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Wrong approach

April 22, 2009

It seems Bill Ford is the latest auto exec to come out in favor of hiking the price of gas  by up to $2 gallon through a federal or state gas tax to create impetus to buy newer, and theoretically more fuel efficient cars.

This is a hot button for me, as it seems so typical of our present societal tendency to think in a vacuum.

 First and foremost, many seem to be ignoring one of the fundamental reasons we are in the economic depression / recession that we are in.  Soaring fuel and energy costs over the last 2 years drove inflation and reduced buying power.   The cost of materials, foods, and finished goods all increased.   This impacted not only  consumer spending but the profitability of most businesses.  It also led to a rise in unemployment.   

The mortgage meltdown is often glibly attributed to making bad loans to people who couldn’t make the payments.  Why was it that they couldn’t make the payments? Spent all their money on gas and groceries?  Downsized by their employer?  I firmly believe fuel prices of $4 gallon had a lot to do with it.  And now some  think that raising the prices back to that level would be a good thing? 

If people are having trouble paying for their mortgages now, don’t we think doubling their fuel costs will worsen the situation?  If they can barely get by, how are they going to afford a new car payment?  Oh, the improved gas mileage will offset the payment…how about the increase in property taxes and insurance? 

I don’t think the economics really work out.  For example, I drive a car that gets 28 mpg on the highway.  I drive 40 miles round trip per day X 5 days week or 200 miles.  Let’s assume there are some stop lights  along the way (which there are), and that the car really gets an average of 20 mpg (which it does as reported by the onboard computer).  I use 10 gallons of fuel per week.  At $2 / gallon that’s $20/week or $80 / month.   If you doubled the price, that’s $160 a month.  If I bought a hybrid wondercar and got an average of 40 mpg, that would conceivably reduce my consumption to 5 gallons per week and I’m back to $80 /month in fuel, but I’ve got a $500 car payment, $1000 tax bill  for the year and a few bucks  more in insurance.  How’s that a better deal for me? 

Well it’s better for the environment.  Well,  perhaps.    If we all stopped eating beef, we could probably offset a lot of CO2 by reducing the number of cows being bred for food too.   I don’t see a lot of interest in that movement.

Next, the arguement is made that the collected taxes could go to investment in alternative energy sources and infrastructure building.  Interesting sound bite.  Let’s see how that might work.   We’ve run up the national debt further, so that we can spend more, and give minor tax relief on income taxes, but with a $2 gallon gas tax, we would be pulling it right back out of circulation, and funneling it into dubious projects that we don’t get a say in the prioritization of.    I think this would further hamper the economic recovery process.  We need to increase liquidity and cash flow, not just move money from one government pocket to the other, passing briefly through the hands of the general public.

Then the argument is made that while gas is cheap, nobody will invest in alternatives.    I disagree – in a free market, good alternatives come from coming up with something that is better on it’s own.   Bad alternatives come from hampering fair competition.   Adding artificial cost burdens to one product to make an alternative appear better is just dumb.  It doesn’t work.   

 To all those pandering for carbon taxes to make existing forms of energy so cost prohibitive that the alternatives will be better even at higher price, I have to ask where you think all the money is going to come from?  How is this really going to work?

 So many seem to be chugging the  kool aid.   Electricity is seen as the panacea for all our transportation woes.  Think about all the energy used today in transportation – if that demand is shifted to electricity, what do you think will happen to the costs associated with that utility?   Aren’t we just trading one addiction for another?  

Lastly, the media recites the trite mantra of  “ending our dependency on foreign oil” as if all oil producing countries are our enemy, and that the oil wasn’t being provided by global companies into a free market.   Suppose we somehow totally cratered the oil market tomorrow – went cold turkey and parked our cars, grounded our planes, stopped shipping products all over the world.    What would happen to the economies of those petroleum exporting countries when their cash flow is cut off?   With what will they buy our goods and services?  What would they have to trade?  Ooops.  And, if many of those countries are hot spots for fanatics now, imagine how it will be if more of their population becomes desperate.     Do we think a dramatic reduction in our oil purchasing will improve our relationship with these countries, or their stabilty for that matter?

I’m not a fossil fuel dead end-er, but I am a realist.    Rather than hobble ourselves with increased taxes and carbon penalties, we need to offer new technologies that can compete with existing energy pricing so that we can take a step forward, not simply trade one burden for another, or worse.

One Comment leave one →
  1. Alex permalink
    April 22, 2009 4:13 pm

    Could not have put it better myself!

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