Gas prices

Obama resisted enormous political temptation to score a cheap one on gasoline prices today, while Clinton went in the tank. Yay for him, and too bad for her. This round began when McCain floated the insultingly dumb idea of suspending federal gasoline taxes over the summer. This was just another piece of idiocy coming out of his policy closet of howlers, as McCain is rapidly abandoning any standing as a serious person in this election. Still, it meant Obama and Clinton had the chance to do the right thing, and Hilary blew it.

The ease with which politicians say “gas prices are too high” combines their cowardice (or cynicism and irresponsibility, or maybe just ignorance) with a widespread confusion of price with cost in the public mind, one for which we educators probably have to answer though a supine and feckless press isn’t helping at all. The distinction is no piece of technical arcana, but one of the most fundamental keys to getting policy right, and in this case, a very big batch of policy with enormous consequences. If you don’t understand the difference, you do what Hugo Chavez does and suppress the price by enormous public subsidies. Unfortunately, the cost of anything is quite independent of what we want it to be, or the price at which it is offered, because cost a reality sort of thing, the value of the economic resources consumed in providing it. If you call a dog’s tail a leg, it still has four legs, because calling a tail a leg doesn’t make it one. If you lie about the cost of gasoline, or anything, by offering it for sale at an arbitrary price, the cost doesn’t change, but the behavior of everyone gets crazy with very bad consequences.

Price and cost can drift apart for many reasons, of which direct meddling by incompetent authority is only one. Sometimes the cost of goods includes resources that the producer doesn’t have to pay for, or that aren’t traded in markets, so their price misrepresents their real value in the way market goods prices usually don’t. The global warming and local pollution costs of burning gasoline are not reflected in what refiners pay to get gas to the pump (even including the tax intended to build the roads that make cars worth having), so the US price of gasoline is not too high but too low, probably about half what it should be. “Should be”, meaning “what would tell consumers the real cost of using it.” “Should be”, not meaning “what people want it to be, as long as they can pretend reality will be suspended”.

When a candidate takes risks that position him to be a better official if elected, and tells voters the truth instead of enabling our worst habits of magical thinking, he gets props in my book and should in yours. Not to mention another scoop of money .

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.