Good Time to Sneak in a Gas Tax Hike?

The downside to lower gas prices: people are driving more. Which is why I always say that if you really want to tackle the environmental consequences of automobile gas consumption and emissions, the ONLY way is through higher gas prices. A tax is appropriate in the Pigouvian sense, and is more palatable right now than when gas was $4 a gallon. It will be $4 a gallon again in a year or two, so let's get the tax in now while we can. Go Ted go!

Eco-nomics: Gas Prices

I almost bashed in my car radio this morning when I heard Scott Horsley on NPR this morning suggest that the proposed gas-tax holiday would indeed lower prices at the pump (yes, I was driving my car and consuming gas). The host, Steve Inskeep, was clearly expecting him to say the opposite as he asked (and I paraphrase) 'but will consumers really see a decrease in prices at the pumps?'

I agree with Steve, I am not so sure and many others agree: Greg Mankiw, Paul Krugman, Dean Baker are among quite a few economists who think it is likely to have little or no affect on the price at the pump. Come on Scott, do a little homework!

Anyway, do we even want the price of gas to fall? The wonderful thing about gas prices (and yes they hurt me too - especially when I also have to wait for someone to pump my gas) is that they provide clear incentives to try and conserve on fuel. And guess what, it's working! One need only to spend a little time in Europe to understand the impact of high fuel costs has on individual consumption: smaller, more-fuel efficient cars are the norm, not the exception. Isn't this what we want: more energy independence, lower emissions, fewer greenhouse gasses released into the atmosphere? John and Hillary need to drop this proposal - it is just dumb (though probably effective as a bit of campaign rhetoric).

Which brings me to another topic: what to make of the giant SUV hybrids? One argument is that a small gain in fuel efficiency in a large SUV is better than a large on in a compact car. Example: two cars that drive 100,000 miles. One, big, gets 16 MPG and the other, small, gets 30 MPG. Improving the former's fuel economy by 2 MPG to 18 saves 694 gallons of gas, while improving the latter's fuel economy by 4 MPG to 34 saves 392 gallons of gas. But the other perspective is that the big car will burn 5556 gallons along the way, while the little car burns 2941. So if your policy goal is to reduce carbon emissions and oil consumption, it is pretty clear: try and promote consumption of the smaller car, not make a hybrid for the bigger one.