The High Price of Cheap Gas

Steve Mufson has a good item up on the Washington Post website about how many countries, especially in the developing world, actually subsidize gasoline consumption which, among other things, keeps demand high even in the face of soaring oil prices because customers don't necessary see the price at the pump.

From an environmental point of view this is, obviously, terrible public policy. It's also not terribly sound economics. Particularly damaging, however, is the long-run implications of this sort of thing. China has a golden opportunity to look at the problems currently afflicting the United States and decide to pour its burgeoning wealth into building sustainable transportation infrastructure and lifestyles from the ground up, instead of first building all-cars-all-the-time and then trying to retrofit to 21st century realities. Instead, though, they're subsidizing gas consumption.

Comments

The PRC may be wrongheaded, but it's not easy copying a world you've never seen.

Posted by Davis X. Machina | May 4, 2008 2:38 PM

Davis,

Even with the current examples they could be copying Western Europe instead of US

Posted by Eric K | May 4, 2008 2:53 PM

Sorry to be off topic, but is anyone watching the Celtics-Hawks game 7 right now? The Celtics are whooping and chest-bumping for their beatdown...of an 8-seed at home in Game 7. Really? And that Garnett "screen" (lowering his shoulder into Zaza) was cheap and dirty. I hope the LeBrons take care of these clowns in the next round.

Posted by south side | May 4, 2008 2:56 PM

Mr. Yglesias is a typical New Yorker in his disdain for automobiles. A few years in Southern California would set him straight.

Posted by SLC | May 4, 2008 4:09 PM

Keep sending your money to Riyadh, SLC.

Posted by William Burns | May 4, 2008 4:14 PM

..and Tehran, and Lagos, and Hugo Chavez.

Posted by Condor | May 4, 2008 4:51 PM

Poor people wouldn't need so much gas if they lived in high-density housing. Maybe if other countries built this sort of housing for them -- they could call the buildings "projects" -- they'd live in car-free utopias.

Ah, to be a young liberal for whom these ideas sound new and promising.

Posted by Fred | May 4, 2008 5:10 PM

Poor people wouldn't need so much gas if they lived in high-density housing. Maybe if other countries built this sort of housing for them -- they could call the buildings "projects" -- they'd live in car-free utopias.

You are so right. In a year or two, when the cost of gas returns to below one dollar a gallon, I'm sure we'll all look back and laugh at the crazy ideas we entertained back in 2008.

Posted by James Gary | May 4, 2008 5:43 PM

I just don't think Matt's dream of a new, vastly more urbanized, densely built and and mass transit crisscrossed America is likely to come to pass on the sort of scale he imagines possible. Too many Americans are enamored with the individual liberty that comes with owning one's own car, and driving where one wants, when one wants, on one's own schedule and not on the schedule determined by a rail or bus line, and with as much stuff as they can pack in the trunk and back seat. They like being drivers, in control of their speed, their route and their destiny, rather than passengers in someone else's ride. And many are quite accustomed and attached to the privacy and sanctuary provided by their cars, and don't really want to share their travels with crowds of strangers. Progress in the area of transportation - in America, at least - probably depends much more on spurring technological developments in the area of vastly more energy efficient cars than in encouraging a shift to a more densely populated, mass transit lifestyle.

The gas tax holiday is a cheesy, Republican-style gimmick. And temporary windfall taxes on oil companies, while good in themselves perhaps, don't promise any long-term solutions. This isn't just about revenues for the highway fund.

On the other hand, I suspect most Americans are in the mood to regard very high energy costs as a problem to be solved, not a negative economic disincentive to be embraced as a spur to radical long-term lifestyle change. Even if those long-term changes occur, most people suffering from these high costs will not be the ones to benefit from the changes. If a Democrat runs on the message that it is actually a good thing that it now costs a fortune to fill up one's car with gas, that message is going to hurt that candidate big time in the fall. On the other hand, if they lead with economic carrots, not just sticks, in the form of rebates, low-interest loans, tax-credits etc. for the development and purchase of more fuel-efficient vehicles, that will have a much more positive impact. Don't tell people, "Just keep suffering until the pain forces you to change." Instead tell them, "Change now. Here's an economic incentive to make it very much worth your while."

Republicans will be quick to exploit the urban-suburban-country lifestyle divisions and arguments that this debate is already fostering. It's important to keep people on the same side here. We want the broad middle class - of all education levels - on one side against wealthy corporate interests with a stake in the current system. If we let this be turned into another cultural clash, with exploitative corporate wealth lined up with working Americans against urbanized, professionalized, high education liberals, we're preparing the way for another Republican victory.

Of course, Clinton is not helping with her Republican tactic of supporting her bad tax holiday idea by railing against elitist academics.

Posted by Dan Kervick | May 4, 2008 5:45 PM

The idea that "cars" are the problem we need to solve is very damaging, because it ignores reality. It is really, really convenient to have a car, and more people with more cars is the future whether you like it or not. (Moreover, it's not clear that trains or busses are all that great if they drive around empty half the time.)

The answer is not no cars, but MORE EFFICIENT cars: smaller cars, more hybrids, electric cars, etc. Also, people should live closer to work, so we need better land use policies. We could do a lot of this right now even with current technology.

I agree that high fuel taxes are an important part of the solution.

Posted by ed | May 4, 2008 5:46 PM

I'd say that we subsidize our gas consumption in this country. Our middle east military expenses have been massive and aren't directly paid for by an oil tax. We'd not incur those expenses were it not in pursuit of oil ... so any indirection in the payment of those expenses, is a subsidy ... no?

Posted by jackifus | May 4, 2008 5:57 PM

People in many countries are copying and other are NOT copying the American model. This situation can be used in many ways if we promote it as such.

Posted by bajsa | May 4, 2008 6:13 PM

jackifus: You are not allowed to suggest that. To do so means you hate the troops, are a tyrants' boot-licker, and you wish that Japan won WWII. I think that's how it usually goes.

Posted by El Cid | May 4, 2008 6:33 PM

Re William Burns & Condor

I would be willing to wager that I drive a vehicle that is at least as efficient as what Mr. Burns and Mr. Condor drive (30+ city, 40+ highway). Furthermore, I also put more miles on my three bicycles then I do on my car. Mr. Burns and Mr. Condor should get some facts before popping off.

Posted by SLC | May 4, 2008 6:42 PM

How much are you betting, SLC?

Posted by William Burns | May 4, 2008 7:01 PM

This is just silly- first, because China has been and is constructing huge amounts of rail transport and transit, and second, that we should get so far in the comments without anyone pointing out this elemental fact.

Matt should know better than this- it's just a few weeks since he posted a humongous map of a subway system building for a city in China. When he reads a squib in the Washington Post, of all places, his b-s detector should turn on and he should do a little thinking.

If he had done so for a second, he would have seen the obvious absurdity of imagining that China would be "first building all-cars-all-the-time and then trying to retrofit to 21st century realities". They couldn't possibly do this because they have always been working to build strong rail transport, long before they turned to competing with foreign car companies.

The simple fact is that China's plans for rail transit are limited by the resources available, while ours are limited by the majority of people here who believe that "Americans will never give up their cars because they like them, and everyone knows that Americans get what they want- no matter how childish or unreasonable it might be".

Sorry, folks, we're in the 21st century now. The American Century is over.

Posted by serial catowner | May 4, 2008 7:09 PM

It is breathtaking how HRC has so unnerved MY with the gas tax break.

He initially, correctly, admired the politics.

But MY and his friends don't actually engage in politics.

Then, after he realized it might in fact destroy his candidate (and of course he doesn't pay much gas taxes), he has gone on a posting jihad about how HRC's harmless plan wil lead to global crisis.

Well, and his nerd friends chastised him.

Posted by Andruw | May 4, 2008 7:19 PM

it might in fact destroy his candidate

Only if it comes with a kilometer-wide asteroid attached.

These fantasies of Clinton winning have become as embarrassing as walking into the wrong room and surprising someone masturbating.

Posted by sunsin | May 4, 2008 7:28 PM

The gas problem is merely part of the overall energy crisis, and there is a known solution to that crisis: Richard Smalley's Nanotech Energy Initiative.

Energy and Nanotechnology: Strategy for the Future
PowerPoint Presentations
http://cohesion.rice.edu/centersandinst/cnst/whatwedo.cfm?doc_id=2728

Stick a fairly small tax on top of gas usage and use the revenue to fund the research necessary to massively augment and possibly replace existing energy sources with more advanced sources such as space energy.

Nothing you do with gas is going to change the fact that the human race will need double the amount of energy is consumes now within fifty years. That amount of energy cannot come from conservation or altering lifestyle choices (short of going back to the Stone Age). What is required is massive research into effective energy resources.

Stripping a few score billion off the trillion-dollar military budget for the next ten years would help, too, if you don't want to pay more for gas.

Posted by Richard Steven Hack | May 4, 2008 7:29 PM

Hey, look, Andruw's lying about MY and Hillary's gas tax nonsense again. What a surprise! Wouldn't it be great if Andruw had his own blog where he could lie about MY's position non-stop? Oh wait, he does! It's this one!

Posted by Seitz | May 4, 2008 7:39 PM

Re serial catowner

Mr. catowner is seriously in error concerning the rise of private automobile ownership in China. The fact of the matter is that 15 years ago, China was an oil exporter. Now China is a an oil importer, mostly due to the rise of private automobile ownership. In fact, the increase in Chinese (and to a lesser extent Indian) oil consumption is one of the reasons for the spike in oil prices and the looming probability of peak oil.

Posted by SLC | May 4, 2008 7:58 PM

"These fantasies of Clinton winning have become as embarrassing as walking into the wrong room and surprising someone masturbating.

Posted by sunsin"

Um, thanks for sharing?

Posted by Andruw | May 4, 2008 8:47 PM

"I'd say that we subsidize our gas consumption in this country. Our middle east military expenses have been massive and aren't directly paid for by an oil tax."

I know it's a mistake to expect any nuanced thinking on this from a lefty, but can you be a little more specific? If you are referring to the stabilizing role played by the U.S. Navy (in the Middle East and globally) than yes, that probably does reduce the cost of all goods that are shipped internationally, including oil. If you are referring to the war in Iraq, then no, this hasn't done anything to reduce the cost of oil. It probably hasn't done much to increase the cost of oil either; the main drivers of that have been:

1) Increased real global demand.

2) The weaker dollar.

3) Increased speculative demand, driven partly by #2.

In any case, it's worth nothing that Middle Eastern oil represents only about 29% of our total imports, and only about 17% of our total usage (since we still produce about 40% of the oil we used domestically). We import more oil from Canada than we do from Saudi Arabia.

Posted by Fred | May 4, 2008 9:21 PM

Fred, not being capable of understanding "nuance" if it kicks him in the balls, fails to comprehend the effect of spending one to three trillion dollars on stupid military adventures in the Middle East in the pursuit of control of the oil there instead of spending such sums on alternative energy sources.

Being ignorant, Fred also does not comprehend that one point of the Iraq war for the neocons was using Iraqi oil to break OPEC. This was shot down by the oil companies and Saudi Arabia, to whom the Bush family owes considerably more than they do the neocons. This is the origin over the confusion as to what was intended for Iraqi oil. Both the oil companies and the neocons supported this war, but for different reasons.

The same assholes support a war on Iran for exactly the same reasons. Cheney won't be happy until he has control of the Khuzestan oil fields which are right across the border from Iraq. And Cheney also knows that such an attempt will lead to a massive war which will make huge profits for his military-industrial complex cronies for years to come.

The moron then quotes the completely irrelevant statistic about the US importing more from Canada than Saudi Arabia. Like it matters.

Not to mention that ANY statistics about how much oil the US uses from any given area is irrelevant to the oil companies, who prefer to look at profit and loss statements rather than pointless statistics. The price of oil is the price of oil whether it comes from one place or another. As long as the oil companies control when and where it comes from, they are in charge.

As Marlon Brando said in the movie "The Formula", portraying an oil company CEO, when an aide suggests that "the Arabs" won't like something: "We are the Arabs."

Moron.

Posted by Richard Steven Hack | May 5, 2008 1:00 AM

SLC is making a very simple error. The fact that China needs to import oil means nothing unless you know how much oil China has and what they use it for.

In point of fact, China has very little oil, and very many people. A small increase in the per centage of people driving cars- for example, from 5% to 10%, but I am certainly not going to look this up at this hour- would still leave 90% of the people not using cars.

MattY may have made a similar mistake, remembering a picture of a Chinese street crowded with cars, but not realizing that in a society not built for the automobile there will be less collateral circulation for cars, thus creating crowding on the streets that are suitable.

It's all about a sense of proportion, and getting there doesn't usually start with the Washington Post.

Posted by serial catowner | May 5, 2008 7:13 AM

Unsurprisingly, this turns out to be an inside-the-beltway game of Telephone. The article Matt links to mentions China once, and give no figures at all that would allow any reasonable guess to be made about what's happening. Somehow, passing through Matt's brain, this becomes a matter of concern that China will build freeways first and only later begin to build transit.

I've got a simple rule for this kind of crap- I'm a citizen of the US, not of China. The US has just spent over $500 billion waging war in an effort to keep the price of gas artificially low.

The fact that this didn't actually work doesn't change the fact that that was the goal. If you spend a lot of money on flowers and candy and she still doesn't like you, that doesn't mean there was some other reason you bought the flowers and candy. It just means it didn't work.

So, as long as we're the biggest part of the problem, I'm not going to worry about what the Chinese are doing. Compared with us, they don't seem to be doing that badly, considering what they had when they started.

Posted by serial catowner | May 5, 2008 7:58 AM

Re serial catowner

1. The fact that China was until fairly recently a net exporter of oil indicates that their reserves are not inconsequential.

2. I can't recall the source but Chinese consumption of oil has been rising rapidly in the last 15 years.

3. Mr. serial catowner is correct that China and India together have 1/3 of the worlds population so that a small increase in private automobile ownership will lead to a significant increase in oil consumption. That's the whole point. Those two countries are rapidly industrializing and producing rapidly expanding middle classes which, understandably, will hanker after Western style consumption which includes private vehicle ownership. The fact is that world oil reserves cannot support even Chinese/Indian oil consumption at US levels, let alone the levels commensurate with their populations.

4. Like the US, China depends heavily on coal, not oil, for producing electricity. Also like the US, China has significant coal deposits, although she does import some from Australia. Not a strategy calculated to improve the trend toward global climate change.

Posted by SLC | May 5, 2008 8:38 AM

Nobody would be happier than me to see China or India skip entirely the automobile. The potential savings of doing so are humongous.

But the only way that's gonna happen is if we stop buying.

Any auto industry for export needs a domestic sector. Right now, if the domestic sector did not exist, the Chinese government would create it, because they're simply kicking butt on the manufacturing end, and lots of foreigners are buying.

So a snide comment in the WaPo about how everybody else should stop subsidizing gas use and inefficient cars rubs me the wrong way. Seems pretty obvious that the beams in Uncle Sam's eyes have blinded him now, and need plucking out.

Posted by serial catowner | May 5, 2008 8:21 PM