Wednesday, May 28, 2008

More on Gas - Friedman's Take

Everyone seems to be talking about this, so we'll roll with it for a bit more. Thomas Friedman had a good editorial today in the New York Times talking about what we should do (after he ridiculed the McCain-Clinton gas tax holiday idea, as this blog has already done a few times):

[The ideal Presidential candidate] would be proposing, argues the energy economist Philip Verleger Jr., is a “price floor” for gasoline: $4 a gallon for regular unleaded, which is still half the going rate in Europe today. Washington would declare that it would never let the price fall below that level. If it does, it would increase the federal gasoline tax on a monthly basis to make up the difference between the pump price and the market price.

To ease the burden on the less well-off, “anyone earning under $80,000 a year would be compensated with a reduction in the payroll taxes,” said Verleger. Or, he suggested, the government could use the gasoline tax to buy back gas guzzlers from the public and “crush them.”

But the message going forward to every car buyer and carmaker would be this: The price of gasoline is never going back down. Therefore, if you buy a big gas guzzler today, you are locking yourself into perpetually high gasoline bills. You are buying a pig that will eat you out of house and home. At the same time, if you, a manufacturer, continue building fleets of nonhybrid gas guzzlers, you are condemning yourself, your employees and shareholders to oblivion.

The only problem with Friedman's analysis is that it doesn't go far enough. The government should raise the MPG standard to at least 35 *now*, not later. Moreover, it should subsidize hybrid cars to make it so they are essentially the only type being produced. Expensive? 1) Pull the troops out of Iraq and 2) Keep gas at $4/gallon when it goes back down (and it *should* go back down, because some the price spike of crude oil now is being fueled by speculation for what prices will be like in 7-10 years).

We also think that for the moment, instead of suspending the gas tax, the government should give vouchers to working class people and families to get a couple of free fill-ups to deal with this current crisis.

Krugman is right that we should eventually move to a fleet of electric cars, but he should emphasize more what Paul Krugman talked about in his "Stranded in Suburbia" column: the needed to ultimately redesign our cities and national infastruture. (Discussed here). Hybrid technology is *the* transition technology while our best engineers work to make electric cars more affordable and our city-planners (or whoever) work on redesigning the country the way that Krugman wants it.

Our Prius has a long wait to buy; moreover, it's too expensive for most working people - especially those who live in rural areas (like upstate NY!) where they need to drive to get places. Let the government subsidize the hell out of these things and spur their production in the short term, while we put the country in the right direction in the long term.


puja said...

"2) Keep gas at $4/gallon when it goes back down (and it *should* go back down, because some the price spike of crude oil now is being fueled by speculation for what prices will be like in 7-10 years)."

all you did here was describe the futures market. it'll go back down because a bubble can't keep growing forever, and that's the way the market works.

puja said...

"The first time we got such a strong price signal, after the 1973 oil shock, we responded as a country by demanding and producing more fuel-efficient cars. But as soon as oil prices started falling in the late 1980s and early 1990s, we let Detroit get us readdicted to gas guzzlers, and the price steadily crept back up to where it is today."