Cheap gas is a big problem

UPDATE: Tom Friedman of the NYT wrote an op-ed piece calling for a gas tax on Dec. 28, one week after I wrote this post.

Here we go again.

Driving to coffee this morning I couldn't believe that gas was $1.86 a gallon. Most people are relieved when they see gas prices go down, but it makes me nauseous.

Some have described our country as addicted to oil, and I think the metaphor is more accurate than many think. It goes beyond mere dependency on oil - we are so hooked that we behave irrationally and delude ourselves that we can simultaneously tackle environmental issues and force automakers to build "green cars" while celebrating cheap gas as essential to our economic well being.

This is the stark reality: $1.86 gas (in SF), combined with ever increasing CAFE standards forced down the throats of automakers, will give the automakers no hope of survival. It is a suicide mission. The fact that Obama and Pelosi and other democrats simultaneously hold the industry's feet to the fire to build ever more efficient (and expensive) cars while simultaneously decrying high gas prices as a threat to the livelihood of our middle class is so intellectually bankrupt it is depressing.

Why? because these politicians and their staffers are smart enough to know that as long as gas is cheap, the masses will not have any real incentive to purchase fuel efficient cars, rendering battery electric and plug in vehicles to a niche market for consumers who are willing to pay a premium for the peace of mind of driving a car with significantly lower carbon emissions. Since they clearly must know this simple fact, it follows that they have made a calculated decision that they will not confront this politically difficult truth and instead will continue the hypocrisy of forcing automakers to produce more efficient, expensive cars that the mass market has very little economic incentive to purchase.

The solution is simple from an economics standpoint. Pass a gas tax to keep gas prices at a relatively high figure. Let's say $5-6, which is sacrilege in the US but still 30% cheaper than gas in Europe. Ever wonder why small, efficient cars are popular in Europe but not here? Look at the gas prices.

From a political standpoint, this is considered suicide. Perhaps this was true during campaign season, where running on a platform of a gas tax in times of record high prices and looming recession would have killed Obama's chances. But now he has won the election, and the best time to confront a nasty truth that requires some very bad tasting medicine is now, at the beginning of his first term.

Alternatively, if the government is unwilling to do this, they should at the very least drop their hypocritical efforts to drag the auto industry into ever higher CAFE standards against market forces, adding insult to injury by criticizing the automakers for not building cars that the public wants.

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