Saturday, May 24, 2008

Sunday dollars+sense: Brendan's big idea

“An idea so ridiculous, so unworthy of the people aspiring to lead our nation, it takes your breath away.”

Not long ago Australia's Liberal Party stood for prudent economic management and the freedom of the individual.

Today it stands for cheaper petrol.

Its leader Brendan Nelson has been saying so continuously.

We stand for lower petrol prices”, “five cents a litre off petrol is what we stand for”, “what we stand for is five an a half cents a litre off the price of petrol at the pump” and so on.

He is beginning to sound like Hillary Clinton and John McCain. In the US both of them (but conspicuously not Barack Obama) are proposing an 18.4 US cents a gallon gas tax holiday - an amount which when converted to Australian currency works out at 5 cents a litre, the same as Australia's Opposition leader is proposing.

Because at least one of them will be a presidential candidate, American economists have to treat the idea seriously...

Paul Krugman, in other circumstances a Clinton supporter,) calls it as “pointless and disappointing”.

Thomas Friedman says it is “so ridiculous, so unworthy of the people aspiring to lead our nation, it takes your breath away.”

An open letter signed by 150 of the world's top economists (including three Nobel Prize winners) described it as “bad idea” that would generate “major profits for the oil companies while doing nothing to encourage conservation”.

It would effectively blunt the price signal that is meant to be telling us use less oil – it would be “shooting the messenger”.

An Australian economist living in the US, Justin Wolfers said that the condemnation made him “proud to be an economist”.

“In any election silly season, you can usually find someone willing to support just about any kind of nonsense. But it appears that the economics profession just isn’t that silly,” he wrote.

And then he issued a challenge.

Was there a single coherent economist in the US who actually supported the plan?

Three weeks on, despite wide publicity, he has received no takers.

Clinton herself was asked to name a single credible economist who agreed with her.

She couldn't, and replied: “Well I’ll tell you what, I’m not going to put my lot in with economists.”

“We’ve got to get out of this mindset, where somehow, elite opinion is always on the side of doing things that really disadvantage the vast majority of Americans,” she added.

One of those 'elite' economists Arnold Kling responded: “Soon I expect to hear the Senator from New York promise to jump out of a tenth-story window and fly, to demonstrate defiance of elite physicists who doubt the feasibility of the project.”

Brendan Nelson has taken the Coalition down an interesting road.