Wanted: an economically viable alternative

June 15, 2009 in Economics

I have to confess that I am finding Felix Salmon increasingly difficult to read. Today he reacts to Jim Suroweiki's proposal of an inverse gas tax, which would maintain a constant gas price:

Surowiecki makes a strong case that consumer behavior, when it comes to reducing gasoline consumption, only really changes when there’s a spike in gas prices. As a result, his proposal would seem designed to have the least possible effect on gasoline consumption, and on our dependence on oil...

Either you want to effect consumer behavior and reduce gasoline consumption — in which case you actually welcome price spikes. Or else you want to smooth out price spikes, in which case you slowly boil the frog (to use one of the stupidest metaphors ever) and keep consumption high. But you can’t have it both ways. Which is it to be, Jim?

But I can have it both ways very easily: gas is $100/gallon, forever. This entails no future price spikes and yet somehow I think we'd manage to kick our oil habit (very quickly). Indeed, it seems clear to me from Suroweiki's piece that the constant gas price would be set sufficiently high to constitute a "permanent price spike," breaching consumers' comfort level and artifically maintaining an unsustainable price level. Because consumers can not anticipate any future price relief, they will adjust their behavior and reduce oil dependence accordingly.

As long as we're on the topic, here are current gas prices across the United States. The map clearly shows the impact of different state tax policies:

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