Capital Formation Newsletter
March-April, 2007, Vol. 32, N0. 2

Economic Advisers to Leading Presidential Hopefuls Meet with ACCF

ACCF Calendar...

ACCF Study Shows Price Gouging Legislation Causes More Harm than Good

House “Blue Dogs” Take Part in ACCF Policy Evening

(PDF Version)

Economic Advisers to Leading Presidential Hopefuls Meet with ACCF

The American Council for Capital Formation has inaugurated a new program, Conversations with the Economic Advisers to the 2008 Presidential Candidates, to provide ACCF supporters with insights into the economic policy priorities of the leading 2008 presidential hopefuls while at the same time giving supporters an opportunity to weigh in with their perspectives on the path forward for the U.S. economy. Key advisers to two leading GOP presidential candidates spoke at ACCF briefings in March.

McCain Adviser Meets with ACCF

Dr. Douglas Holtz-Eakin, director of Economic Policy for “John McCain 2008,” spoke on March 1st at the first session of the ACCF’s Conversations with the Economic Advisers to the 2008 Presidential Candidates. A member of the ACCF’s Board of Scholars, Dr. Holtz-Eakin was the director of the Maurice R. Greenberg Center for Geoeconomic Studies and the Paul A. Volcker Chair in International Economics at the Council on Foreign Relations immediately prior to joining the McCain campaign. He earlier served as the sixth director of the Congressional Budget Office.

Dr. Douglas Holtz-Eakin, director, Economic Policy, “John McCain 2008”

“Senator McCain is focusing on ‘listening sessions’ in this early stage of his campaign to learn what voters see as the most important problems in our country today and how they believe these problems can be solved,” Dr. Holtz-Eakin said during the March 1st session. Senator McCain is concerned that policymakers have violated the trust placed in them by not listening to the people. The Senator believes each of us has an obligation to fulfill our duty as a citizen and as a curator by leaving our world a better place for the next generation, Dr. Holtz-Eakin stressed, adding that this view is central to Senator McCain’s approach to governance.

Turning to specific policy concerns, Dr. Holtz-Eakin said Senator McCain believes the tax cuts enacted in 2003 should be retained and that it is critical to make incentives like the R&D tax credit permanent. The Senator also thinks it is imperative to undertake entitlement reform in a bipartisan fashion. “Social Security is the easiest to fix, while Medicare and Medicaid present more difficult problems,” Dr. Holtz-Eakin said. Senator McCain believes it is essential to promote openness in global trade. “Globalization is a force that cannot be turned back, but we must make sure that workers are not lost through the ensuing changes.”

ACCF Hears Romney Adviser

The Honorable N. Gregory Mankiw, former Chairman of President Bush’s Council of Economic Advisers, Professor of Economics at Harvard University, and an outside adviser to former Massachusetts Governor Mitt Romney’s presidential campaign, briefed ACCF supporters at the second Conversations with the Economic Advisers to the 2008 Presidential Candidates on March 28th. Professor Mankiw is a member of the ACCF's Board of Scholars.

	Hon. N. Gregory Mankiw, an outside adviser to former Massachusetts Governor Mitt Romney’s campaign.

“I first met Governor Romney in Washington and later visited with him on economic policy issues while he was still Governor,” Professor Mankiw said. “I am impressed with him. He is very smart, widely read, and has a good sense of economic issues and an understanding of the economy. Governor Romney is also a Republican who has demonstrated that he can reach out successfully to voters in a Democratic state.”

A major issue in the 2008 presidential campaigns will be the size and scope of government, Dr. Mankiw commented, adding “there is a big difference between the two parties on this issue.” The next president will have to make critical decisions about the size of government and the level of taxes, he added. Cutting personal tax rates yields substantial ‘feedback effects’ to the economy and reducing taxes on capital provides even greater feedback. This suggests that, if economic growth is a goal, spending on entitlement programs must be restrained, Professor Mankiw said.

Governor Romney wants to reform current entitlement programs, not raise taxes, and he strongly backs making the Bush tax cuts on saving and investment permanent. He was also the first candidate in this campaign to sign the “Taxpayer Protection Pledge” committing himself to opposing all tax increases, Professor Mankiw said. The cuts in taxes over the past few years have made the U.S. tax system fairer, he said, adding that the estate tax reforms are a good example. The estate tax penalizes the frugal and is not efficient for capital formation.

For more information on Conversations with the Economic Advisers to the 2008 Presidential Candidates, contact Mark Bloomfield, ACCF president and CEO, at mabloomfield@accf.org.

ACCF Calendar...

Senator Chuck Hagel (R-NE), a leading proponent of investment in energy efficiency and clean technology both at home and abroad, will keynote an ACCF-sponsored policy briefing on Capitol Hill to unveil a new study, International Comparison of Tax Depreciation Rules for Selected Energy Investments, on May 2, 2007.

Senator Charles E. Grassley (R-IA), the Ranking Republican Member of the Senate Finance Committee, will speak at an ACCF Capital Formation Forum on May 9, 2007. Senator Max Baucus (D-MT), Chairman of the Senate Finance Committee, and Representative Charles B. Rangel (D-NY), Chairman of the House Committee on Ways and Means, spoke at recent ACCF Capital Formation Forums.

For more information or to register for these events, please contact the ACCF at 202/293-5811.

ACCF Study Shows Price Gouging Legislation Causes More Harm than Good

Implementation of price gouging legislation, such as that recently introduced in Congress and previously in response to spikes in gasoline prices following devastating hurricanes in 2005, would ultimately result in higher costs for consumers and tighter supply, according to a new study by the American Council for Capital Formation. The study, Potential Effects of Proposed Price Gouging Legislation on the Cost and Severity of Supply Interruptions, unveiled at a briefing on April 10th on Capitol Hill by ACCF board members and former Congressmen Charles Stenholm (D-TX) and Bill Archer (R-TX), highlighted ambiguous definitions, the adverse financial impact on consumers, the threat of price controls and potential criminal prosecutions as significant flaws in the proposed legislation. Dr. W. David Montgomery of CRA International was the principal author of the study.

The study reviewed investigations of past gasoline price increases, determining previous track records of efforts to control prices and how laws that penalize supply-based prices during interruptions would affect the size and duration of the shortages, and the resulting costs. Key results were:

• The estimated costs associated with price controls had they been implemented as defined under current legislative proposals during the supply disruptions that occurred between the September and October 2005 hurricanes would have totaled $1.9 billion;
  
  
• In every case, the price increases were due to the operation of supply and demand and not from withholding supplies;
  
  
• Price controls would have made shortages worse, causing consumers to pay more and wait in long lines, and increased the overall economic losses related to a crisis situation;
  
  
• Imposing criminal charges for price increases would discourage suppliers from seeking replacement supplies (which might cost more), therefore limiting consumers’ access to gasoline supply; and
  
  
• The expectation of price controls would tend to discourage refinery investment, resulting in tighter capacity at all times.

From the left, former House Ways and Means Committee Chairman Bill Archer, former Congressman Charles Stenholm, and ACCF Senior Vice President and Chief Economist Margo Thorning discuss the implications of the study’s findings at the ACCF briefing on Capitol Hill. Dr. W. David Montgomery, CRA International, also participated on the panel.

We must all be mindful that during times of crisis there are individuals who will unfortunately attempt to take advantage of their fellow citizens and neighbors,” said ACCF board member and former Congressman Charles Stenholm (D-TX). “Yet, as the ACCF study confirms, well-intentioned price gouging legislation aimed at preventing such incidents is misguided and ineffective, and will ultimately cause more harm than good.”

“Artificial attempts by the government to control prices, reduce demand or increase supply, however temporary, will create more instability in the marketplace, not less,” said fellow ACCF board member and former House Ways and Means Committee Chairman Bill Archer (R-TX). “The fact that the U.S. continues to import a significant amount of gasoline from foreign producers should give great pause to legislators seeking to impose price gouging legislation. In the event of a disaster and the triggering of potential price caps, foreign producers will simply sell their products in other countries at higher prices -- ultimately harming the very consumers the controls were meant to protect.”

The study also included an assessment of past and current legislation introduced in Congress, such as the recent legislation introduced by Congressman Bart Stupak (D-MI), to address price gouging. The assessment found significant flaws in such legislation, including vague criteria for determining when a violation occurs and ambiguous definitions of what constitutes price gouging, which would lead to significant market disruptions.

“This study shows that the legislation now being considered would effectively cap prices in markets that need re-supply from other regions,” said Dr. Margo Thorning, ACCF senior vice president and chief economist. “History and basic economics teach us that the resulting price caps of such policies will result in shortages in the market and hardships for consumers. Anyone who remembers the gas shortages and inflation from the 1970s knows that this is not a legacy to fall back on. The reality is that fluctuations in fuel prices serve as basic signals to producers to either increase or decrease supplies. This holds true in times of crisis and normal operations.” The full study can be found at http://www.accf.org/pdf/CRAI-Report.pdf.

“Gasbags,” an op-ed by former Ways and Means Committee Chairman Archer and former Congressman Stenholm highlighting the importance of the ACCF study’s findings, ran in The Wall Street Journal on April 19, 2007. Both serve as members of the ACCF’s Board of Directors. To read the Journal op-ed, follow this link: http://www.accf.org/pdf/WSJ-04192007.pdf.

House “Blue Dogs” Take Part in ACCF Policy Evening

Six members of the “Blue Dog Coalition” in the U.S. House of Representatives participated in the 149th ACCF Economic Policy Evening on March 20th in Washington, DC. The coalition was formed in the 104th Congress to give moderate and conservative Democrats in the House a common-sense, bridge-building voice within the institution. The focus of the evening was on The Congressional Blue Dogs: How Will They Affect Economic Policy? Pictured at the session are: 1) Mark Bloomfield, ACCF president & CEO, and former Congressman Charles W. Stenholm, founder of the Blue Dog Coalition; 2) Congressman Jim Matheson (D-UT) and E.J. Dionne, syndicated colum-nist and political commentator, The Washington Post; 3) Mary-Jane Flaherty, managing director, Strategic Initiatives, Investment Division, Prudential Financial, and the Honorable James C. Slattery, partner, Wiley Rein LLP; 4) Congressman Dennis Moore (D-KS), Mr. Slattery, Congressman Jim Costa (D-CA), Mr. Stenholm, and Congressman Heath Shuler (D-NC); 5) Congressman F. Allen Boyd (D-FL), Karen Kerrigan, founder and chairman, Small Business & Entrepreneurial Council, and Congressman Jim Cooper (D-TN); and 6) H. Stewart Dunn Jr., partner, Ivins, Phillips and Barker LLP and Dr. Margo Thorning, ACCF senior vice president and chief economist.