What Good Could Come from Higher Gas Prices

I want to respond to a comment posted on something I had written earlier this week. Anonymous suggests that “higher fuel prices is bad; nobody is advantaged.”

Let me first distinguish from higher fuel prices as a result of supply/demand dynamics like what we saw last summer (which, while they lead to more rational behavior by consumers and producers, mostly provide financial benefit to Saudi Arabia, Venezuela, and Russia) versus as a result of a federal gas tax (which can also lead to more rational behavior by consumers and producers AND be part of broader policies that help our economy and environment). Here I'm talking more about the latter than the former.

To be sure, any time you make a big change, you’re going to have winners and losers, so I am certainly not suggesting that the transition from under-priced gas to more properly priced gas will be universally painless. But I do believe that such a transition will result in a net gain to society at large.

Remember what’s going on when something is “under-priced”: people buy “too much” of it. And why is gas under-priced, and why is people buying too much of it a bad thing? Here I’m not going to cover all things environmental, since the whole climate change debate is too uncertain, and I’m agnostic anyway. But the natural resources needed to produce gas are finite, and our demand for it far more than what we can ourselves produce in the US, which means our appetite enriches other countries and puts us at the mercy of many nations whose thumbs we may not want to be under. To the extent that we become less economically competitive and geopolitically safe, that’s a loss to all of us in the US.

Second, our auto-oriented way of living, enabled by cheap gas, leads to all sorts of other negative and costly externalities that we impose upon society, including congestion, air quality, and accidents/fatalities. Devoting space for free roads and free parking prevents land from being available for other uses. We can’t eliminate these externalities, nor would we want to; some of those things are good, and others would be too expensive to complete eliminate. But artificially low gas prices means we have too much of them to be optimally good for society. Again, we all lose as a result.

Third, you could offset the increased cost to consumers from a gas tax by giving it back through a payroll tax cut, which would put money in working peoples' pockets and help businesses create jobs. Or you could make it revenue-positive for the government (i.e. give none or not all of it back to citizens) and have big slugs of money to spend on crumbling infrastructure and/or transportation alternatives, which we can all benefit from in terms of quality of life and quantity of commerce.

There are more reasons, but I’ll stop there. Of course, we’ve had cheap gas for a long, long time, so this is going to be a hard habit to break. And, given the fact that gas prices are posted in big bright letters and that we pay for it by pumping it into our cars while we watch the dollars and cents turn, is it any wonder it is probably the product whose price increases we have the most visceral reactions to? Plus, it’s easy to see the money leave your pocket when gas prices go up; it’s hard to feel the impact of a little bit more congestion or a little bit more pollution, or a little bit less national security or a little bit less economic competitiveness.

But the fact of the matter is we pay far too little for our gas, and have been doing so for long enough to build up an entire way of living that is based on that fact. So hiking the price is going to create its winners and losers, is going to be vehemently contested, and (if implemented) is going to lead to a net gain for the US and for the planet.

As noted above, you can give it back in the form of a payroll tax cut, but even then you’ll have winners and losers. Or you can say, “Tough noogies, we’ve been doing this for too long, and it’s time to rip off the Band-Aid.” Or you can do something in between. But, for the sake of our planet, our national security, our physical health, our economic competitiveness, and our quality of life, we have to do something.