Wednesday, April 26, 2006

Are High Gas Prices Really Such a Bad Thing?

Don't get me wrong. I don't like paying $3.50 per gallon for gas (although it's still cheaper than a latte in a lot of places). I am a poor starving student, after all. And my family's planned road trip from Seattle to Minneapolis to Iowa to South Dakota and back again is going to be a lot pricier than we planned, although at least we'll be driving through the cheapest gas regions in the country.

But was this really unexpected? There are 2 billion people in China and India awakening to the glories of the middle class and industrialized society, after all. The environmentalists don't want to drill for more oil, and the places around the world that are drilling are not exactly stable.

The bottom line is that massive oil consumption is bad. It's bad for the local environment, and it's bad for national security. Well, maybe "bad" is overstating it, but at the very least it's not ideal, especially in today's world geo-political situation. And no matter how many scare mongering junk science movies Al Gore puts out, as long as oil is cheap and plentiful, people aren't going to change their driving habits.

But consumers are now starting to change their habits. Hybrid cars aren't just for smug emitting elites any more. Use of public transportation is on the rise. And it won't be long before companies even more aggressively start to mass market better technologies. There needs to be some impetus for change, and economic, free market options are the best kind.

That's why yet another government probe or investigation is not the answer. If anything, it makes the problem worse. It's ironic that Democrats who are now making political hay over the gas prices are the same people who have been demanding higher gas taxes for environmental reasons for years. If politicians want to make the leap to alternative technologies for either environmental or national security reasons, as they all seem to be doing, why would they want to disincentivize the market from making the change? I think it's equally dumb to interfere with the market with, say, a $0.50 per gallon gas tax, as John Kerry once supported, as it is to attempt to control the prices back down by attacking the suppliers themselves, as Hillary Clinton is now advocating. Leave it alone. Unless there's collusion (and how may investigations do we need to have to re-prove there isn't), let the prices match what the market will bear.

In fact, if the party of the little guy wants to give the little guy a break at the pump, how 'bout let's cut some of those gas taxes at the pump.

There is always the fear of inflation, but it's a real tribute to the Bush economy that inflation has stayed so low despite the gas prices. (As opposed to the Carter years when there were gas lines and double digit inflation.) In fact, the economy is still charging ahead with a full head of steam. To me, that signals as much as anything that this is not the crisis that politicians are making it out to be. The biggest negative consequence so far is that prices at the pump mean the party in power isn't getting their due credit for a roaring economy - but then again, consumer confidence is on the rise, too.

So - we have a situation in which the economy is remaining strong, and the market now has the correct incentives to invest in real technological change that will make the greens as happy as those of us who hate having to rely on Middle Eastern or Venezuelan oil. What's the problem?

Of course, no politician can say this who wants to win. "Suck it up" is rarely a winning political message. But maybe I'm wrong, and more hearings ARE the answer - as long as it'll keep the pols busy while the real entrepreneurs and "evil corporations" (as usual) beat the government to the right answers.


Juvenal said...

I agree with much of what you say, but would an increased gas tax really be such a bad idea? I agree with you that incentives to develop and use alternate sources of energy and mass transportation will never be strong enough while gas remains cheap. The question is, are gas prices truly high enough now to make the development and use of alternates economically viable and efficient? It does not seem like they are. Gas prices, in inflation adjusted dollars, are still lower than they were for most of the last century. Anecdotal evidence seems to indicate that the recent hike in gas prices has not appreciably altered driving habits. Would an additional tax on gas that forces people to change their driving habits and that would make gas expensive enough that it would be economically viable to develop alternates, be such a bad idea? It probably would have a short term impact on growth and inflation and productivity. Are those negative impacts significant enough to outweigh the tremendous long term benefits that would result from not financing corrupt and despotic Middle Eastern regimes?

Orrin Johnson said...

I'd rather see technology subsidies. High gas prices CAN have hugely negative and wide-ranging economic impact (inflation, most worrisome of all). Less government interference, not more, is virtually always the better solution.

People are already clammoring for new technologies. While we're being free market people, how about we allow cheap import of ethanol from Brazil, instead of insisting we use less developed and less efficient Iowa corn? But, of course, we don't hold early Presidential primaries in Brazil...