The True Price of Gas

I have been devoting much of my free time recently to looking into energy policy – particularly on alternatives to fossil fuels. In general, I have to say that I am not impressed with many of the ideas for promoting alternatives to fossil fuels. However, I fear that if I launch immediately into a criticism of those policies, people might mistake me for an apologist for the oil industry. So, let me block that assumption right away.

If I was named energy czar, I would seek to implement a simple energy policy that would take the decision making out of the hands of the legislature and put it into the hands of the free market.

[I can hear the confused reader gasp, “What? I thought you were going to block the assumption that you are an apologist for the energy industry!”]

One of the principles of a free market is that you have to pay for what you use. Obtaining goods, while forcing other people to pay the bill, is generally known as a subsidy. Subsidies distort the market.

The value of a free market is that it carries a tremendous amount of information and it ties incentives for behavior to that information. We want people to refrain from activities that have a high cost on others, and to engage in more activities that provide benefits to others. A free market carries that information because it internalizes the cost. If my activity imposes a cost on you, then I need to compensate you for those costs. If my activity provides a benefit to you, then, in a free market, I can deny you the benefit of that activity until you pay me for it. In general, this combination of information and incentive, properly applied, promotes actions that fulfill the desires of others and inhibits actions that thwart the desires of others.

Desire utilitarianism and capitalism are very compatible systems.

When people are able to engage in activities that impose a cost on others, without paying for those costs, then this is a subsidy. It is also a form of theft. These types of distortions in the market reduce the incentive to avoid behavior that does harm to others. In fact, given the size of the incentive, it might even encourage people to do things harmful to others.

Many big businesses, while they use the terms ‘capitalism’ and ‘free market’ for public relations purposes, invest huge amounts of money in policies that distort the market, allowing them to engage in behavior harmful to others without paying a penalty, effectively obtaining a ‘subsidy’ from the victims harmed by their actions.

In fact, much of the inequality in wealth and power in the world today is not the result of ‘market forces’. It is a result of people with a great deal of money investing it in legislation (and legislators) that permit them to engage in behavior harmful to others without paying the cost – and sometimes even getting the government to pay them to engage in behavior that is harmful to others. The ‘others’ being harmed, of course, are those who cannot afford to buy a legislator of their own.

Some of them, of course, pass their subsidies on to their customers. When Exxon-Mobile obtains a multi-trillion dollar subsidy to the price of gasoline (allowing it to obtain oil without paying the true cost of oil), it passes much of that on to the driver buying gasoline for his SUV.

We would have to imagine something slightly different, if we were to imagine people paying the true cost of fossil fuels.

Imagine

For example, imagine a driver, having filled up his SUV, walking into the convenience store to pay for it. He hands the clerk a credit card, who rings up the gasoline at about $3.00 per gallon. The clerk then says to the customer, “I’m sorry, sir, you are out of credits. I can take $3.00 from your credit card, but you’re going to have to come up with something to cover the additional costs.”

The customer then fumbles through his wallet, looking through a stack of coupons. He picks a coupon – one that shows a family standing in front of their house. The house has been in their family for a couple of generations now. “Take the house; that should cover my additional costs. And, while you’re at it, take the grandfather as well. Put the credit on my account.”

He has other coupons in his wallet.

Some of the coupons simply allow the clerk to take the costs out of the bank accounts of other people. Those other people will have to pay for his gasoline through higher taxes, which will go to provide the services, that get the gasoline to the pump.

One shows a soldier in uniform. The coupon allows the taking of one arm and one leg in a conflict meant to secure some other country’s oil supply for American use. Another coupon also shows a soldier, but offers the soldier’s life in exchange for gasoline credits. Typically, drivers do not pay these costs. A third coupon shows a village in Africa, its crops ruined by drought, its people starving and dying of thirst. By using these coupons, the individual shift the costs off his or her actions onto others and expect those others to pay the cost, allowing them to take only $3.00 per gallon out of their own bank accounts.

Vault Loads of Coupons

The SUV owner has only a few of these coupons. Exxon-Mobile and other companies have vaults full of them. Whenever they need a few billion dollars, they cash in coupons for the destruction of whole counts and even some nations. They are permitted to go to their bank, coupon in hand, and exchange a whole hospital full of patients for a few tens of millions of dollars.

Of course, they give away a few of these coupons to the SUV owners. This is a bribe for the SUV owner to vote to protect the oil company. “If you vote to end this trade, then you will no longer be able to pay for part of your gas by destroying the life, health, and property of others. If you lose this political battle, you will have to pay the whole price of gasoline yourself.”

There are some who argue that forcing people to pay for the true price of gasoline would be bad for the economy.

It is as if they are saying that the destruction of homes, limbs, and lives is somehow good for the economy. The types of subsidies that I am talking about are the type where somebody is going to have to pay the cost. The question is, who will do so?

The propaganda machine from the large companies that hold these vaults full of coupons, and the politicians who mimic these myths in exchange for political contributions, want to make us think that we are faced with a question of paying these costs or not paying them. The only way of not paying them is to end the activity that is causing the harm. Short of that, the question is not one of whether to pay these costs, but who pays the cost.

Are we going to have the person purchasing the gas pay the price at the pump? Or are we going to give them coupons that they can use to pass the cost on to others, in the form of property destroyed, health sacrificed, and lives lost?

Domestic Profits/Foreign Losses

There is one way in which we can argue that such policies would be “bad for the economy.” This situation applies to cases where the people who hold the bulk of these coupons are Americans, and the people who are on the coupons – the people that the coupon holder decides to sacrifice – are foreigners. In this case, using the coupons makes Americans wealthier by sacrificing the lives, limbs, health, and property of citizens of other countries.

This is exactly the situation that we see with respect to global warming, where Americans hold most of coupons, and the poor people in other countries will suffer most of the ill effects. If we give up this multi-billion-dollar business of destroying other countries for profit, then we will be economically worse off – and other countries will be economically better off. However, at some point, a person needs to ask whether he wants to be somebody who profits from killing, maiming, and destroying the property of others.

Arguing in favor of this system is to say that the SUV owner is perfectly within his moral rights to be using these coupons to pay for his gas – sacrificing the life, health, and property of other people to cover costs that do not come from his bank account, as long as the people he decides to sacrifice do not live in America.

Of course, we must ask how we feel about people in other countries who think that it is permissible for them to kill anybody in any country other than their own. What type of person would think this way?

Benefits

There are, of course, some benefits associated with global warming. Some property in northern Canada and Siberia will become more valuable, and we may get a “Northwest Passage” across an Arctic Ocean that thaws in the summer. However, even these benefits can be understood in terms of benefits obtain by forcing others to pay for them. We can imagine the board of directors of Exxon-Mobile mailing out packets of coupons, allowing those land owners who receive them to pay for improvements to their property with the life, health, and well-being of others.

If it is truly a benefit to the people of Canada and Siberia to obtain these benefits, then perhaps they could see fit to compensate those who will suffer the costs, the way that a person who benefits from a gallon of gas pays the gas station owner for that benefit.

This analysis might sound somewhat harsh to some people. I cannot imagine anybody with any conscience paying for their gasoline with coupons that allow the store clerk to take the price by destroying the life, health, or well-being of others. However, it is no objection to a particular point of view that one does not like it. I hold that this does capture the moral dimension of these subsidies.

Yet, at the same time, many of the steps taken to use renewable energy are just as bad. Politicians are getting their hands into the fine details of the business. This is not because they want to promote energy efficiency. It is because they want to take the resources that go into energy efficiency and pass them out to their favorite campaign contributors. Unfortunately, when the government works in these ways, they are, in effect, taking resources that should be going to make the situation better, and diverting them to second-rate solutions.

In other words, they are not helping.