Truth or Consequences

Wednesday, May 28th, 2008

In Truth or Consequences, Thomas Friedman asks us to imagine a presidential candidate telling us what we really need to do about energy policy:

No, our mythical candidate would say the long-term answer is to go exactly the other way: guarantee people a high price of gasoline — forever.

This candidate would note that $4-a-gallon gasoline is really starting to impact driving behavior and buying behavior in way that $3-a-gallon gas did not. The first time we got such a strong price signal, after the 1973 oil shock, we responded as a country by demanding and producing more fuel-efficient cars. But as soon as oil prices started falling in the late 1980s and early 1990s, we let Detroit get us readdicted to gas guzzlers, and the price steadily crept back up to where it is today.

We must not make that mistake again. Therefore, what our mythical candidate would be proposing, argues the energy economist Philip Verleger Jr., is a “price floor” for gasoline: $4 a gallon for regular unleaded, which is still half the going rate in Europe today. Washington would declare that it would never let the price fall below that level. If it does, it would increase the federal gasoline tax on a monthly basis to make up the difference between the pump price and the market price.

This is pretty obviously begging the question of why we want to conserve gasoline. If gasoline is a precious resource, and we only have so much to go around — in the short or long term — that is presumably reflected in a high price, and people make all kinds of trade-offs to use less gasoline: driving less in the short term and buying smaller cars or moving closer to work in the longer term. If gasoline prices are low, there’s little reason to make those trade-offs.

This is a question of resource allocation, not moral rectitude, and making sacrifices in the short term is not always right.

Now, while it makes little sense to tax gasoline because we might run out some day, it does make some sense to use a gasoline tax as a use tax for public roads, or as a crude tax on pollution.

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