Monday, May 05, 2008

No Surprise

I was reading this weekend that Hillary Clinton has chosen not to listen to economists regarding her gas tax holiday. Big surprise there since it's obvious from her other economic positions that she chooses to ignore sound economics on a regular basis. She has an amazing ego which convinces her that whatever she wants she will get, regardless of reality. More likely, she feels that if she appears to be attacking a problem she will get credit, and when it doesn't work she'll have some other scapegoat for why it didn't happen.

On the gas tax proposal, she is completely out of touch with reality. She claims that her proposal will help those people who are struggling with high gas prices, when in fact the opposite will occur. Gas prices, like all prices, are driven by supply and demand. When demand is high and supply is low, prices will rise. Cutting the gas tax will, for a short period of time, reduce prices. However, lower prices will release additional demand and prices will soon move up again. In addition, her idea to implement a windfall profits tax on oil companies will actually reduce supply. Why would an oil company spend valuable reasearch and development dollars trying to find and produce more oil, only to have profits from those risky ventures taken by government. The net effect will be to reduce supply, thereby raising prices even more. It's not like this is rocket science. The same thing happened the last time we had a windfall profits tax on oil.

Hillary has some other proposals which are equally bad from an economic point of view. She wants to raise taxes on capital gains and dividends. Of course this will just cause people to hold on to profitable investments longer than they would like, rather than being able to take their gains and move into other investments. This has the effect of hindering mobility of capital. Capital is what is needed to start and keep new businesses running. It is this business creation which creates the jobs which help everyone. Ms. Clinton's short sited fixation on 'fairness' ignores the greater reality that she is really hurting the very people she claims to want to help. We only need to look at the infamous 'yacht tax' to see what happens when you try to punish the rich through excessive taxation.

The policies that Hillary Clinton proposes are almost universally bad from an economic standpoint. However, there are places in the world where such policies may be welcome. I understand that Cuba will likely be looking for a new president in the near future. Perhaps Ms. Clinton should take up residence in Cuba and run for president of that country. Certainly her policies are more consistent with Cuba's socialist paradise than the capitalist United States.