This is why we started this blog...
A recent editorial published in the Columbus Dispatch (Gravest threat to the United States is the convergence of economic failings, July 18, 2005) by Robin Blumner shows that we have a long way to go in explaining basic economic concepts to the public (don't take this the wrong way, I'm not blaming the public for failing understand what we economists are saying, I'm blaming economists for failing to explain clearly). Here's her take on what needs to happen to solve the coming 'oil crisis.'
What we need are leaders willing to deliver some bad news along with realistic solutions. I’d accept refuge drilling if the administration would also slap a whopping tax on gasoline to encourage conservation, and use those funds for research into alternative energy and for making public transportation cheap, convenient and comfortable.
Sounds reasonable. A tax will effectively RAISE THE PRICE of gas which we know will provide incentives for investment in alternative technologies (see a number of posts here). Blumner continues...
...we need to take some serious steps to conserve, including taking all the trucks off the highway and putting their cargo on train beds and boats. That would not only improve energy efficiency three- to tenfold...it would relieve highway congestion, increasing gasoline mileage for cars.
But, by decreasing the number of people wanting gas and improving fuel efficiency, we decrease the demand for gas and LOWER THE PRICE. Lower prices create a disincentive for innovation and lengthens the time to conversion to alternative energies.
Hmmm...we have some work to do.
Are you sure the gas tax, mentioned first, wasn't placed as a disincentive, for the very reason that reduced traffic and demand normally would lead to lower prices (and a rebound in consumption)?
You scold this person, but the tax is right there, as a compensating factor.
Posted by: odograph | July 21, 2005 at 05:14 PM
I suggest eliminating subsidies first. Make roads private. Let private owners collect fees, build new roads and abandon unprofitable ones. There would be less pollution, less asphalt and less taxes. More here: http://biopolitical.blogspot.com/2005/07/alternative-to-gas-tax.html.
Posted by: Biopolitical | July 21, 2005 at 07:18 PM
No scolding intended (as I said I strongly believe that economists have done a porr job of conveying ideas). Yes, the gas tax acts as a disincentive to consume and an incentive to invest in other technologies.
The problem is the conservation angle. A policy that reduces the demand for gas (getting all the truck off the road), creates a disincentive to conserve and a disincentive to invest in other technologies. Decreases in demand will lower prices and cause those left on the road (cars) to drive more. It's impossible to predict what, if any, effect these two policies together will have.
Posted by: Tim Haab | July 21, 2005 at 07:19 PM
Tim, can you see your assumption?
The one that makes you think the author needs your education?
It is that the price mitigating effects of paragraph two will completely offset the tax effects of paragraph one.
Maybe people are just ahead of you here ...
Posted by: odograph | July 21, 2005 at 07:32 PM
I'm always behind. I think I'm trying to make this too complicated. My point was supposed to be simple (but as usual the economist has failed to make his point simple).
Both policies promote conservation among some subset of gas consumers: One by raising prices to all, and one by eliminating some of the consumers. The problem is, when demand decreases, prices fall which increases the amount those left in the market will buy. So for those still in the market after both policies are in place (those driving cars), it is not clear whether the amount they consume will increase or decrease. So, for that subset, the policies seem to work in opposite directions. Gas taxes make them consume less, but lower market demand allows them to consume more.
Posted by: Tim Haab | July 21, 2005 at 08:41 PM
Actually, Tim, I'm wondering if the trucks/trains idea will have the opposite effect. As Albro Martin writes in _Railroads Triumphant_, "The conventional wisdom is that rail transportation is never likely to be practical (except for some notable exceptions) for distances under four hundred miles because of the high ratio of terminal time to running time on short runs." Assuming Martin is correct, that means that short of everyone moving closer to railroad spurs and sidings, or building more of those structures closer to their houses, what you'd probably see is lots of companies seeking low-cost ways of getting around the truck ban, i.e. by switching to SUVs and station wagons which consume more fuel per pound of stuff delivered. Thus her second idea decreases conservation.
Also, the gas tax effects everyone more or less equally, but the truck idea would fall on some harder than on others. I'd expect to see lots of lobbying by railroads, barges, and short haul distributors for it, and lobbying by trucking companies against it.
Posted by: Eric H | July 21, 2005 at 10:59 PM
I'm sorry, I was probably a little cranky yesterday.
Maybe the economists could talk a little about how to effectively design "consumption reducing" taxes. I'm sure it has been demonstrated both with success and failure around the world.
From a US perspective the UK's coloured diesels are an amusing solution.
Posted by: odograph | July 22, 2005 at 11:18 AM