Today's Opinions, Tomorrow's Reality 

Higher Prices Now!
Weaning Consumers From Cheap Oil

By David G. Young

Washington DC, June 24, 2008 --  

Instead of protecting consumers from rising oil prices, political leaders should force costs higher to encourage changes in dysfunctional behavior.

The nonsense being peddled by America's political parties regarding the spike in world oil prices is but populist-tinged demagoguery. To Republicans, the answer to high prices is to drill more oil: in the Arctic National Wildlife Refuge, off the coasts of California and the Gulf of Mexico -- anywhere it can be found. The idea of drilling more is fine enough -- there's little point in leaving the oil in the ground. But on a global scale, America's oil deposits are so tiny that they can never hope to have a long-term effect on world prices.

Democrats, on the other hand, sound like an 8-track recording from the 1970s whenever they open their mouths on the subject: Conservation, wind power, solar power. Great ideas, all, but also completely unable to place a dent in energy prices, given current levels of consumption.

The prescriptions of both parties fail to recognize the extremely powerful market forces at play on a massive scale. Unlike the 1970s, when Arab nations forced prices artificially high through an embargo, today's price spike is based on skyrocketing energy demand from economic growth in China, India and other parts of the developing world. This price spike, unlike the one in the 1970s, is not going away. Today's world has too many rich people and too few oil fields supplying them. The era of cheap energy based on fossil fuels is over.

Politicians who truly care about the future must acknowledge this reality, and stop coddling constituents who complain about the cost of their energy intensive lifestyles. These costs are not going down any time soon -- no matter what drilling rigs are built in ANWR, or how many solar panels people buy. In the mid-term, consumer costs are going to go way, way up, until they are high enough to alter dysfunctional human behavior that leads people to live energy-intensive lifestyles.

Not only shouldn't the government stand in the way, it should help accelerate this process. Today's energy price increases are simply a hint of what is to come. The best way to help the economy through the transition is by weaning it off fossil fuels as soon as possible. Raising consumer costs for energy-consuming activities will harness market forces to change consumer behavior.

Presenting such ideas is political suicide, so don't expect to hear them from a candidate any time soon. That said, here is a list of the most helpful policy changes you'll never hear:

  • Get rid of free highways. The Federal government has been encouraging sprawl for over a half-century by building highways with taxpayer dollars without any direct charge to the actual users. Any economist worth his salt will tell you that a free good encourages wasteful overuse. Freeways encourage sprawling development, long commutes, and high gasoline usage. As a remedy, all primary roads should charge a fee for use that covers its actual costs of construction and maintenance. Government toll roads could help address the issue, but privatization of expressways is a far more efficient option.
  • Eliminate congestion on highways through variable tolls. The millions of hours that Americans sit in stop-and-go traffic each year burn massive amounts of fuel for no rational purpose. Tolls on primary roads must be raised at times of peak demand to keep traffic flowing freely. This must be true not just for designated "High Occupancy Toll" lanes -- it must be true for all lanes.
  • Eliminate congestion on city streets through congestion zones. Five years ago, London began operating such a system, but failed to raise prices high enough to eliminate congestion. New York and other major American cities should set up similar systems, with far more draconian costs.
  • Eliminate the Corporate Average Fuel Economy law. This law forced automakers to meet fuel economy standards in the United States. But because it sets less stringent standards for light trucks than cars, it forces Americans wanting large cars to instead buy even larger (and less fuel-efficient) SUVs and minivans.
  • Shift taxation to fuels, while keeping the overall tax burden constant.

The last policy change -- higher fuel taxes -- is probably the most powerful and most dangerous suggestion on the list. It is powerful because it can be used to directly raise energy costs in a proactive manner, while giving the government the option of backing off the tax to cushion the economy in times of temporary energy spikes. It is dangerous, however, because it pushes the government further into the business of social engineering through taxation. It is further dangerous because it is difficult to keep new taxation revenue neutral -- once the floodgates are open to a new mechanism for funding the government, it is extremely difficult to keep spending in check.

The exact prescription for buffering the economy from the effects of high fuel prices is certainly open to debate. The proper prescription, however, is most certainly not to coddle consumers into believing they can return to the carefree days of cheap fossil fuels. Those days are over. It's time for consumers to face the consequences of expensive oil, and change their lifestyles accordingly.

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