Anyone who drives these days gets sticker shock upon arriving into the gas station. In recent days in the DC area the average price I’ve seen is well over $3.50. Many analysts predict that when the summer driving season hits in full force we’re likely to see an average price of at least $4 a gallon. These prices are a dramatic increase from the 1999 price which, in today’s dollars, averaged around $1.25 - the lowest point of the past 30 or so years. The truth is that the price of gasoline has fluctuated greatly over the years and if measured in inflation adjusted dollars, we are now reaching the high point of the early 80s right after the start of the Iran-Iraq war.
So, what is the government to do? Well, considering that we’re in full flung political campaign mode these days, our presidential candidates certainly have something to say about this infringement on the American way of life! John McCain jumped out front and center and proclaimed his support of a gas tax holiday to provide relief to American car drivers during the summer driving season. Hillary Clinton jumped on board and expressed her support. Obama called this for what it is – a scheme. Clinton then criticized Obama for being for a gas tax holiday when he was a state senator and being against it as a presidential candidate. Even the White House has been skeptical of such quick fixes. The NY Times reported that President Bush’s spokeswoman essentially sided with Mr. Obama in saying that tax holidays and new levies on oil companies would not address the long-term problems of dependence on foreign oil. This is certainly an interesing bipartisan debate: Clinton and McCain v Obama and Bush.
The truth of the matter is that a gas tax holiday will offer little relief to consumers and actually serves to perpetuate the very problem we’re seeking to solve. Clinton and McCain both got this one wrong. A gas tax holiday would lower the cost of gasoline, thereby encouraging consumer to buy more of it. A recent analysis by the Washington Post predicted that consumers would actually see little benefit from a gas tax holiday and oil companies would be the real winners. Right now the true cost of gasoline that takes into account national security and environmental costs is much higher than the price actually reflected at the pump. The 18.4 cent/gallon gasoline tax is an effort towards correcting for this externality, but it is really just a drop in the bucket. Most experts admit that this idea really is a loser, but it doesn’t stop politicians from trying to win easy political points.
I actually heard an interesting idea by Paul Roberts, the author of the “The End of Oil” in his criticism of McCain’s gas tax holiday idea. Roberts suggested that although there’s very little we can do in the short run to lower the cost of gasoline, one intervention that could actually bring some benefit would be addressing the problem of tire underinflation. Yes, I know it sounds ridiculous to say that just pumping up our tires could be a more appropriate remedy to the high cost of fuel, but if you look at the numbers, it actually makes sense.
The proposed gas tax holiday by Senators McCain and Clinton would save Americans about 5% on each gallon of gas in the short run. That’s not a dramatic savings. Let’s compare that now to the potential savings that could be derived from proper tire inflation. The GAO found that one quarter of all cars on the road have tires that are underinflated by at least 8 psi. Running a car with tires that are 20% underinflated (5-7 psi) can increase fuel consumption by 10%. It seems that simply ensuring that our tires are properly inflated has the potential to decrease fuel consumption. The U.S. Energy Department has reported that every pound per square inch of tire underinflation wastes 4 million gallons of gas daily in the U.S. It’s also about safety. The GAO estimated that in 1999, underinflated tires caused 247 deaths and 3 million injuries.
Conclusion – the politically popular thing to do: promise voters you’ll lower their gas prices over the summer. Cost to the economy: about $10 billion. The more effective intervention: enact legislation that will encourage drivers to maintain properly inflated tires. This could come in the form of a public awarenesss campaign, or perhaps subsidizing the provision of free nitrogen fillups at gas stations across the country (filling tires with nitrogen leads to less leakage than normal compressed air). I’m not sure the price tag of such interventions, but I’d bet that it could be done for much less than $10 billion. Such a common sense solution might not be as politically popular, but could actually make a meaningful contribution.
Of course, the real bipartisan solution to the cost of fuel is long term thinking that places a high priority on technological solutions, conservation, and alternative fuels as has been promoted by the PSA Advisory Board. Critics will argue, however, that these long term solutions do little to help consumers that are suffering in the short term. My answer to the critics is that we can actually do something in the short term that’s actually much more effective than a gas tax holiday – a national tire inflation campaign. It’s time to stop the political posturing and get serious about real policy changes that can make a difference both in the short and long runs.