Addicted to Oil

In his State of the Union address this year, President Bush spoke of
America being "addicted to oil." Lately, I've been thinking he ain't
wrong: the economists would tell you the price of gas in this country
would have to go to something like $10 per gallon before people would
start making major changes in the way they get around. In other
words, the economists would say the cost of driving is inelastic:
price increases won't lead to commensurate consumption decreases.
Maybe the goal of a national gas tax, which some (including me) are
for, wouldn't do much to curb our appetite for driving.

It reminds me of another thing we tax in this country: cigarettes.
Governments like to tax cigarettes for two reasons. One, it makes it
look like they're doing something to decrease the amount of smoking,
by raising the cost of smoking. Of course, it usually doesn't work
this way: smokers, like drivers, are pretty price inelastic. But that
leads to the second reason governments like to tax cigarettes.
Because smokers are price inelastic, you can slap a tax on cigarettes
and pretty much guarantee yourself a nice amount of tax revenues.

In theory, that tax revenue can then be used to fund good things to
offset all the bad things smokers impose on the rest of us, good
things like public health programs and anti-smoking campaigns. In the
same way, maybe we should see a gas tax (or other attempts to reduce
driving, like congestion pricing or a higher motor vehicle tax) not as
a way of decreasing the amount of driving but of paying for the cost
all this driving is imposing on all of us. In other words, let's
concede that Americans love their cars, and simply make sure that they
pay a little more than they do now, so that all the costs they impose
on society that they currently underpay for (like pollution and
congestion and automobile accidents) can be more fairly paid for. I
mean, if we're letting smokers smoke, maybe we ought to let drivers
drive.