Regular 1.96 9/10

Well how about that.

I saw this price for gasoline advertised on the signs of more than a couple of gas stations and convenience stores on my way home this evening. Without the first windfall profits tax levied against oil companies, without the first additional excise tax on crude oil, without any type of additional regulation or increase in CAFE standards, the price of gasoline has been falling for over a month and now stands at about 33% less than what it was just two or three fill-ups ago.

The idea that the government should force gas prices higher with taxes in order to protect us from—(wait for it)—high gas prices, has always struck me as, well, sort of sub-genius. Yet there are even many well-known and otherwise thoughtful conservatives, such as Charles Krauthammer, who make this argument with a straight face.

This school of thought argues that if the price of fuel is kept artificially high, then market forces (you and me) will respond by buying little gas-sippers, not driving as much, taking the bus, etc. It is also believed that higher prices today will buffer prices in the future by simply forcing consumers to conserve and spurring alternative fuels development. The only problem is that these imagined rosy outcomes are just that: imaginings. Sure, people will consume less fossil fuels. They will also be forced to consume a lot less of other things too, since money they used to save or spend suddenly gets rerouted to government coffers via the pump, and the price of most everything else is also forced up due to higher transportation costs. Sure, technology and industry will invest more into developing alternative fuels, but more R&D isn't a guarantee that development will be quicker or even successful. Citizens of most European countries have paid punishing fuel taxes for decades, so much so that one would think the continent would be literally buzzing with electric vehicles by now—but it's not. Instead, the best the European automakers have managed to accomplish is to make the world safe for diesels. Yay.

In net, these types of social engineering taxes simply result in societies being poorer than they otherwise would be, and they almost never result in the outcome intended. This is because free prices communicate critical knowledge regarding supply and demand between buyers and sellers, producers and consumers, and their reactions to changing prices allow everyone involved to harmonize their market activity in realtime. When government arbitrarily raises or lowers prices above or below what the market sets, that critical harmonizing knowledge gets obliterated, literally lost in translation, and we wind up in situations where producers think they need to produce more when consumers are actually buying less, and vice versa. The end result is most often shortages, where product is unavailable at any price. And as you can probably imagine, constantly misallocating resources doesn't help producers maximize employment or stay in business.

 So, which is more desirable? A system in which prices are sometimes low and sometimes high, but with a consistently available supply, or a system in which gas prices are either high or very high, and where people wait in line for gas in between periods of complete shortages? If this isn't a no-brainer, I don't know what is.