Left Center Left

From an excellent NewsHour piece on rising oil prices last night I heard John Kerry say the following:

I’ll tell you what. If the gas prices keep rising at rate they’re going now, Dick Cheney and George Bush are going to have to carpool to work.

….Number one, we should be putting pressure on OPEC to raise the supply and not allow those countries to undermine the economies of the world. Number two, we should stop momentarily filling the Strategic Petroleum Reserve, so the supply to the country is higher which brings price down. And finally there are 300 separate jurisdictions about additives in gasoline across the country, that raises the price of gasoline. If we were to simplify those rules and regulations, which we could do, we could lower the price of gas in the United States of America.

Is this how a fighting fit Kerry campaign begins - not with a bang, but a silly diatribe against gasoline prices? There are plenty of legitimate gripes that one can have with the Bush administration and some of them have to do with energy policy. But rising gas prices are not Bush and Cheney’s fault. In fact, as I’ve noted before, real as opposed to nominal gas prices are nowhere near record highs. And while there might be some use in pressing on his third point, for the most part, Kerry’s ideas are non-solutions to any problem that rising oil and gasoline prices may be.

Still, I’d be far more willing to defend Bush on this issue if his response weren’t equally problematic. Rolling out an ad attacking Kerry’s (supposed) record of supporting higher gasoline taxes, he said in a speech yesterday,

We don’t need to be raising the federal gas tax. Gas taxes would hurt the economy. There are some — there are some in the other party in Washington who would like to raise gas taxes. I think it would be wrong. I think it would be damaging to the economy, not positive to the economy.

Nonsense. While a new tax, particularly the sort of tax that would affect most consumers, would hurt aggregate demand if not offset by greater federal spending, a gasoline tax could well be revenue neutral. That is, taxes on gas could be offset with tax cuts on income or payroll taxes, so that the net effect on the consumer wouldn’t be that great. They’d just be encouraged to use less gas. Ultimately, a tax would not be a supply shock like genuinely rising oil prices are, and the effect on the economy (more precisely, on the macroeconomic health of the economy) would be neither positive nor negative.

The unwillingness to entertain gasoline taxes is unfortunate because even if, pace Kerry, the “record price” crisis is partly media hype, there is a problem in over dependence on oil. As one expert from the NewsHour panel, Economist columnist Vijay Vaitheeswaran, notes, this spike in oil prices is not OPEC’s fault this time but rather a demand-led spike, feuled largely by China’s growth and the US’s wanton consumption of gasoline. The other panelist, Georgetown’s Robert Lieber, picked up on the dangers of our excessive demand, pointing to “not only the short-term economic effects but the security externality that is the danger that unexpected events in the Middle East where two thirds of the world’s reserves of crude oil are located could at some time in the future really put us into a severe crisis.” He sees two major ways of getting around this dependence:

Over the long term, two of the most likely targets are both politically radioactive for Republicans and Democrats. And they are increasing the fuel efficiency of America’s passenger cars and light trucks where both parties have ducked that issue over the last decade. And — or are even worse because SUVs are in effect treated very lightly.

The second measure is taxes, but nobody wants to talk about taxes. But in fact the Europeans, the Japanese and others pay at least twice what we do at the gas pumps because their societies recognize the dangers economically and in security terms of overdependence on imported oil. Tax policy over the long term, gradually phased in, can have an effect there too. So those two things in particular, which means more fuel efficient cars and doing something about SUV gas guzzling, can have a huge impact long term but it takes a while to phase them in.

It will take longer to phase them in the longer both parties point fingers and ignore the real issue. It’s a shame, too, because this is one issue where one could imagine an alliance of liberal and conservative instincts. Conservatives, having argued for pollution vouchers for industry as a means of using incentives rather than regulation, could simply extend the logic to other areas of environmental policy they may be less concerned about. Liberals, eager to see environmental policy fall at least a little closer in line with Europe and Japan’s, could swear to a revenue neutral tax to overcome fears that a pollution tax is an excuse to tax and spend surreptitiously.

Ultimately, though, neither side will get anywhere as long as the general public thinks they can use as much of a resource as possible and never have to see the price rise.