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Again, the Indiana and North Carolina primary numbers point to the worst possible scenario: splits and near-ties. Senators Clinton and Obama split the two primaries, but Clinton just barely won Indiana where she should have trounced Obama. I won't link to all the liberal bloggers who predicted wider margins in Indiana. The demographic divide still matters, and that means, the gas tax issue might not go away, even after the summer. And, for good reason.

Both Greg Mankiw and Brad DeLong take Paul Krugman's rant on the gas tax as a starter. Ultimately, I think Mankiw has a more useful line, because DeLong is wrong about the wonky aspect of the question—the gas tax has a progressive bite. And, Mankiw lays a marker down and is more savvy about electioneering.

Now, I've pumped my own gas (in two countries, no less), and I wanted to think Clinton and Senator McCain were pandering to me, because I want to be a «salt of the earth» kind of guy. The truth is, though, that, although I worked at a 7-11 in college where gas was sold (and where I had to handle inventories), I also went to college hoping I would not have to stick metal prods down gas tanks and sniff gas fumes in the teeth-clattering pre-dawn hours to measure fluid levels all my life. So, Jerome Armstrong's sort of argument works for me. And, this is Armstrong's proof.

Salon pulls out a .pdf file for firepower:

But Obama is wrong. He did not learn this lesson. In fact, the only scientific study done on the pass-through of the tax holiday savings to Illinois consumers (and those in Indiana, as well, whose citizens enjoyed a similar holiday) found that it actually worked to a large extent.

The study is titled «$2.00 Gas! Studying the Effects of a Gas Tax Moratorium,» by Joseph J. Doyle Jr. and Krislert Samphantharak. Download the PDF here. The authors concluded that «the suspension of the 5% sales tax led to decreases in retail prices of 3% compared to neighboring states. And when the tax was reinstated, retail prices rose by roughly 4%.»

This suggests that the tax holiday delivered at least 60 percent of the tax savings to motorists.

The economic basis for attacks on the Clinton tax holiday is a fundamental economic theory called «tax incidence.» It says that the cost of a tax on any consumer product will be borne by those with lesser «elasticity» in the tug of war between suppliers and consumers. «Tax incidence» falls mostly upon the group that responds least to price -- the group that has the more inelastic price-quantity curve. In this instance, assuming that the supply of gas is pretty much fixed, it means consumers will end up paying those missing tax dollars directly to the gas companies in the form of higher prices. The increased demand triggered by the price cut will supposedly lead drivers to bid up the price of gas, swallowing the tax cut.

But this is not what happened in Illinois and Indiana back in 2000. And there are factors at work today that might provide equal or more «elasticity» to the producers, and prevent consumers from paying the price for the tax cut.

So, there is a real difference of opinion among experts, with very real policy outcomes, after all (contra-Yglesias, who thinks he has the policy cart selected before the proverbial horse). I return to Mankiw's quip:

Many economic issues (e.g., health care, corporate taxation, the trade deficit) are vastly complicated, with experts holding a variety of opinions. When candidates disagree, it simply means that each is siding with a different set of experts, and it is hard for laymen to figure out which set of experts is right. By contrast, the gas tax holiday is not nearly as complicated, and the experts speak with one voice.

Why, then, are candidates proposing the holiday? I can think of three hypotheses:

Ignorance: They don't know that the consensus of experts is opposed.

Hubris: They know the experts are opposed, but they think they know better.

Mendacity with a dash of condescension: They know the experts are opposed, and they secretly agree, but they think they can win some votes by pulling the wool over the eyes of an ill-informed electorate.

So which of these three hypotheses is right? I don't know, but whichever it is, it says a lot about the character of the candidates.

Now, as a «salt of the earth» kind of guy, I can handle arguments about character.