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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.

Paul Krugman starts what passes, to a non-economist, for fun when reading about economics. Admittedly, I fall asleep when people talk about math - unless it concerns my money - but I will put in the effort for comparative advantage (and, so should you). If for no other reason, it's fun when intelligent people get stuck in cat fights like this.

So am I arguing for protectionism? No. Those who think that globalization is always and everywhere a bad thing are wrong. On the contrary, keeping world markets relatively open is crucial to the hopes of billions of people.

But I am arguing for an end to the finger-wagging, the accusation either of not understanding economics or of kowtowing to special interests that tends to be the editorial response to politicians who express skepticism about the benefits of free-trade agreements.

It's often claimed that limits on trade benefit only a small number of Americans, while hurting the vast majority. That's still true of things like the import quota on sugar. But when it comes to manufactured goods, it's at least arguable that the reverse is true. The highly educated workers who clearly benefit from growing trade with third-world economies are a minority, greatly outnumbered by those who probably lose.

As I said, I'm not a protectionist. For the sake of the world as a whole, I hope that we Americans respond to the trouble with trade not by shutting trade down, but by doing things like strengthening the social safety net. But those who are worried about trade have a point, and deserve some respect.

Don Boudreaux responds with Krugman's own 1996 essay attacking Krugman's 2007 argument. Greg Mankiw gives Krugman an "out" (since Krugman claims he's not a protectionist, but Dani Rodrik praises Krugman.

Perhaps we can make more progress here if we stopped using blanket terms to characterize where people stand, and used real words to describe what their views are.

I think Rodrik is on to something here, even if I think Krugman's essay encourages arguments in favor of protectionism. Firstly, let me emphasize what Suranovic argues (assuming you read the passage about comparative advantage before this):

Many people who learn about the theory of comparative advantage quickly convince themselves that its ability to describe the real world is extremely limited, if not non-existent. Although the results follow logically from the assumptions, the assumptions are easily assailed as unrealistic. For example, the model assumes only two countries producing two goods using just one factor of production. There is no capital or land or other resources needed for production. The real world, on the other hand, consists of many countries producing many goods using many factors of production. In the model, each market is assumed to be perfectly competitive, when in reality there are many industries in which firms have market power. Labor productivity is assumed fixed, when in actuality it changes over time, perhaps based on past production levels. Full employment is assumed, when clearly workers cannot immediately and costlessly move to other industries. Also, all workers are assumed identical. This means that when a worker is moved from one industry to another, he or she is immediately as productive as every other worker who was previously employed there. Finally, the model assumes that technology differences are the only differences that exist between the countries.

With so many unrealistic assumptions it is difficult for some people to accept the conclusions of the model with any confidence, especially when so many of the results are counterintuitive. Indeed one of the most difficult aspects of economic analysis is how to interpret the conclusions of models. Models are, by their nature, simplifications of the real world and thus all economic models contain unrealistic assumptions. Therefore, to dismiss the results of economic analysis on the basis of unrealistic assumptions means that one must dismiss all insights contained within the entire economics discipline. Surely, this is not practical or realistic. Economic models in general and the Ricardian model in particular do contain insights that most likely carry over to the more complex real world. The following story is meant to explain some of the insights within the theory of comparative advantage by placing the model into a more familiar setting.

I would argue that most laypersons, like me, would doze during a economics lecture (but I fight the urge). And, since most people do understand their interests, based on their particular experience at whatever company or agency, better than what they learned in college, haranguing them about learning comparative advantage is probably an impossible task. But, lest I become completely cynic, many people do think in political terms for elections, if only right before entering the booth. So, the task is to translate economic theory into political language people can scrawl on their hand, as it were.

Starting with models and lectures about wine in Portugal, X's and Y's, and two countries is like labelling oneself a "free trader", unless one then proceeds to lampoon that argument. "Free trader" becomes a caricature which translates to a political epithet, "Republican" or "Clintonian". Resisting this impulse requires a political platform cut from whole cloth that emphasizes the "free trade" program and an emphasis on national interest fit enough to tangle with the mercantilist impulse.

How that would work is another question...