27.4.06

THINKING ABOUT GAS PRICES. The Energy Information Administration's latest This Week in Petroleum details current gasoline inventories as the winter blends are used up and the summer blends brought to market. A service called The Oil Drum (via King) suggests that readers take two deep breaths and not look for top-hatted plutocrats hiding in Mr. Rockefeller's office car.
We strongly feel that the leaders of both political parties are not only headed in the wrong direction with respect to gas prices, but we also worry that they fundamentally misunderstand the factors behind the current situation at gasoline stations around the US. Public statements by political figures over the past several days would seem to suggest that oil companies and their record profits are the sole factor determining the price of gasoline. Not only is this untrue, but it is dangerous to give the American people the impression that only oil companies are to blame.
Dan Drezner surveys some of the commentary, concluding with a note,
The best answer might be that whatever is being proposed now is still less intervenionist than what happened in the seventies (even/odd days, anyone).
Yes, that was my fifteen minutes of fame a week into the Reagan administration. "Given two bad choices, the better of the two is to provide people with incentives to look for oil rather than steal license plates," live on the evening news, all over Southeastern Michigan and Southwestern Ontario.

Angry Bear's PGL reminds readers it is possible to shift the demand curve as well as to move it.

Turning to the political economy, Brad De Long offers a candidate for Quote of the Month, proclaiming anathema on all politicians.
Democrats are (because of the environmentalist wing of the party) generally in favor of higher gasoline taxes and higher gasoline prices--except when gasoline prices are high). Republicans are in favor of letting oil markets "work"--except when gasoline prices are high.
'Swar immer so. Professor Bob Lampman at Wisconsin was sure to alert aspiring policy wonks that efforts to offer politicians choices would always elicit a request for both. Lynne at Knowledge Problem is frustrated.
Here's a situation in which I really hate to say "I told you so". Even politics-hating, non-active me, I am ready to call my senators and try to teach them some economics upside the head on this one.
Econobrowser takes a more favorable view. It's a longish post, raising a number of instructive points.

The auditions for Crossfire are going on at Best of the Web. One of the posts the Journal takes particular umbrage at, from Matt Yglesias, captures the fundamental distinction between opportunity seekers and problem solvers.
High gas prices are very unpopular with the public. This presents an opportunity for the opposition party to score gains against a genuinely pernicious incumbent party by presenting itself as prepared to "do something" about the situation. But, simultaneously, the correct liberal point of view is that high gasoline prices are actually a good thing for environmental and foreign policy reasons.
That suggests my pet response to the question, "why can't we have fast trains like the Japanese or the Germans?" (And why might people ask me that question...) My response: I can get you those in five years, but you're not going to like it. First we put a $5 per gallon train tax on motor fuel. Then we make all the expressways toll roads. Also, suburban developers will have to build the roads to their subdivisions. Then we use the tax and toll revenues to build the trains and the fast tracks. And smaller houses using existing streets closer to the train stations will be relatively cheaper than the McMansions on the half-acre lots. So far, the tamest reaction I have elicited is, "you're right, I don't like it."

Tiger Hawk provides some insights.
Gasoline is still such a good value, we would rather consume it than turn our cars off and on, even at four-minute stop lights.
That might change at $10 a gallon.
I work in a suburban corporate office park along with hundreds of other people who travel great distances every day. While many of our employees are scattered, most live pretty near at least one other person, or along the same route to the office. I don't know of a single pair of employees who share their ride to work in order to save money. Do you? Until we see workers spontaneously organizing carpools, we can safely conclude that gasoline remains such a good value that people will not bear even the slightest inconvenience in order to use less of it.
Note that phrase, "spontaneously organizing." We don't know what that organization would look like, but we can suggest that there is some price of gasoline at which it would emerge. We also don't know the price of gasoline at which further research and development into improved batteries or fuel cells or Tesla free-energy coils might yield something of commercial value. The policy maker who would like to bet the future on corrective taxes to pay for trains to sustain current patterns of clustering and living might be right ... but it behooves that policy maker to note that placing the bet involves at least some foreclosure of unexplored alternatives.

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