The price of gasoline

High gasoline prices are a good thing on environmental grounds, and would be a good thing on national-security grounds if they resulted from taxation rather than further enriching Saudi Arabia and Iran. Unfortunately, the voters hate them.

Brad DeLong is right: Democrats are for high gasoline prices on environmental grounds, except when gasoline prices are high. Republicans are for an unfettered market, except when gasoline prices are high.

He might have added that both parties are strongly committed to ending America’s dependence on foreign oil, and will do anything to solve that problem except the one thing that would actually work: increasing the price of gasoline at the pump.

High gasoline prices are a disaster for the party in power, and for the party out of power unless it seems to oppose them. That’s unfortunate, since high gasoline prices are good for conservation, good for fighting suburban sprawl, and good for the development of alternative technologies, but it’s the case. The best we can hope for is that the two parties tacitly agree to restrict their opposition to high prices to posturing, rather than trying to do anything about them. (Yes, I’d love to see some California refinery executives go to jail for collusive supply-limitation arrangements, but that’s on grounds of justice and distribution, not economic efficiency.)

On the other hand, when prices are high, oil producers don’t need the vast array of tax breaks they manged to wheedle and bribe for themselves when prices were low. In the face of a huge deficit, getting rid of those breaks is among the politically painless and economically harmless ways of raising revenue.

Of course, that leaves out of the picture the urgent need to stop sending ten of billions of dollars a year to places where some of it is sure to be used to support terrorism and the acquisition of nuclear weapons. If we had a wartime President, he would have used 9-11 to tell the nation that importing oil means trading with the enemy, and slammed on huge excise taxes on petroleum consumption, most of which would have wound up, in the long run, coming out of the pockets of the owners of petroleum in the ground.

But instead we have George W. Bush, and the one moment where drastic action might have been politically possible was lost.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact:

20 thoughts on “The price of gasoline”

  1. Hi Mark,
    As much as I often disagree with you, on this I agree with you 100%. It is unclear to me how taxes we paid on gas we buy from Canadians and Venezuelans would have decreased the money flowing into Saudi coffers, but still, it would have definitely been a most excellent symbolic gesture of defiance.

  2. Context is everything Mark. I think most Americans will have to be managed into higher gas prices. In other words, told about it first, as part of a plan. But I think more and more people sense about the Bush Administration what Captain Willard observed about Kurtz in Apocalypse Now – we don't see a plan.
    If the Bush Administration had long since propelled us on a JFK-going-to-the-moon national strategy towards energy independence, and this happened within that context, this moment might be seens as all the more reason for people to pull together towards that national goal. But Bush seems singularly incapable of inspiring us to pull together.
    Bush has been given more opportunities for greatness than almost any modern president but FDR. That he has become such a misery is not because the circumstances forced him to, but because it is in his nature. He does not have the character for greatness and the national mood on gas prices is a small part of our collective recognition of that fact.

  3. I'm second to none in my hatred of corporate tax breaks, but they're given in low price times to do things like encourage investment. If you make it clear that you will take back the tax break should their investments actually make any money, then the next time you want to encourage investment, they won't bite.
    Personally, I don't think we should be encouraging the private sector to inveset in anything. But the logic our congressmen seem to be following is lunatic.

  4. If transportation were not crucial to the ability to work, I might agree that market forces might affect wasteful gas usage. The largest share of gas price increases is borne by those without flexibility so it is just punitive without resulting in any change in behavior. Most people cannot buy a hybrid, join a carpool, or take public transit to work. How then are they supposed to absorb these increases, especially when they ripple through the economy in the form of higher prices for nearly everything? It makes this kind of speculation by economists appear cruel.

  5. When people are asked why they don't take public transportation or use carpools, the number one reason they cite is "convenience." Since most major cities have guaranteed ride home programs, it's not that people want the flexibility to leave early or late when they need to, that isn't what's going on, really.
    It also isn't time. As traffic congestion gets worse and worse, commute times for single-passenger cars are comparable to light rail and subway systems, and carpooling and/or slugging is usually only a few minutes slower (and can actually be much faster in places with HOV lanes).
    So what is it really? I'm convinced that it's the selfish desire for a feeling of power, and for personal comfort. Sitting behind the wheel of a half ton of metal is an intoxicating feeling, and going from that to being squeezed into a bus seat or being subjected to the social vagaries of vanpool/carpool is anathema to Americans.
    So don't say "cannot" Nancy. "Will not" is more accurate.

  6. Since most major cities have guaranteed ride home programs, it's not that people want the flexibility to leave early or late when they need to, that isn't what's going on, really.
    What's a "guaranteed ride home program"?
    Which cities have them?

  7. Vaxalon leaves out such minor American cities as Jackson, MS, where I have no realistic alternative to driving. The white-flight suburbs don't want buses running across the county line into Jackson, because (eek!) the traffic would go both ways.
    Even if the race card is wrong here, there's the reality that mass transit in most of America is moribund. The only realistic way to cut gas usage is (surprise) massive federal intervention in mass transit. Let's not hold our collective breaths.

  8. What does "convenience" mean? I have always taken public transit in other cities, but here in LA it would require a 45 min bus ride to the train, 20 min on the train, then another 45 min bus ride to work, each way. Is that inconvenient — you bet. Is it possible — of course it is, at the cost of family life and fatigue (rising earlier, commuting when tired). Since economists also think in terms of productivity, what would a 4 hr commute per person lost from other activities do to our economy? This is without considering that there are insufficient trains and buses to accommodate everyone should large numbers shift to public transit.
    Economists can sit back and speculate about how higher gas costs are good because they encourage people to overcome inconvenience but there are reasons why only those with NO other alternative are the only ones to use public transit (especially in places such as Los Angeles). When people are unwilling to abandon their cars even when gas is high, that should suggest an incomplete understanding of the reasons for people's behavior. If it were truly a matter of convenience, people would do it to be prosocial and help the environment. The word convenience is masking a whole set of obstacles that are not being addressed seriously, in my opinion.
    My employer could enable more of us to use public transit simply by allowing a shuttle bus from the train to load on company property. They won't do it, so we are stuck with public transit routes that don't come anywhere near the workplace. Where is any discussion of this kind of approach. Why are commuters the only ones who must bear the brunt of crises like this, while economists trivialize their concerns with words like "convenience"?

  9. I'm a planner in western Washington state and I can tell you unequivocally that, despite horrible highway congestion, driving to work in a SOV is far, far faster than transit around here. And Puget Sound has, comparatively, decent transit (and no 'ride home' programs, whatever those are)
    So some of the argumentation above falls short. The separation of our live-work space over the last 50 years guarantees our auto dependence.
    One other thing that needs mentioning: middle-class wages need to increase if gas prices continue to rise and families have to buy new cars or take transit. Wages have not risen and if transit is an option, that is much more time away from family and there has to be some compensation for that lost time.

  10. In re tax breaks "given in low-price times to do things like encourage investment," c'mon. We all know that's not true. One, tax breaks are given all the time, especially in the decades since one of the two major parties has made a religion of them. Two, tax breaks are given by politicians (of all stripes, let it be noted) for diverse reasons, substantially all political, with a headline excuse or two that includes phrases like "to encourage investment." Three, what any subsidy ever does is encourage uneconomic behavior, period.
    So, if we take back subsidies for, say, oil drilling during periods of high prices and windfall rents, industry behavior will not change. It will continue to seek subsidies from government (I'd love to have the data to calculate an ROE on lobbying investments and expenditures), and once granted, will ever and always take advantage of opportunities to profit.
    The solitary area in which we need worry are those in which subsidy actually and unequivocally solves a collective-action problem. Subsidizing extractive industry in any but a depression-level period of financial dislocation is not among them.
    On topic, my wife and I both commute on public transit for ~2x the minimum time it would take us to drive, and we both find it an easy decision. The lost time is hardly lost when you can (as I do) sleep or (as she does) read, and the saved money and energy (from not having to drive in commute traffic) more than repays the minor inconvenience. If you live someplace like the midwest or LA, where the bargain rises to >2x the time, though, there's a simpler solution: do what my father did during the first oil shock, and carpool. It won't kill you, and you might get to know your coworkers better.
    Apologiae for the rant on tax policy, but I actually read the bills when they affect companies in which I might invest, and I can pretty much assure that substantially all the last decade have been written by industry, for industry.

  11. Jane: "I'm second to none in my hatred of corporate tax breaks, but they're given in low price times to do things like encourage investment. If you make it clear that you will take back the tax break should their investments actually make any money, then the next time you want to encourage investment, they won't bite."
    Wait, do you really mean to say that finite encouragement won't work? That we have to carve out special cases in perpetuity in order to encourage something? I think thousands of parents, sports coaches, accountants and lawyers would disagree with you there, Jane.

  12. I took public transit in L.A. for twenty years. I finally quit when they got rid of all padding on the seats. Which had also become smaller, and closer together. And they started hiring truck drivers who treat the riders like freight– slam on the brakes, punch the gas, people falling all over each other. And crowding. If you're any kind of a gentleman you stand for over an hour both ways in order that old people or women with babies don't have to.
    It wasn't a "selfish desire for a feeling of power" that drove me off the bus. Vaxalon does not ride the bus in L.A. Nobody does who can avoid it.
    Oh, and it's slow– really slow. And undependable. "Selfish desire for a feeling of power…" Feh! I hate cars. I hate driving.
    And as to the original post… Poor people pay a larger percentage of their income on gasoline. There must be a better (more progressive) way to fund alternative energy. They didn't raise gas taxes to underwrite nuclear power, but managed to send many hunderds of billions that direction.

  13. Vaxalon, a nit re:
    "Sitting behind the wheel of a half ton of metal is an intoxicating feeling…"
    I'd adjust your analogy. My Saturn SL1 weighs at least a ton. I don't feel particularly powerful driving it on the road.
    Marginally more substantively, I agree that some people probably get off on the feeling of driving their massive SUVs, but I think the convenience factor is far more important. I commute 50 miles round trip, but I'm driving off-peak hours at 5am in the morning and 2pm in the afternoon. I'm not willing to sacrifice convenience and flexibility for the lost travel time I'd have with public transportation.

  14. Wouldn't a tarrif on imported oil be hugely more effective at your stated goal, ending dependence on foreign oil, than a tax on oil at the consumption end of things? This seems basic economics.
    If you're going to advocate using taxation in this fashion, at least target it rationally.

  15. A couple of points on public transit. As other people have pointed out public transit is slow. Department of transportation shows that it averages double the time to get some place by public transit as by car. Also for most people public transit equal bus. Though some American cities have rail, it is prettt damn rare. And a commuter bus gets the same average passenger miles per gallon or worse that an automobile does.

  16. As someone who has never driven in my almost sixty years — if you don't count sitting on a relative's lap and turning the steering wheel when i was about 9, I suppose I am not qualified to speak about the problems drivers have. (I also have spent most of my adult life in NYC city, where public transportation IS both convenient and safe — despite the myths –, and a lot cheaper than owning a car.)
    But I found the line "9-11 to tell the nation that importing oil means trading with the enemy," offensive. I have little love for Saudi Arabia, or other oil-producing states in the Middle East, but 9-11 did not make THEM the enemy. It made a particular group, Al Qaeda, and the country that supported it, Afghanistan, the enemy. (And Al Qaeda hates the current government of Saudi Arabia as much as I do, though for different reasons.)
    But a statement like the one you made is simply biased. Lumping all "Arabs" or all "Muslims" in one pot is one damn good reason why we have lost the sympathy of many of them, the ones who hate the tyranny of their religion and their governments.

  17. "I have little love for Saudi Arabia, or other oil-producing states in the Middle East, but 9-11 did not make THEM the enemy. "
    No, that's true. They'were already AN enemy, even before 9-11, due to their financing of Wahabbism all over the world, among other things.
    That Al quada hates them… So what? The enemy of my enemy is quite often also my enemy.

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