05.12.08

What About Gas?

Posted in Climate Change, Energy, Politics, Resources at 11:08 am by justakim

“You’re an economist. What about the gas price?”

There’s two reasons I don’t talk much about the gas prices. One, every economist out there is talking about it, and some like env-econ do a fine job of covering every ounce of it. The other reason is that I don’t think just making it cheaper is the answer, which is something many people don’t want to hear. This does not mean I don’t sympathize with people who are adversely impacted recently, but that I think we made less-than-optimal decisions and now we’re paying for it.

Inspired by a conversation last week, here’s my bit on gas prices:

Me: Even now, our gas prices are so darn cheap relatively speaking.
Cohort 1: Cheap? Compared to what?
Me: Compared to Europe, for a start.
Cohort 2: Actually, I just saw a report recently about how we’re 100+ expensive…

Don’t believe us? here are the numbers in question. We’re around 108. European countries have high prices because of high taxes that are used to develop other transportation infrastructure, like mass transit. 18 cents doesn’t compare to a couple bucks. If the price goes up by a dollar here, that’s a significant increase while in Europe, it’s a smaller percentage. Price shocks are bad. It is harder to adjust to a sudden and possibly temporary price change than to shift production and consumption to a predictable future. If you’d known in advance that prices would suddenly go up, you would have planned for it. If you’d known all your life that gas is expensive, you would have made life choices accordingly. Your city might not look the same.

I know that there are people who don’t want anything to do with those ‘socialist’ European countries, but one might consider that our price is much closer to Russia’s.

When I was twelve, I laid out the itinerary for the family vacation. I took out some maps. I hit as many national parks as I could within our two week time frame. I was very proud of myself. I find the summer vacation as important as anyone. But I don’t think the American way of life requires that we remain vulnerable to the whims of a volatile, cartel-operated market. That just doesn’t seem American to me.

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