The NY Times Joins the Pigou Club

A few weeks ago I opened a thread about a Pigouvian tax on gas.  I argued that it would accomplish several things.  The first is to discourage consumption of gas and oil.  The second to discourage consumption of gas and oil from foreign countries. The third was to discourage consumption of gas and oil that contributes to global warming and pollution.  The fourth was to switch consumption and product development to energy efficient and non petroleum-based energy sources.  It struck a nerve among a lot of people because it basically is going to cost all of us money at all levels of society.  I heard a  lot of folks saying that the impact on the poor would be ‘unfair’ because so many would be unable to transfer out of gas-guzzlers and long commutes in the short run.  I also suggested that this could be offset with some kind of manipulation of the tax code to give them more take home pay until they can change the behavior.  I know suggesting tax increases on every one but the extremely rich is a highly unpopular thing, but unfortunately, it’s not only the rich that adopt behaviors that pass on social costs to the entire society.  Every has a stake in energy indepency, energy efficiency, and cleaner energy technologies.  If folks don’t change voluntarily (and history has taught us in this case they don’t), some times we have to make it costly.

Since I wrote that thread, the NY Times editorial board came out for a petroleum tax.  Gas prices are still falling and are now at about 5 year record lows.  Just like the 1970s and the 1980s, the american public is returning to its old habits.  This was just published at CNNMONEY.COM.

NEW YORK (CNNMoney.com) — After nearly a year of flagging sales, low gas prices and fat incentives are reigniting America’s taste for big vehicles.

Trucks and SUVs will outsell cars in December, according to researchers at the automotive Website Edmunds.com, something that hasn’t happened since February.

Meanwhile the forecast finds that sales of hybrid vehicles are expected to be way down.

“Despite all the public discussion of fuel efficiency, SUVs and trucks are the industry’s biggest sellers right now as a remarkable number of buyers seem to be compelled by three factors: great deals, low gas prices and winter weather,” commented Michelle Krebs, Senior Editor of Edmunds’ AutoObserver.com.

This month, trucks and SUVs will make up 51% all vehicles sold in the U.S., according to Edmunds.com. Before the spike in gas prices earlier this year, market share for trucks and SUVs had been even higher than that, said Edmunds.com sales analyst Jesse Toprak.

It just seems that we some people never learn.  That is when a Pigou tax in necessary.

Thomas Friedman in today’s NY Times  advocated the tax on petroleum for the same reasons.  Quoting Friedman is not something I usually do.  He’s has,however, spent some time studying the problem.  Here’s his take:

The two most important rules about energy innovation are: 1) Price matters — when prices go up people change their habits. 2) You need a systemic approach. It makes no sense for Congress to pump $13.4 billion into bailing out Detroit — and demand that the auto companies use this cash to make more fuel-efficient cars — and then do nothing to shape consumer behavior with a gas tax so more Americans will want to buy those cars. As long as gas is cheap, people will go out and buy used S.U.V.’s and Hummers.

There has to be a system that permanently changes consumer demand, which would permanently change what Detroit makes, which would attract more investment in battery technology to make electric cars, which would hugely help the expansion of the wind and solar industries — where the biggest drawback is the lack of batteries to store electrons when the wind isn’t blowing or the sun isn’t shining. A higher gas tax would drive all these systemic benefits.

The same is true in geopolitics. A gas tax reduces gasoline demand and keeps dollars in America, dries up funding for terrorists and reduces the clout of Iran and Russia at a time when Obama will be looking for greater leverage against petro-dictatorships. It reduces our current account deficit, which strengthens the dollar. It reduces U.S. carbon emissions driving climate change, which means more global respect for America. And it increases the incentives for U.S. innovation on clean cars and clean-tech.

The Times Editorial mentioned some of the same numbers.

The recent infatuation with the Toyota Prius and other fuel-efficient cars could well come to a similar end. It took a gallon of gas at $4.10 to push the share of light trucks down to 45 percent in July. But as gasoline plummeted back to $1.60 a gallon, their share inched back up to 49 percent of auto sales in November.

There are several ways to tax gas. One would be to devise a variable consumption tax in such a way that a gallon of unleaded gasoline at the pump would never go below a floor of $4 or $5 (in 2008 dollars), fluctuating to accommodate changing oil prices and other costs. Robert Lawrence, an economist at Harvard, proposes a variable tariff on imported oil to achieve the same effect and also to stimulate the development of domestic energy sources.

In both cases, the fuel taxes could be offset with tax credits to protect vulnerable segments of the population.

So, here are the arguments again with the evidence that people will not do what’s best without the stick.  Please think about it and discuss.