A Homage to High Gas Prices (and Taxes)

I’ve started looking for a new car and I’ve decided to pick the Toyota Prius.

No, I’m not trading in my SUV; I am getting it for a few reasons. First, my partner Daniel purchased a Smart Four Two so, we need a car that can haul stuff efficiently and my current high-mileage Jetta Turbo Diesel ain’t cutting it. The Prius has good cargo and passenger room (another deficit on the Jetta) and good gas mileage to boot. Having a fuel-efficient car appeals to my green sensibilities and not having to fuel up as much appeals to my Republican sensibilities of being miserly.

Someone like me would consider buying a fuel-efficient car even if gas prices were low. But the fact of the matter is, most people are driven by the market and will make choices accordingly. A decade ago, when gas was cheap, Detroit made huge SUVs and people were buying them like hotcakes. There was no drive towards making cars fuel-efficient and there was very little emphasis on making small cars. The price for gas goes up a few dollars and now there are waiting lines for the Prius while SUVs sit in car lots.

While a lot of people are complaining about the rising gas prices, I for one don’t have a problem with it. Yes, it does hit lower income people hard, but to be honest the majority of drivers in the US aren’t poor people, but middle and upper middle income people who seem to think it is a god-given right to have cheap gas.

The thing about high gas prices is that it has forced our society to make choices that are better for the planet in the long run. People are now interested in small cars again, and the auto industry (at least the Japanese and European car-makers) are making small cars that are interesting and not simply econoboxes like the old Chevy Chevette. Public transportation is seeing an increase. People are being more efficient drivers. This is all good because it means cutting carbon emissions and lowering greenhouse gases.

My fear is that relying solely on market forces is not good in the long run. Back in the 70s when gas prices went up, cars downsized, more smaller cars were offered and a new national speed limit on highways were introduced. When gas prices fell, all of those efforts to conserve fuel fell by the wayside. Americans started buying SUVs thinking cheap gas was here to stay.

I worry that we are at this point again. Gas prices are forcing Americans to change, but will the high gas prices last? I don’t think we are going back to the days when gas was a dollar, but it might slide back again. If that happens, expect people to stop buying small cars and taking the bus and going back to big cars and trucks.

Fellow blogger Alan Stewart Carl is not keen to an idea presented in a recent column by Thomas Friedman. In the op-ed, Friedman says that gas should not go below $4/gallon and, if the price does, then taxes would be added to keep the price at $4. He notes:

But if we already feel obliged to question whether or not oil companies are manipulating gas prices for profiteering reasons, just wait for the price mandate. What oil company would ever choose to sell their gasoline for less than $4 a gallon when doing so would give them absolutely no competitive advantage?

A mandated price would be a boon to big oil’s pocketbooks while decreasing incentives those companies have for finding new fossil fuel reserves and developing cost-saving measures or alternative fuels. While encouraging Americans to own more fuel efficient cars is certainly a good thing, the law of unintended consequences makes government price mandates a less than desirable option.

One commenter basically says what I would say to Alan:

Our system for delivering oil and gas to consumers is unbelievably efficient and entrenched. We’ve had a century to perfect it. It will take a long time and probably $ trillions to develop an infrastructure that can compete. No one wants to compete with big carbon unless they can feel confident that they’re competing against $4+ a gallon.

Back in the early ’80s, gas was as expensive as it is now (adjusting for inflation). But then non-OPEC oil came on stream, OPEC’s cartel fell apart and prices plunged. Suddenly, there was no incentive to conserve and look for alternatives. We all started driving SUVs, and all the strides Detroit and Japan made with engines went to more power instead of better efficiency. as consumers, if gas prices aren’t an issue, we all want peppy, big cars.

On some level, I can understand Alan’s fear of government stepping in. But I also know we have basically allowed the market to work and well it does. And in the end, we end up in the same place, with big cars and expensive gas.

The thing is, with the rising concern of global warming, we really can’t afford to go back to our wasteful ways, which very well might happen if government does nothing. Human beings act according to their self-interest, and they respond to high gas prices. Americans will not be fuel efficient out of the goodness of their hearts.

I don’t know if the idea present in this post is the best one, but I am in favor of the government slapping on a high gas tax that would keep the price of fuel high and allow alternatives to be able to compete in the marketplace.

Some will say this is government sticking its nose where it doesn’t belong and getting involved in the free market. But the fact is, right now alternative fuels are not able to compete in the marketplace since it is much more efficient to produce oil than it is to produce something like bio-diesel or hydrogen fuel-cells. Government already gives oil companies tax breaks, so why not give some help to alternative fuel companies to allow them to compete?

I don’t think the answer is to try to lower gas prices, but to help us become more efficient. Letting “the market work” alone isn’t going to do that.