Saturday, May 19, 2007


This excerpt by Tim Haab was taken from the environmental economics blog- see link under 'environmental blogs.'

"Supplies are decreasing--both temporarily through unexpected refinery shut-downs and permanently through stock depletion. Demand is increasing--both in the U.S. and worldwide. Both of these will cause gas prices to rise and that's good. If gas prices don't rise, we will consume gas even faster and run out sooner. "

He describes the situation well. But what should be done about it. Windfall profit taxes as some of our presidential candidates are proposing would only discourage more refining ( and may actually even discourage investment in alterantive fuels). Setting price caps would counter the rationing effect of prices, and generate longer lines, violence, or closed gas stations like in the 70's. In the short run, the only relief for consumers that makes sense is repealing gas taxes. In the long run we have to focus on decreasing demand- via alternatives- and we should focus on increasing supply by buidling more refineries.

1 comment:

agEconomist said...

I should have kept reading, Mr. Haab follows:
"Higher gas prices encourage conservation and encourage investment in alternatives. High gas prices might be uncomfortable while we search for viable long-term solutions, but they're more comfortable than the alternative: no gas and no solutions."

So even the short term releif of suspending gas taxes could exasperate the problem by encouraging more usage-and we'll run out faster and discourage adoption of alternatives by consumers.