Krauthammer on Energy Policy

Every once in awhile I get frustrated with the state of the world and I am tempted to bolt the comfort of my progressive conservative ideology for the illusion of change on the other side of the fence. When that happens I simply read the latest work of Charles Krauthammer and all is right with the world again.

In early June Krauthammer made some great observations about the current oil ‘crisis’ and I felt they were important to highlight here.

At $3 a gallon, Americans just grin and bear it, suck it up, and, while complaining profusely, keep driving like crazy. At $4, it is a world transformed. Americans become rational creatures. Mass transit ridership is at a 50-year high. Driving is down 4 percent. (Any U.S. decline is something close to a miracle.) Hybrids and compacts are flying off the lots. SUV sales are in free fall.

The wholesale flight from gas guzzlers is stunning in its swiftness, but utterly predictable. Everything has a price point. Remember that “love affair” with SUVs? Love, it seems, has its price too.

America’s sudden change in car-buying habits makes suitable mockery of that absurd debate Congress put on last December on fuel efficiency standards. At stake was precisely what miles-per-gallon average would every car company’s fleet have to meet by precisely what date.

It was one out-of-a-hat number (35 mpg) compounded by another (by 2020). It involved, as always, dozens of regulations, loopholes and throws at a dartboard. And we already knew from past history what the fleet average number does. When oil is cheap and everybody wants a gas guzzler, fuel efficiency standards force manufacturers to make cars that nobody wants to buy. When gas prices go through the roof, this agent of inefficiency becomes an utter redundancy.

At $4 a gallon, the fleet composition is changing spontaneously and overnight, not over the 13 years mandated by Congress. (Even Stalin had the modesty to restrict himself to five-year plans.) Just Tuesday, GM announced that it would shutter four SUV and truck plants, add a third shift to its compact and midsize sedan plants in Ohio and Michigan, and green light for 2010 the Chevy Volt, an electric hybrid.

Some things, like renal physiology, are difficult. Some things, like Arab-Israeli peace, are impossible. And some things are preternaturally simple. You want more fuel-efficient cars? Don’t regulate. Don’t mandate. Don’t scold. Don’t appeal to the better angels of our nature. Do one thing: Hike the cost of gas until you find the price point.

Sometimes those of us who get frustrated with the state of things have to fight the urge to demand the government regulate EVERYTHING that causes us grief. It seems simple and after all, we pay taxes and Uncle Sam has guns and lawyers…right? But then someone like Krauthammer makes us take pause and rethink things.

It is important that we realize that this is a problem of commodities. It is not about justice, morality or what is right and wrong. Since it is none of those things, it is important that in this case we put some trust in our markets. The markets have already sent a loud and clear message to the auto manufacturers. The markets have already begun to reduce demand, even if only slightly. Maybe we should see this through. But there’s also more we must consider.

Unfortunately, instead of hiking the price ourselves by means of a gasoline tax that could be instantly refunded to the American people in the form of lower payroll taxes, we let the Saudis, Venezuelans, Russians and Iranians do the taxing for us — and pocket the money that the tax would have recycled back to the American worker.

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Want to wean us off oil? Be open and honest. The British are paying $8 a gallon for petrol. Goldman Sachs is predicting we will be paying $6 by next year. Why have the extra $2 (above the current $4) go abroad? Have it go to the U.S. Treasury as a gasoline tax and be recycled back into lower payroll taxes.

Announce a schedule of gas tax hikes of 50 cents every six months for the next two years. And put a tax floor under $4 gasoline, so that as high gas prices transform the U.S. auto fleet, change driving habits, and thus hugely reduce U.S. demand — and bring down world crude oil prices — the American consumer and the American economy reap all of the benefit.

Being an adult means making hard choices. Being an adult nation means making even harder ones. This is one choice that would help us immensely. As a corollary, we must continue to pursue new sources of oil within the U.S. and also invest heavily in alternative sources of energy. This three-pronged approach blends the best of liberal, conservative and centrist ideals into a broad solution for a looming disaster.