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No Ordinary Leader

A colleague and I have just published this column in our local paper. Surprising that it got in, but nor surprising is the intial reader reaction – not one comment in the economics or the issues we raise, rather a plea to “give him time” before railing on him. Typical in this country – it is no longer about ideas, just about motives and power.

Here is the column:

Economics Deval-ued By John Barry and Mike Rizzo
Thursday, January 04 GREAT BARRINGTON

ON OCT. 9, then gubernatorial candidate Deval Patrick ruled out a gas tax increase during a campaign event in Revere. Yet just last week, governor-elect Patrick vacillated when he indicated to the State House News Service that he is not ruling out a 9 cent per gallon tax hike (it is currently at 21 cents per gallon). In an awkward attempt to straddle the issue, however, he went on in the very next breath to argue, bizarrely, that raising the gas tax would run counter to the push for energy efficiency and independence!

In his own words: “If we’re trying to cultivate here in Massachusetts an energy-smart economy, then the notion of relying for additional revenues on something we’re trying to break our dependence on doesn’t seem to me to be a formula for long-term success.”

If the governor-elect had hoped to demonstrate his grasp of economics, he has fallen flat on his face. He is advocating that state policy should aim to reduce gasoline consumption, but that it should not be taxed further. As a Democratic governor working with an overwhelmingly Democratic Legislature, Mr. Patrick will be in position to change many laws, but the law of demand is not among them. Higher prices induce lower consumption – even in Massachusetts.

Has Mr. Patrick discovered a way of rationing this valuable resource that is more effective than the price mechanism? Thousands of years of human history demonstrate clearly that any non-price method of rationing is inferior. For example, imposing higher Corporate Average Fuel Efficiency (CAFÉ) standards on automakers has failed utterly. It has left us with lighter, less safe vehicles, increased the cost of new cars (and kept dirty old cars on the road longer), and, most significantly, it has reduced the incremental cost of driving. By forcing us into smaller cars, our cost of driving an additional mile is lower, so we are inclined to drive more – offsetting some or all of the benefits from the reduced gasoline consumption per mile.

In the short-run the governor elect may be right; it is possible that consumers would not suddenly or dramatically curtail their driving behavior when faced with higher gas prices. But if this were the case, then the proposed tax would generate an enormous amount of revenue for the state – directly contradicting his own argument that this revenue stream is unreliable because it is based on an activity on which we are trying to break our dependence.

Is it really possible that Patrick, a Harvard graduate, is an economic illiterate? A more reasonable explanation might be that that his many supporters are absolutely right – he is no ordinary leader – but, perhaps only because he is masterful politician.

Gas taxes are extremely unpopular politically – and to get elected, Patrick did whatever any rational, self-interested person would do: he denounced the idea during the campaign, an ordinary tactic if ever there was one. But his political skills are apparent in his post-election semi-reversal on the issue, in which he transformed the gas tax question to seemingly pursue two objectives that are inescapably in direct conflict – funding transportation while reducing gasoline consumption. By confusing the two, Patrick hopes to ride the fence until the political winds push him off one side.

But one cannot lead with double-talk. Not only are his arguments self-defeating, his assertion, that it is imprudent to rely on revenues generated from activities of which the state disapproves, is quite curious in a state that rakes in over $400 million in annual revenues through a $1.51 per pack cigarette tax. By Patrick’s reasoning, the state should not raise revenues by taxing an activity it hopes to terminate. If he is consistent, he will argue to repeal the cigarette tax.

Perhaps Patrick’s political calculus is on the mark, and he will succeed at simultaneously opposing a gas tax while condoning the cigarette levy. Voters are, perhaps, more tolerant of gasoline than of cigarettes. The political power of the average smoker, moreover, is far outweighed by that of the average driver. Smokers are far less wealthy and far fewer in number than drivers.

Politicians, regardless of party affiliation, are no less self-interested than anyone else. We would all benefit from an honest debate about the economic benefits of a higher gas tax – but as long as the polls indicate how unpopular a move it is, we will be subjected to an ever increasing cacophony of economic silliness.

Perhaps the new governor is an admirer of H.L. Mencken: “No one in this world has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby.”

He might do well, however, to consider the thoughts of a proven leader who observed that not all of the people can be fooled all of the time.

John Barry is president of American Investment Services. Mike Rizzo, PhD., is senior economist at American Institute for Economic Research.

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