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Better Living Through Stable Oil Prices

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"Better Living Through Stable Oil Prices"

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Goldman Sachs says that as world economic growth resumes, we’ll see $85 a barrel oil this year and possibly $100 a barrel oil in 2010. That, as I’ve worried before, would stand a good chance of just see-sawing us back into recession. Then the price of oil would plummet again, and once again investment in new oil production and oil alternatives alike would collapse. Could there be a better way? Brad Plumer thinks so:

Another idea—which I mumbled about in my TNRtv video yesterday, but which was originally floated by Jason Bordoff and Gilbert Metcalf here—would be for the United States to implement some sort of variable oil tax that would keep the domestic price of oil more or less stable: When world oil prices rise, the tax decreases; when oil prices plunge, the tax increases. That would help create a predictable price signal to encourage conservation and alternatives to oil, and raise revenue for energy projects (not to mention send fewer dollars overseas). It’s a slight twist on the gas tax idea, and sure seems preferable to the current course.

I think this is a good idea. I think it’s very confusing and unproductive for the US government to be, on the one hand, talking about how we need more fuel efficient cars and then on the other hand acting as if we have an implicit policy objective of making oil as cheap as possible. Meanwhile, we don’t have enough revenue to meet our transportation funding needs. Under the circumstances, it would be very useful to set an explicit medium-term price target, with the price controlled by a variable tax, and the revenue from the tax used to fund our transportation needs.

Back in the tragic real world of actual politics, however, apparently congressional Democrats are terrified of the mere prospect of Rep. Jim Oberstar (D-WI) so much as mentioning an increase in gas taxes. Since the public appears to have an extremely firm and totally wrongheaded opinion on this issue, one additional potential bonus of Plumer’s ideas is that the public also seems to have no concept whatsoever of how tax incidence works. Thus it’s possible that if you could reformulate the basic gas tax concept as not a tax on gasoline that consumers pay at the pump, but a tax on oil paid by evil oil companies, that you could get further with it politically even though the actual impact would not really be different.

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