If one person at the UA is in favor of business interests, it’s the dean of the Eller College of Management, Paul Portney.
And what did Portney do in the face of high gas prices that threaten to drag down the U.S. economy, significantly harming businesses? He gave a talk titled “”Why the Price of Gas is too Low. That’s Right, too Low.””
That’s because Portney spent two decades at a Washington, D.C., think tank called Resources for the Future. Portney, who was CEO of RFF when he left for the UA in 2005, made a name for RFF by putting out unbiased, rigorous research on U.S. and global energy policy.
And any way you put it, the unbiased word is that the U.S. needs a higher gas tax. Not because it will reduce dependence on oil from such places as Saudi Arabia and Venezuela, although that would be nice. Not because it will reduce global warming, although that would be nice. Not even because it encourages carpooling, although that too would be nice.
No, the reason we should raise the gas tax is because it is efficient. In other words, the benefits of the tax are greater than the costs.
Simply put, our driving imposes costs on others that we don’t face. These externalities mean that we drive more than we would if faced with the true cost of our actions.
Conservatives hate taxes. They exaggerate the harm they cause to the economy because they want them cut. And they’re right. Taxes are inefficient, with one big exception: taxes on externalities.
These taxes, called Pigovian taxes, are designed to equalize private costs – the cost you pay at the pump, for example – with social costs – the cost you pay plus the costs everyone else pays for your actions, and they are good for the economy.
For example, when we are driving, we clog up the roads for everyone else. Never mind the roughly $115 billion that the government spends on roads each year. Being on the road makes everyone else go slower, which means others waste more time driving.
One study by RFF found that these “”congestion costs”” were equivalent to about 32 cents per gallon.
So just because of the congestion you add to the road, you should pay 32 cents more per gallon of gas – keep in mind that that’s an average. In cities like New York, these costs can be several dollars per gallon.
But there’s more. You being on the road means that the probability of everyone else having an accident increases. More cars mean more chances for an accident, and accidents are costly, if infrequent. The study’s estimate of how much more we should pay for increasing everyone else’s chances of an accident? About 27 cents per gallon.
Also, global warming aside, local pollution raises health costs for others. It also reduces life expectancy, to say nothing of it being an eyesore.
The study estimated those costs to be about 24 cents per gallon.
In sum, a conservative estimate of the externalities of driving comes in at about $1 per gallon.
Environmentalists, of course, would have the gas tax go much higher than $1. But that would be a bad idea. In Europe, gas taxes of $3 actually go past the “”efficient”” point and harm the economy. We need to take care to tax gas just the right amount, and we need to do it soon.
Recently there has actually been some momentum in the push to do something about our high oil consumption.
Prominent politicians are starting to talk big about taking the oil issue seriously. President Bush’s comments in the State of the Union address were symbolic at best, but nonetheless significant.
“”We have a serious problem: America is addicted to oil,”” he said.
The easiest and most efficient solution to that problem is staring us in the face.
Ryan Johnson is an economics and international studies senior. He can be reached at letters@wildcat.arizona.edu.
