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This article by Richard K. Rein was prepared for the July 7, 2004 edition of U.S. 1 Newspaper. All rights reserved.

On Gasoline

On the day that my two boys flew out of Newark Airport for the first European vacation of their lives, an American hostage in Saudi Arabia was beheaded. On the day they returned the State Department issued a heightened alert for terrorists at six American airports, including Newark.

In between I couldn’t help but think of American foreign policy, the Middle East, and the politics of oil. And how maybe we could break the grip of the OPEC nations and assume a more sane relationship with that part of the world — one in which we tell them we won’t do business with them (as opposed to bomb them or invade them) — if they harbor terrorists and or even weapons of mass destruction, imagined or otherwise.

With the proviso that I know absolutely nothing about oil politics or the economics of oil supply and demand and that my idea has been batted around by greater minds frequently in the past, let me advance a modest proposal — an additional $1 a gallon tax on gasoline to promote conservation and development of domestic oil resources and alternative energy sources. Before everyone flees the room in horror at the idea of paying even one more penny — let alone 100 — for a gallon of their precious fuel, allow me a digression:

It was the summer of 1998 or 1999, Clinton was in the White House, but also in the throes of his Monica Lewinsky period. The boys and I, enroute to northeastern Pennsylvania, stopped for gasoline at a rural station at the corner of routes 46 and 31 in Buttzville, New Jersey. The price was 89.9 cents per gallon. I don’t remember if I said it, or the station attendant said it, but we both agreed: Neither of us could remember when gas was priced so low and the stock market was so high. Whatever the intern and the president were doing, we agreed, they should keep on doing it. Out in Buttzville and most other places in the country, we never had it so good.

Of course within months the Internet bubble burst, the stock market slid, and the price of gas spiked back up — it hit $1.89 or higher any number of times. Which brings me back to my modest proposal: A $1 a gallon increase in the cost of gasoline is something we have been through before and we survived. I propose we do it again, on our terms rather than theirs, and we keep the money instead of giving it to them.

Now some Rein (aka voodoo) economics. First off the $1 a gallon increase — phased in over some extended period — immediately triggers some conservation. People feel the pain, drive less, and choose the 30 mile per gallon compact instead of the 12 mile per gallon Hummer. So the price at the pump drops, partially offsetting the new tax.

Then, assuming that the mechanism that currently funnels gasoline taxes into highway improvements continues to work efficiently, we can see some federal incentives to increase domestic gasoline production (one reason for our most recent surge in gas prices has been the country’s limited refining capacity).

With consumers clamoring for more fuel-efficient cars we might see more attention paid to the hybrid fuel models already in production. And that in turn might fuel — pun intended — additional development of hybrid fuel cars.

We have seen all too many times in recent decades what a slight reduction in gasoline supplies will do to prices: consumers begin topping off their tanks and filling up five-gallon containers, creating lines and even higher prices. My bet is that a domestic surplus will have an equal and opposite impact on the OPEC pricing policies.

At that point we can begin to deal with them the way we claim to deal with other countries around the world. Given a slightly upper hand, we should not practice isolationism here. But instead of currying favor with a country like Saudi Arabia, we can tell them simply that we will shop elsewhere until they clean up their operations, which of course is what gives the terrorists their greatest opportunity. If we didn’t crave their every drop of oil, we would have pulled people like the now beheaded New Jerseyan out of there a long time ago.

The argument against this tax increase is that it would be a drag on the economy and that it would be tampering with supply and demand: Let the free market take care of surpluses and shortages, let the people do what they want to do with their SUVs and Hummers, and let freedom ring.

The trouble is that the so-called free market is already being protected by billions of dollars of U.S. military might. Did you notice the front page photo in the July 6 New York Times showing the U.S. sailors deployed in the Persian Gulf, trying to protect Iraqi oil assets from their own terrorists? The invisible hand has been replaced by the U.S. Fifth Fleet.

The kids arrive home safe and sound and crowd into my Subaru Forester for another drive through Buttzville to northeastern Pennsylvania. I debate getting a bigger car — maybe a Honda Pilot. Then I check the gas mileage — 19 miles per gallon tops — and I think again.

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