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April 28, 2006

Demand Destruction - Solving the Oil Problem

At this time of rising gas prices, the government should increase the gasoline tax.

Sound crazy? Consider....

An increase in gasoline tax will raise the cost at the pump into the unthinkable area -- $5.00 per gallon or more. This brings the cost in the US in line with the cost in other countries.

A dramatic rise in the cost will force the consumers to rethink their use (or abuse) of gasoline. Suddenly, that one-person-per-car commute to work 30+ miles away becomes economically unsustainable. The daily trip to the mall is excessive. Impulse trips to one store at a time costs too much. Car pooling, telecommuting or mass transit become the only viable options for getting around.

If we are to manage our way out of the oil crisis, we must address the demand. This is especially true when we have no control over the supply.

With a significant increase in the gasoline tax, we can envision these benefits:

  • oil demand is driven down, bringing it in balance with supply

  • the reduced demand is closer to what the US can supply itself, without importing from hostile nations

  • the taxes fund public transportation projects - light rail, commuter rail, etc - to satisfy the increased call for mass transport

  • the taxes fund research into renewable energy sources

This is not without pain. Increased fuel costs will make car ownership more expensive - hurting sales for traditional gasoline-powered cars. The auto industry, already in trouble, won't be able to survive without building more cars based on alternative fuels (and reducing the number of oversized SUVs, trucks and vans). The new standard for fuel efficiency will be market-driven - 50 miles per gallon will be the minimum that consumers will accept. I have no doubt that the US auto makers can build these efficient, alternative engines - they only lack a market.

If we are "addicted to oil" - and we certainly are, even if it was President Bush who said it - we need to break that addiction.

The role of good government is to encourage behavior that promotes the general welfare and to discourage behavior that is harmful to the general welfare. Using its taxing authority to put an end to oil abuse and to fund alternatives to oil is good government.

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