Explaining Southern California's economy

Be thankful for expensive gas — and a gas tax?

Matt Yglesias makes a useful point about gas prices that I think applies to all of us in car-mad Southern California: 

It’s important to see that under present circumstances, anything that succeeds in promoting robust economic recovery would raise the price of gasoline….After all, unemployment’s 9.1 percent. If it fell to 7 percent, that would mean a large increase in the share of Americans who are commuting to work on a daily basis. And the United States of America is both a large country, and one in which commuters consume an unusually large quantity of gasoline as they go about their business. Consequently, 2.1 percent of the American workforce shifting from unemployed to employed means a meaningful increase in the consumption of gasoline.

The global oil markets are complex and don't always make sense at the pump. The price of oil falls, but the price of gas remains high. Or at least higher than we think it should be. I won't even get into the various issues involved, which range from refining capacity to OPEC production planning. There's a reason why some economists spend their entire careers looking at this single commodity. 

But think about what Yglesias is arguing. What we lack in the U.S. economy right now is demand. Not enough people have jobs to feel confident about spending. Get the jobs machine going again and one of the first signs that demand is returning to the economy will be an increase in gas prices as people once again take to the road. 

An added benefit will obviously be more robust auto sales, particularly of smaller, more fuel efficient cars. This is something we want, and that the government has actually mandated with higher fuel-economy standards for carmakers. Of course, what Matt doesn't get into is how we keep the price of gas high, something he's blogged about before. The political reality is that Americans hate the idea of (relatively) expensive gas. But if we were to institute a higher gas tax, designed to effectively set the price at current levels, we'd be able to capitalize on the appealing intersection of small cars and economic recovery.

Then we could be doubly thankful. First, because elevated gas prices mean a real recovery and a way out of our current malaise. Second, because small cars emit less greenhouse gases than big cars, we get some environmental benefits. 

But it won't last! Americans have a long tradition of buying small cars when gas is expensive, then going back too big cars when the price of gas falls. This time around, the U.S. carmakers are actually producing small cars that are far better than anything they've built in the past, so they're invested in a world where higher gas prices are supported. Now consumers just need to right incentive. A gas tax could make it happen.

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Photo: Justin Sullivan/Getty Images

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