by Hank Leukart
May 12, 2006

Why you should love high gas prices

Counterintuitively, high gas prices are good for you.

High gas prices at a gas station in downtown Seattle

High gas prices at a gas station in downtown Seattle

G

as prices are high. Regular unleaded gasoline at the gas station closest to my home currently sells for $3.35 US per gallon. Compared to the 80 cents per gallon I once paid for gasoline just eight years ago, it seems like a lot of money, but I don’t care. I love high gas prices.

Because I’m an avid traveler, my love for high gas prices may seem a little strange. After all, high gas prices make traveling by car and airplane more expensive, leaving fewer dollars to spend on things like rock concerts and tasty foreign food. Noticeably, my love for high gas prices appears to not be in my best interest. In the short term, high gas prices reduce our expendable income, thus lowering our standard of living. But in the long term, high gas prices have so many good repercussions that the temporary loss of expendable income seems worth it.

We all know that the United States has a horrible traffic problem. It’s almost impossible to drive in major cities like New York, Los Angeles, Atlanta, San Francisco, Washington DC, Boston, and Seattle without becoming stuck in a slow-moving traffic jam. There are a lot of reasons for this, but the most obvious is that there are too many cars on the road.

Like every product sold in a free market, the price of gasoline is governed by supply and demand. Think back to your high school or college economics class. When supply of a product falls while demand for it increases, the price of that product rises quickly. Over the past decade, worldwide demand for oil has increased, as developing countries like China and India consume more oil as they industrialize. Meanwhile, supply has continued to decrease as a result of natural disasters like hurricanes, environmental regulations, and the overarching fact that oil is a non-renewable resource.

As gasoline prices increase, demand for gasoline decreases, because fewer buyers can afford it. Thus, a major benefit of higher gas prices is that they result in fewer cars on the road and therefore, less traffic. Less traffic also leads to reduced air pollution, traffic noise, and deadly accidents. Higher prices also make consumers more likely to buy fuel-efficient cars. A world where no one drives ridiculous and brazen SUVs is a better world.

Of course, the price of gas hasn’t appeared anecdotally to reduce traffic yet, at least in Seattle. Why? Presumably, gas was underpriced previously; in other words, many people are willing to buy the same amount of gas today even with recent price increases. So, higher gas prices are partly a result of an “economic correction” to rid of us underpriced gasoline. Believe me — this is a good thing. Economists tell us that when goods are sold at lower-than-market prices intentionally, shortages result. Free-market prices let the marketplace efficiently allocate scarce resources like oil.

High gas prices are in our long-term best interest. The fastest way to solve America’s energy crisis is for gas prices to continue rising. I hope they do.

What about gouging? Shouldn’t we round up the oil company CEOs and punish them by making them watch every episode of Saved by the Bell back-to-back? Aren’t their evil oil companies fixing the market and stealing money from us hand-over-fist? It’s unlikely. Gouging is only possible when a company has monopoly power, and America’s market for refined gasoline is extremely competitive; have you ever noticed that most intersections have at least three different companies’ gas stations? It’s hard to believe that a smart oil company wouldn’t try to undercut an overpriced competitor if it could, in such a competitive market. (The question of whether OPEC — the international Organization of Petroleum Exporting Countries — could be prosecuted under US law for illegally fixing oil prices is an interesting one but well outside the scope of this essay.)

Hypothetically, marketplace efficiency sounds great — but doesn’t it mean that eventually, if demand continues to rise and supply continues to shrink, we won’t be able to afford to drive our cars anymore? If gas prices rise enough, won’t Bill Gates will have every road to himself? Possibly — and Bill might have a lot of fun. But when a scarce product like gasoline prices itself out of reach, it puts pressure on entrepreneurs to invent cheaper replacement products. Remember when car companies replaced cars’ wood paneling with ugly, cheaper rubber and plastic? (I don’t. It happened before I was born.) Expensive gasoline is a call-to-action for entrepreneurs to invent new types of renewable fuels, companies to create smaller, more efficient vehicles, and governments to build efficient public transportation. In short, the problem of high gas prices forces our market-run economy to find a better solution to our transportation and energy problems. Eventually, short-term higher prices will result in long-term increases in living standards as a result of cheaper transportation alternatives.

Of course, America is learning its lesson in the most painful way possible; it will take time for entrepreneurs, companies, and governments to succeed in providing gasoline alternatives. In the mean-time, ever-increasing gasoline prices will reduce our expendable income. But if politicians and oil companies had started planning for this inevitability decades ago, the transition would have been less agonizing. Even now, Republicans and Democrats alike continue to avoid creating a well-organized long-term plan for solving this problem and instead focus on pacifying (but not necessarily helping) their constituents. Republicans — normally staunch supporters of capitalism and its free-markets — hypocritically scream about market manipulation and gouging. Meanwhile, Democrats disingenuously demand cheap fuel while at the same time backing strict environmental policies preventing exploration for alternatives.

Both sides have even called for reductions in gas taxes and holiday rebates to appease the public. This attempt at a solution is the most ridiculous of all, because it makes the problem worse, not better. Neither side has the guts to tell Americans the truth.

High gas prices are in our long-term best interest. The fastest way to solve America’s energy crisis is for gas prices to continue rising. I hope they do. WB

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