Demand Destruction – Solving the Oil Problem

At this time of rising gas prices, the government should increase the gasoline tax.

Sound crazy? Consider….

An increase in gasoline tax will raise the cost at the pump into the unthinkable area — $5.00 per gallon or more. This brings the cost in the US in line with the cost in other countries.

A dramatic rise in the cost will force the consumers to rethink their use (or abuse) of gasoline. Suddenly, that one-person-per-car commute to work 30+ miles away becomes economically unsustainable. The daily trip to the mall is excessive. Impulse trips to one store at a time costs too much. Car pooling, telecommuting or mass transit become the only viable options for getting around.

If we are to manage our way out of the oil crisis, we must address the demand. This is especially true when we have no control over the supply.

With a significant increase in the gasoline tax, we can envision these benefits:

  • oil demand is driven down, bringing it in balance with supply

  • the reduced demand is closer to what the US can supply itself, without importing from hostile nations

  • the taxes fund public transportation projects – light rail, commuter rail, etc – to satisfy the increased call for mass transport

  • the taxes fund research into renewable energy sources

This is not without pain. Increased fuel costs will make car ownership more expensive – hurting sales for traditional gasoline-powered cars. The auto industry, already in trouble, won’t be able to survive without building more cars based on alternative fuels (and reducing the number of oversized SUVs, trucks and vans). The new standard for fuel efficiency will be market-driven – 50 miles per gallon will be the minimum that consumers will accept. I have no doubt that the US auto makers can build these efficient, alternative engines – they only lack a market.

If we are "addicted to oil" – and we certainly are, even if it was President Bush who said it – we need to break that addiction.

The role of good government is to encourage behavior that promotes the general welfare and to discourage behavior that is harmful to the general welfare. Using its taxing authority to put an end to oil abuse and to fund alternatives to oil is good government.

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3 thoughts on “Demand Destruction – Solving the Oil Problem

  1. Bryan Watson May 8, 2008 / 12:25 pm

    2 years and 10 days later, the NYTimes opinion is:
    “Americans must find ways to curb their use of fossil fuels. That will require higher, not lower, prices for gas — even during a presidential campaign.”
    In Michigan, regular unleaded gas is at $3.90+ per gallon, and climbing rapidly. And Exxon Mobile, Shell and others are reporting record profits, also climbing rapidly.
    Time to increase gas taxes, but the politicians are cutting them instead.
    They don’t get it — not at all.

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  2. Bryan Watson May 10, 2008 / 7:44 am

    Public mass transit ridership suddenly leapt, apparently in response to the nearly $4/gallon gasoline prices, according to an article in the NYTimes (May 10, 2008)
    “In almost every transit system I talk to, we’re seeing very high rates of growth the last few months,” said William W. Millar, president of the American Public Transportation Association.
    “It’s very clear that a significant portion of the increase in transit use is directly caused by people who are looking for alternatives to paying $3.50 a gallon for gas.”…
    “We are at a tipping point,” said Clarence W. Marsella, chief executive of the Denver Regional Transportation District, referring to gasoline prices….
    “If we are in a recession or economic downturn, we should be seeing a stagnation or decrease in ridership, but we are not,” said Daniel Grabauskas, general manager of the Massachusetts Bay Transportation Authority, which serves the Boston area. “Fuel prices are without question the single most important factor that is driving people to public transportation.”
    All of this is a predictable response. But our public officials have lost the opportunity. Instead of increasing revenues for building out the mass transit systems, to accomodate the increased ridership demand, they have allowed the oil companies to increase their profits. If we NOW try to raise the gas tax to fund mass transit, the public with howl in protest. No public official has that courage.

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