Yeah I know. No one cares about this on the day of the Pennsylvania primary. But it is Earth Day. So I figured I would give it a shot.
Question: What two things do Al Gore, Andrew Sullivan, Paul Krugman, George Schultz, Larry Summers, Paul Volcker, Alan Greenspan, Charles Krauthammer, Richard Posner, Gary Becker, Morton Kondracke, and most economists have in common?
First, I have it on good authority--N. Gregory Mankiw's blog http://gregmankiw.blogspot.com/2006/09/rogoff-joins-pigou-club.html--that these personages and many others support higher taxes on gasoline and other fossil fuels. Second, we have it on good authority that none of those people are running for public office. The two facts are linked. I would venture that 90% of working economists and policy analysts believe and can recite why our nation and the world would benefit from a stiff gas tax.
This is not a partisan debate. Professor Mankiw, a leading proponent of fossil fuel taxes, deserves sympathy for having to advise Mitt Romney's ill-fated campaign. Charles Krauthammer and others on that list are conservatives. Paul Krugman and Al Gore: not so much. This is a debate between policy wonks and politicos, a debate between those who are serious about reducing our addiction to cheap energy and those who want to kick the can down the road, where it will land next to the cans marked "health care costs," "climate change," and "the trade and budget deficits." One more can--"nuclear proliferation"--we have a depressing six-pack.
Unfortunately, many Americans side with the can-kickers--all the while blaming our elected politicians for failing to address our problems. This mentality reared its head in ABC's bad debate, in which Charles Gibson asked Senators Obama and Clinton: "What are you doing about gas prices? It's getting to $4 a gallon." The same mentality is expressed in John McCain's proposed summer gas tax holiday--as economist Dean Baker has explained--a giveaway to the oil companies.
The correct answer to all this is politically unutterable: Let the price rise. Anyway, what's the alternative? Maybe we should take Chinese drivers to the international criminal court. Maybe we should sue OPEC for...trying to make money.
So the strategists who warn politicians not to step out front are not evil or stupid. They are doing their jobs. Most understand perfectly well, and probably agree with, the arguments policy wonks would give.
Mankiw and others have made the arguments well. In brief:
We are burning up the planet. Quite simply, we must drive less, use less heating oil, and change our lives to create a sustainable future. Our nation is the single largest producer of greenhouse gases. This is a direct threat to our environment. Our terrible example also makes it nearly impossible to get other countries to do more. How can we ask India and China to protect the global environment when we ourselves are unwilling to make modest changes and sacrifices to curtail our destructive petroleum addiction.
Our lives would be nicer if everyone drove less. On so many issues--from urban congestion and smog to continued suburban sprawl--we would be happier if we shifted American culture in a different direction.
Petroleum dependence creates fundamental national security concerns. Raise your hand if you're happy that our president goes, hat in hand, begging Saudi Arabia to raise oil production. Raise your other hand if you are happy that high oil prices--abetted by our profligate consumption--empowers tyrants in Caracas and Tehran.
We could use the money. A $1 gas tax would raise perhaps $100 billion annually. As I recall, we have some federal budget problems these days that might call on some of these funds.
Gas taxes are more effective and less corrupt than most other proposed strategies to address energy concerns. The word "ethanol" summarizes much that is wrong with current policies to promote alternative energy sources. These turn, predictably, into boondoggles for favored constituencies. Ethanol is an especially politicized case, but economics 101 teaches that even a judicious government is unlikely to forecast new technologies very well.
Consider everybody's favorite future solution: the hydrogen car. The main reason politicians love it is that we can finance nice research projects and tax breaks, and we can push far, far into the future our responsibility to do much more. The basic technology needs work. Moreover, we have to consider how to create a national network of fueling and repair facilities to match what we have built over fourteen decades to service gasoline-fueled cars. Are these problems surmountable? I have no idea. Neither does John Dingell or George Bush. Even if we ignore the Department of Energy's non-exemplary record, command-and-control government policies are rarely successful in picking sustainable and efficient technologies over a long period of time. This is not the Manhattan Project or the moon shot.
Cheap gas undermines incentives to invest in energy efficiency. It doesn't help that alternative fuel technologies must compete in an American marketplace against very cheap gas. Hydrogen cars would be more competitive if gas cost the same in Chicago as it does in Paris, Toronto, or Frankfurt. The same is true of Toyota Priuses and other fuel efficient cars.
Suppose, for example, that a person who drives 12,000 miles per year is deciding between one car that gets 25 miles per gallon and a hybrid that is twice as efficient. When gasoline costs $3.00 per gallon, this huge difference in mileage would save about $700 per year.--maybe less if gas prices go down. Yet hybrids cost more than a regular car, sometimes $10,000 more. It's not clear that the gas savings are enough for most people to make the extra investment. When gas costs $6.00 per gallon and a permanent tax credibly keeps prices this high, the auto buyer's calculation really changes.
We can use gas tax revenue to help poor people. People understandably worry that gas taxes might harm low-income and rural people. As in the case of tobacco taxes, we could use the accompanying revenue to address such distributional concerns. Suppose we allot 25 percent of gas tax revenues to home energy assistance, revenue-sharing to states based on year-2005 gasoline consumption, and other measures to help low-income people harmed by higher fuel costs.
Given a $1/gallon gas tax--phased in over several years--this would be real money. The resulting anti-poverty program would be bigger than Head Start, WIC, or TANF, which is cash assistance to low-income single mothers and their children. Here is the best part: We would still have $75 billion per year to cover the uninsured, pay down the deficit, or return to taxpayers on April 15 as refunds.
Right now gasoline taxes lay at the margin of political feasibility. Cap-and-trade systems, say of the sort many Democrats favor, are steps in the right direction. These policies are also more palatable, perhaps because their true impact is more oblique than arises from a straight-up tax. I'm not sure, politically, whether I would advise them to leap much further ahead of our fickle and short-sided electorate.
Yet times are changing. Every year, more Americans recognize the need for adult conversation about what's required to protect our environment. For wonky and not-so-wonky reasons, taxing fossil fuels is the smartest, most efficient way to begin these changes.
Sigmund Freud once wrote: "The voice of reason is quiet but insistent. It will not rest until it gains a hearing." In that spirit, I am optimistic that Professor Mankiw's wish will be granted before our next president leaves office.