Don’t oversell that gas tax

I yield to no-one in my enthusiasm for a nice fat carbon charge (with a tariff), and I am far from a Pigovian tax grinch.  But I’m afraid Harold is implicitly too enthusiastic about its climate potential in the vehicle fuel context.  Gasoline consumption is quite inelastic to price changes (of course, if it’s revenue you want, go for it).  One reason for this is habit, and another is the national identity myth deeply fixed in Americans’ lizard brains: “what makes us who we are, when it comes right down to it, is our God-given right to drive alone anywhere we want, without traffic lights, and park free when we get there.”

Equally important is the robust fact that in order to drive less but still get anywhere, you need another way to do it. Almost all of these ways are public goods of one kind or another: no matter how motivated I may be to not drive, I cannot buy myself a walking street or a bicycle route that’s pleasant and interesting and safe to use, much less a tram route.  I can choose to live in a pedestrian-friendly, dense, neighborhood in some cities.  But not in most, and even if that neighborhood has jobs and housing both, it’s a long shot that I will have one of the jobs in it, so the large-scale land use patterns and infrastructure around me, another thing I can’t change by private market behavior, will matter a lot.

Sure, let’s try to push gasoline prices up a couple of bucks, especially because climate is not the only externality they aren’t representing.  The car habit is toxic to all kinds of social capital; if you wear a two-ton iron suit whenever you go out, another part of your lizard brain, the one that makes you afraid of anyone not like you, kicks into gear without the constant braking provided by being out and about on your feet among those people.  But let’s not oversell it, nor forget the importance of the complements of “driving less” that can only be provided by government.

Author: Michael O'Hare

Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training. He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management. Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at Università Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs. At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4×5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb.

29 thoughts on “Don’t oversell that gas tax”

  1. Michael, it’s a chicken-and-egg problem. Cheap oil let us develop a society that’s dependent on cheap oil. Yes, getting off that treadmill is difficult and not very rewarding at first, due to the inelasticity you mention. But it won’t get any easier down the road — we’ll stay dependent on cheap oil as long as cheap oil is available.

    Obviously, we should have instituted something like a gas tax that automatically increased by 10 cents per year back in the early 1980s. All the more reason to do it now, rather than waiting another couple of decades.

  2. Revenue! Revenue! it’s a good thing. And by the way, now that the technology exists to avoid long waits at the toll plazas: toll roads! revenue! AND internalize the externalities of driving at rush hour.

  3. Work trips are only ~1/4 of all TPD if you believe the ITE. And I’d wager even in a New Urbanist or Smart Growth neighborhood with proximate amenities, you are only cutting a few trips per week off the total HH trips. So its a nice idea, but our built environment is durable, as is our societal identity. When gas is $8-9/gal then you’ll see large changes (some migrating to be near work, surely) but even this Planner can’t see wholesale decarbonization with our ingrained love of electronic gadgets, our spread-out built environment, and our rugged individualists, marching in lockstep to the truck dealer.

  4. Dave,

    And by the way, now that the technology exists to avoid long waits at the toll plazas: toll roads! revenue! AND internalize the externalities of driving at rush hour.

    It’s a tangent, but don’t rely too heavily on that toll technology. I live in MA, where, as elsewhere in the NE, there are tolls and automated payment devices. The one here is called FastPay, and the same thing goes by other names elsewhere.

    With FastPay you save a small amount on tolls, and, more important to me, you can zip through the plazas, while the cash payers have to wait. It’s not uncommon to see a long line at the cash booths with the FastPay lanes close to empty. Apparently, there are plenty of drivers who just don’t like automated toll systems, maybe because they don’t like having the government know their movements, or for some other reason.

  5. For this lizard brain, the defining myth is the ability to project overwhelming military force anywhere the f*** “we” feel like. GO USA!

  6. I don’t believe that gas consumption is an inelastic as you say. The last time we say gas prices in the four dollar range, we did see a reduction in consumption. If people believe that high gas prices are here for the long-term, they will change their behavior accordingly.

  7. The main missing point is that short-term inelasticity becomes medium term, medium elasticity (vehicle purchase choice), and then long-term high elasticity (land use changes in response to higher demand for non-car-dependent lifestyles). So the sooner we get started, the better, and gradual increases are better than spikey up and down patterns.

  8. “Gasoline consumption is quite inelastic to price changes”

    Depends a lot on the time horizon, but even in the short-run, there are behavioral responses that reduce gas consumption. Efficiency is very, very sensitive to acceleration and top-speed (where aerodynamics also figure). So, people do have behavioral choices in the very short-run, and they do take them, reducing the number of trips made, and changing driving habits fairly dramatically. Many people have a choice of vehicles to drive, and that’s another short-run behavioral choice that reduces consumption.

    But, you are right: in the short-run, gas consumption is inelastic. Increased price will result in an increase in total expenditure on gas, even after adjusting for the reduced quantity consumed. But, that won’t last in the long-run. People will re–arrange everything to bring down the threshold or marginal-cost of a trip in their network of job-home-school-shopping-community. They’ll buy a different car; drive differently; move and join a different network; even campaign for mass-transit.

    A high price of gas, sustained over time, is what will change the political balance in favor of denser cities, and more reliance on passenger rail nets.

    When the ex-urbs are forced to give up on frakking and coal and a low-price of gas is when intercity rail becomes viable, which is when cities starting getting denser and mass transit wins over highway projects. All that depends on a high price of gas.

  9. Johnny One-Note back to bang the drum for tolls: traditionally, we have paid for roads through gasoline tax – a tax which has a reasonable connection to use of the roads, but it has problems because it asks people to pay for roads whether they use them or not. A broad toll system would be substantially better even than a gasoline tax. This would involve charging tolls for use of the roads in general, with the income stream securing bonds to pay for the roads. Tolls offer both transportation funding and a mechanism for incentives against congestion. Tolls have long had a bad name – they have been seen as a very inefficient way to fund roads, with long waits at the toll plaza, shunpikers driving around the toll booths, congestion on non-toll roads, large amounts of money devoted to toll-takers’ salaries, etc. Recent development of the Smart Tag/E-Z use transponders for paying tolls has eliminated most of these problems, and this changes the desirability of using tolls to pay for most major roadways.

    How will this work? Electronic toll readers everywhere. Drivers will get a monthly bill for tolls incurred driving on most major roads. My bill will be based on the number of times the transponder on my dashboard had gone past the readers, and on the time of day I made the trips. The fees will at all times be high enough to cover maintenance and replacement of the road, and (if construction bonds have been issued on that road and are not yet paid off) payments on the bond. If I’m driving at rush hour, there’s a congestion surcharge, which goes to subsidize mass transit. If I’m in a commuter bus, the fee for the bus is split twenty ways, so it’s almost imperceptible. If I’m in a car pool, we are splitting the congestion charge, so it’s less burdensome. If I’m driving alone at rush hour, I’m paying a lot to do it, so I do it only when I need to, and will look for a car pool. Bernard Yomtov – I am not very concerned for the folks who are willing to wait long periods to pay their tolls in cash, they have a way around it.

    The existing road network gets used more efficiently. The roads get paid for in a way which does not suck all the revenue away from schools, parks, police. New roads get built only if bond buyers believe they will get enough use to justify them. Brian Schmidt – I think we would see some land use changes, but a lot of what would happen is that people living in far-flung areas would find it worthwhile to combine into car pools, and to make a big effort to shop less frequently.

  10. I think we would see some land use changes, but a lot of what would happen is that people living in far-flung areas would find it worthwhile to combine into car pools, and to make a big effort to shop less frequently.

    Some will move closer in. Some will stay. Carpooling for food shopping will happen too, and trip chaining.

  11. With a GPS device in every car, the car owner could be billed base on car’s physical location. Whether driving on a city street, sitting in a parking slot down town all day or at the airport all week, zipping down the interstate or cruising the suburbs.

  12. No. The billing system itself could be a private enterprise. The government, like the other resource owners, would get its share of the billing based on the rates it sets for the resources it owns like public roads.

  13. “The billing system itself could be a private enterprise.”

    Well, then, by all means! Another opportunity to extract rents from the peons. Outstanding.

  14. Bruce, I usually agree with you, but not this time. Density is only good up to a point, past which, many people (or maybe just me) become miserable. I don’t think the answer for the future is to cram everyone into a small space. We need cleaner ways to get around.

  15. “No. The billing system itself could be a private enterprise”

    So who forces all those drivers with old vehicles to put a GPS in the car? Private companies?

  16. traditionally, we have paid for roads through gasoline tax – a tax which has a reasonable connection to use of the roads, but it has problems because it asks people to pay for roads whether they use them or not.

    I’m not seeing this–can you expand? Who is paying gas tax and not using the roads?

    I am in favor of a sufficient gas tax to fund roads; I’m very much not enthusiastic about gas tax as a way to reduce carbon output, given that the obvious answer is to use more electricity, and current-infrastructure electricity is high-carbon–higher-carbon than gasoline IIRC. And while we’re dreaming, could we have safety/emissions standards so that anything sold in Germany can be sold here? Diesel vehicles are about twice as fuel-efficient as gas.

  17. This post is suffused with the kind of cheap catering to ideology that I expect from Fox News, not a serious academic.

    Your major conclusion is undoubtedly right: raising fuel prices will not get Americans out of their cars. However, the reasons you give are downright silly, as five minutes spent reflecting on other nations’ experience would show. In particular, consider both Western and Eastern European countries:

    1) They aren’t Americans, so their notably similar attachment to cars cannot be some unique national myth.
    2) Their auto usage grew with GDP per capita, so it cannot merely be habit.
    3) Their cities are configured rather differently from ours, so it cannot be inherited housing stock.

    Even the Dutch, with a small country, densely-populated cities,a fine rail network and a heavy tradition of bicycling, mainly get around in cars.

    Here’s a simple hypothesis that fits the facts better–people everywhere like cars because they provide freedom and flexibility at a modest cost.

    One reason for this is habit, and another is the national identity myth deeply fixed in Americans’ lizard brains: “what makes us who we are, when it comes right down to it, is our God-given right to drive alone anywhere we want, without traffic lights, and park free when we get there.”

    Equally important is the robust fact that in order to drive less but still get anywhere, you need another way to do it. Almost all of these ways are public goods of one kind or another: no matter how motivated I may be to not drive, I cannot buy myself a walking street or a bicycle route that’s pleasant and interesting and safe to use, much less a tram route. I can choose to live in a pedestrian-friendly, dense, neighborhood in some cities. But not in most, and even if that neighborhood has jobs and housing both, it’s a long shot that I will have one of the jobs in it, so the large-scale land use patterns and infrastructure around me, another thing I can’t change by private market behavior, will matter a lot.

    Sure, let’s try to push gasoline prices up a couple of bucks, especially because climate is not the only externality they aren’t representing. The car habit is toxic to all kinds of social capital; if you wear a two-ton iron suit whenever you go out, another part of your lizard brain, the one that makes you afraid of anyone not like you, kicks into gear without the constant braking provided by being out and about on your feet among those people. But let’s not oversell it, nor forget the importance of the complements of “driving less” that can only be provided by government.

  18. A perfect confirmation of the premise:

    This post is suffused with the kind of cheap catering to ideology that I expect from Fox News, not a serious academic.

    is found several lines below it:

    people everywhere like cars because they provide freedom and flexibility at a modest cost.

    Well done. It is important to include the “freedom” when describing auto-dependency from a particular ideological frame.

  19. Dan Staley –

    You’re too clever and subtle for me. Or something.

    Care to explain what’s ideological about pointing out that people like the freedom of movement that individualized transport provides?
    It has a near-universal appeal, transcending ideology and social structures.
    If you somehow have evidence to the contrary, bring it on.

  20. [me]“…extract rents from the peons.”

    CharlesWT: Yes, isn’t that what government does?

    As a matter of fact, no. Governments tax. And, a smart strategy is to tax economic rents, because that is, by definition, the portion of factor income, which does not affect how the factor is allocated, so there is no effect on allocational efficiency. And, not incidentally, the diffusion of benefits from many public investment goods, like roads and education, tend to enhance economic rents, so it is logical approach to recovering the cost of such investments.

  21. Passing by@ 11.19am: having no choice for transport but mode A and no other mode is not freedom. Freedom is choosing between mode A, mode B, mode C, and so on. Freedom is having a choice. Being not free is stuck with only one mode. Freedom is choosing between different modes.

  22. Modes have very high sunk costs and differing implications for population density. “Choice” — to the extent that it exists around the edges — is likely to be more about class than freedom, once a person is committed to location.

    The economics of it are not that people want “choice” so much, as a very low marginal cost of trip in whatever transportation system their choice of residence/work/community location affords to them. Autos in the suburbs achieve that, where public transit, at best, can only manage a low cash outlay, but a high marginal cost per trip (waiting, uncertainty, transit-times, amenities).

    If the price of gas is to rise, as it should, then we will have two strategies in response: 1.) build rail transit systems in more places, and let more people choose to live in the denser areas that transit makes possible. That does mean many Manhattens, or only many Manhattens; many suburbs and more isolated cities could grow denser urban cores, by substituting rail, and eliminating parking lots, without becoming Manhatten.
    2.) make significant changes in the automobile system — reducing the size and weight and acceleration of autos, reducing reliance on trucks for (intercity) freight traffic, and changing the means of technical means of propulsion.

    The frightening possibility is that the economic imperative to keep marginal trip costs low will compel a politics of keeping gas price low, which can only be accomplished by externalizing costs, accelerating environmental devastation and dooming the future.

  23. Dan Staley –“having no choice for transport but mode A and no other mode is not freedom”

    True enough, but irrelevant … unless you’re saying that people only use autos because they have no choice, rather than because they prefer them.

    Which would be a pretty silly thing to say. Societies all over the world, no matter whether they start as rural backwaters or as densly-packed cities, no matter what transport modes they used before, move towards autos as soon as they can afford it. Were they all somehow coerced? By whom? Moreover, there are some societies that stiill make enormous efforts to provide alternative modes of transport (Earlier, I mentioned the Netherlands as an example). Even in those societies, people mostly use autos to get around. Are the Dutch being coerced? By whom?

    You need to come up with some evidence here.

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