Wrong…wrongwrongwrong

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.

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.