Gas Price Posturing
By Anthony Vitarelli
As the United States has become increasingly dependent on petroleum for its commerce, industry, and citizens’ everyday lives, any fluctuations in price profoundly impact the US economy. Recent spikes in gas prices have created great unrest among the American people and, as they tend to do, politicians have scrambled to offer some solution to mollify their constituencies.
Despite their inability to state conclusively whether the cause of the latest price increases lie in our presence in Iraq, price gauging domestic oil companies, or the treachery of Hugo Chavez, politicians have thus far offered numerous panacea proposals that will likely do absolutely nothing to ameliorate this dilemma.
Most prominently, Senate Republicans have proposed sending a $100 check to every American taxpayer to serve as a rebate on the gasoline taxes they have paid recently. Irrespective of the fact that even non-car owners will receive this rebate, this proposal only provides limited and superficial relief without addressing the core causes our economic distress.
From a purely economic standpoint, price will only fall if Americans reduce their aggregate demand for petroleum or if – somehow – aggregate supply increases.
Politicians may feel like they can solve every problem in the world, but their ability to increase the international supply of petroleum is actually quite limited. To that end, Republicans have been urging the opening of the Artic National Wildlife Reserve for years, and they have returned to this issue as another solution to America’s gasoline woes. However, along with its potential for environment devastation, the US Department of Interior has estimated that only 600 million barrels of oil could be recoverable from ANWR over its drilling lifetime, with the potential for more only if technology improves. To put that in context, the US consumes over 7 billion barrels of oil each year. ANWR may alleviate supply pressures to a small degree, but it will not solve our energy shortage.
Similarly, the US has surprisingly little influence over the worldwide supply of oil. American presence in the Middle East has not made it more friends among the OPEC nations, and the US’s rightful opposition toward the Chavez regime in Venezuela does not motivate them to assist the American consumer (with the notable exception of Chavez’s Christmas gift to the South Bronx of eight million gallons of heating oil). Additionally, Iraqi oil production has stagnated and has failed to meet pre-war estimates. In January 2006, Iraq produced only 1.6 million barrels of oil, compared to its 2000 average of 2.5 million barrels per month. Recommitting itself to rehabilitating the Iraqi oil infrastructure will have a moderating effect on oil prices that Americans face at the pump, but as with each supply measure, the core cause of the problem remains ignored.
If politicians truly want to get serious about this problem, they need to address the excess domestic consumer and industrial demand for petroleum.
Since the market has failed in realizing the negative externality associated with petroleum consumption (including pollution, as well as the foreign policy ramifications), the US government should offer financial incentives to consume otherwise. For instance, the government already offers a tax write-off for purchasing a hybrid car. While this measure is well-intentioned, the government must be far more aggressive.
The government should not only offer tax breaks for purchasing environmentally-friendly cars, they should offer grants for the development of more cost-effective renewable energy infrastructure industry-wide. While solar and wind power and frequently dismissed as impractical, this argument can only persist as long as solar panels and wind turbines remain prohibitively expensive to produce and to operate. Coupling renewable energies with the production of fuel cell technology would have a dramatic and sweeping impact on our demand for oil. Such a reduction in demand would lower overall energy prices and have an enormously positive impact on the cost of doing business in the United States. The impact on the American economy would be dramatic, including increased productivity, reduced waste, and the creation of many more jobs as overhead costs plummet.
Moving forward with such a proposal would take a monumental financial investment on the behalf of the American government. Unfortunately, with Republicans controlling the White House and both chambers of Congress, the probability of such a measure coming to pass seems highly unlikely given our budget deficit and their aversion to spending on anything but defense and prescription drug boondoggles.
However, this proposal cannot be framed as a government spending program, but rather an investment in the future of the United States economy. American simply cannot continue to demand oil at its present levels and expect to remain competitive internationally. Without a serious investment in renewable energy technologies, the US will remain shackled to the gas pump, enslaved to Middle East oil, and crippled by our inability to crawl away from the 20th century.
