a different take: They say the oil companies may end up the biggest beneficiaries, while the aid to families wouldn’t be enough to buy a $35 backpack.

The trouble with the plan, they say, is that oil prices are rising because of low supplies, and companies will continue to charge the average $3.60 a gallon and just pocket the money that would have gone to federal taxes.

And this doesn’t even mention that old bugaboo, the Law of Supply and Demand, which holds that decreasing price usually stimulates consumption.  This is that Law: If a bottle of beer was $2 and now it’s $1, wouldn’t you consider having 2 instead of one?  So the proposal, supposedly decreasing the price, would lead to greater oil consumption and then, uh oh, higher prices.

Fortunately, Barack Obama called bullshit on the proposal:

Slamming Clinton’s support for the gas tax holiday, [Obama] accused her of pandering to voters instead of offering a real solution to the energy problem.

“In a moment of candor, her advisers actually admitted that it wouldn’t have much of an effect on gas prices. But, they said, it’s a great political issue for Senator Clinton. So this is not about getting you through the summer, it’s about getting elected,” Obama argued. “This is what passes for leadership in Washington, phony ideas, calculated to win elections instead of actually solving problems.”

Obama said that a Clinton has deployed a surrogate, who is also lobbyist for Shell Oil, to pitch the gas tax holiday to voters. “It’s a shell game, literally,” Obama said. Some economists have said that the gas tax holiday may increase profits for the oil companies, as demand may rise with the reduction in price. The campaign said Obama was referring to Steve Elmendorf, a lobbyist for Shell Oil and a Clinton supporter.

2 points for a pun to Obama.  And this doesn’t even begin to touch the repeated calls on Righwing Talk Radio for a reduction not only of the federal gas tax, but also the state gas taxes.  This might add up in New York to the munificent sum of $40 cents per gallon, enough to reduce the price of regular gas from $3.65 to $3.20, reducing the price of a usual 15 gallon fill up from about $54.75 to $48.00, a saving of precisely $6.75 per fill up.  Whoop de F*ckin doo.  I bet that will buy a lot of stuff.  I bet that will really relieve your budget pressure.  And let’s completely omit that the Treasury needs the money from these taxes to build highways and roads.  So where is that going to come from?

Not to be undone by the arrant stupidity of the gas tax proposals, the MBA-in-chief today pointed out in his weekly radio address that the candidates were too late to repeal the Law of Supply and Demand.  Way too late.  El Presidente had already done it by fiat, and he intended to take full credit for it and its consequences.  In his weekly massage El Presidente explained:

U.S. President George W. Bush sought to assure Americans on Saturday that federal checks en route to them as part of a stimulus plan will help spur the ailing economy and pay for soaring gas and food prices.

“These rebates will deliver up to $600 per person, $1,200 per couple, and $300 per child,” Bush said in his weekly radio address.

“This package will help American families increase their purchasing power and help offset the high prices that we’re seeing at the gas pump and the grocery store,” Bush said, adding it would also provide tax incentives for business to invest and create jobs.

First, when a plunderer Rethuglican says “for business to invest and create jobs” you can invariably translate that language as “increase profits.”  It’s only if the shareholders aren’t too demanding for cash that there’s going to be any investment, and only if there’s investment can there be job creation.  This is Rethuglican talk, after all.  It means the money might trickle down.  But not necessarily.  Don’t hold your breath.

“Offset” is the term El Presidente used that’s most intriguing, most worth thinking about.  “Offset” is maybe an accounting term, but, alas, it’s not an economics term.  There is no such thing as “offset.”  If I receive $600 from El Presidente, and I spend it on gasoline this increases demand for gasoline, and voila! eventually increases prices.  If I receive $600 from El Presidente, and I spent it at Wal-mart, that increases revenues to Wal-mart, which will use the increased funds to hoard profits or maybe stimulate production of junky plastic things in China.  The money will flow to shareholders’ pockets or maybe to China.

How, you might wish to ask, does increasing gas consumption and driving prices higher “offset” anything?  Doesn’t that, in fact, make things worse?  A whole lot worse by continuing the current spiral?

Now you’re getting it.  If somebody arrived from another planet and looked at what’s going on with these proposals, s/he would think, “Oh, they’re just finding ways of putting more dollars in the pockets of the big capitalists.  And they’re marketing that to the plebians as if it were a balm for their economic woes.”  That would be about right.      

18 comments

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  1. Either way, if you write your comments on the back of a nice, crisp $20 bill and send it to me, I’m sure this diary can be a part of my personal, economic stimulus package.  

    Thanks for reading.

    • Edger on May 4, 2008 at 12:47 am

    So this is not about getting you through the summer, it’s about getting elected,” Obama argued. “This is what passes for leadership in Washington, phony ideas, calculated to win elections instead of actually solving problems.”

    Round and round we go.

    The single most important job of any president is to protect the American people,” [Bush Clinton Obama] affirmed in a major foreign-policy statement last April. But “the threats we face…. can no longer be contained by borders and boundaries…. The security of the American people is inextricably linked to the security of all people.” That’s why the U.S. must be the “leader of the free world.” It’s hard to find much difference on foreign policy between Clinton and Obama, except that Barack is more likely to dress up the imperial march of U.S. interests in such old-fashioned Cold War flourishes.

    That delights neoconservative guru Robert Kagan, who summed up Obama’s message succinctly:  “His critique is not that we’ve meddled too much but that we haven’t meddled enough…. To Obama, everything and everyone everywhere is of strategic concern to the United States.”  To control everything and everyone, he wants “the strongest, best-equipped military in the world…. A 21st century military to stay on the offense.” That, he says, will take at least 92,000 more soldiers and Marines — precisely the number Secretary of Defense Robert Gates has recommended to President Bush.

    Sorry, David – I’m not dumping on your essay at all. I think it’s a really, really good essay. I do think though that there is barely a hairs width between any of them when it comes to spewing phony ideas. And one of them blaming any of the others for phony ideas in a phony attempt to paint himself as one who doesn’t is the height of hypocrisy, imo. Obama is making the right noises (calculated to win elections instead of actually solving problems), but the smell… the smell, is a little pungent from where I sit.

  2. …but I must take issue with your description of supply and demand.  It doesn’t work how you describe.

    If you cut the cost of beer in half, that doesn’t mean that you will consume twice as much beer.  How it works is that you increase your marginal consumption.  Say you go out and you usually drink only two beers.  Well, with the price cut in half, you might well drink a third or a fourth.  Cutting the cost of gas works the same way; no matter how high or low gas prices go, you’ll still do your required traveling, heating, and so on.  But if the cost drops some, you might be more inclined to go on a road trip, or do your errands separately instead of one big trip to the mall, or keep your house a few degrees warmer in the winter.  But supply and demand is about marginal usage; that one beer, or car trip more or less.

    • DWG on May 4, 2008 at 2:17 am

    Now I know he is just a slimy fuck.  I fully expect McCain to pander to stupidity, but now Clinton is trying to get in on the act.  

    I favor a true offset for high gas prices.  Tax the snot out of the oil companies and rebate it to low income families.  

  3. First, gasoline prices are not subject to the law of supply and demand because of the inelasticity of supply. That is, the oil companies are already producing at capacity and selling everything they can produce at $4/gal. There is no incentive to drop the price because they cannot sell more gas — they don’t have any more to sell.

    That brings us to the second problem. There is nothing in the proposals for a tax holiday that require the oil companies to reduce the price of gas by the amount of the tax. Therefore, the oil companies can just pocket the additional money. Hard to imagine they would do something greedy like that, I know.

    The issue with the state taxes is even worse. Since most state taxes are based on a percentage of gas sold (not a flat rate, like the federal tax), it would be meddling with tax codes for 1) no impact and 2) potentially introducing problems down the road (read: Law of Unintended Consequences).

  4. Or can it be as phony as all the “relief” we’ll be getting.

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