A certain senator from a corn state and a coal state (two/two/two risks in one!) bucking for a promotion said the following to a reporter last week, and has repeated the same thing since then:
My interest is in making sure we’ve got the kind of comprehensive energy policy that can bring down gas prices
A senator from a state with distinctive and poignant liabilities to global warming (like, um, uninhabitability of most of it), angling for the same job, says the same thing.
This is big mischief, and I don’t want to hear about “oh well, they just say that to get elected…” It’s not slightly wrong, or a little slip, or a figure of speech: it’s completely, flatly, exactly backwards. The correct word in this statement is up, not down.
There is no intrinsic obstacle to making the price of gasoline whatever we want. Hugo Chavez is doing it right now, gratifying the most immature short-termism of his people and trashing the planet…also bankrupting his country. Are we benchmarking our presidency against a megalomaniac narcissist? In Indonesia, gas prices are going up (!) to $2.40. It’s the old, old story of not understanding the difference between price and cost, or understanding it and cynically lying to your voters so they won’t understand; either way, it’s reprehensible (and more reprehensible for the senator who dinged the other one for being proud of his ignorance).
For a few rare goods in special circumstances, a lower price will decrease consumption. These cases are mainly useful to illustrate the much more general rule, a cornerstone of economics and holding up OK since the first time Crazy Uggy cut his bearskin price from one spear to three for two: demand curves slope down to the right. Down. Lower gasoline prices and people will burn more of it. I recommend, for Mark’s question list, “Do you think people will use more gasoline or less if it’s cheaper? If more, do you want global warming to happen faster or slower?” , and I’d like it on Obama’s take-home problem set as well.
Now, one more time, price and cost: cost is the value of the economic goods consumed to do something. All the goods: for gasoline, labor and stuff for drilling, refining, and hauling it around, the value it would have if we didn’t use it now but saved it for when it’s really scarce, the global warming and local pollution and accidents driving causes, the roads needed to use it. Note that several of these will not appear in the price without government putting them there, and people will use too much gasoline. Does anyone think the price of gasoline now, in the US, is higher than these costs? If you think it’s lower, you really want it to cost more, even if government could reach into our pockets (and our children’s climate) and subsidize it. A big part of getting public policy right is simply making prices the same as costs (either way, as needed) and standing back.
The real evil of the kind of trickery “cheaper gas!” tautologically demands is the fundamental mendacity it requires of leadership; it’s really bad for government to lie to its people about important stuff, and subsidizing prices below cost is just lying. (So is failing to subsidize them down to cost when indicated, but that’s another post.) Subsidiary evils flow from this, including the stupefaction and ignorantizing of the population (watch for riots in the streets by Indonesians who’ve been taught that the value of gasoline is less than $2), the diversion of governance into parceling out favors created by reckless borrowing, and of course waste of important resources.