The Volokh Conspiracy - Gas prices are higher, and that's a good thing:

Judge Posner has a typically provocative view of the recent spike in gas prices. He even suggests that if the price doesn't stay high, gas should be taxed more to keep it high.

From the broad national standpoint, we should welcome high gasoline prices because it is in the national interest to reduce our consumption of gasoline, and high prices will do that, dramatically so in the long run when more substitution is possible. The burning of gasoline in vehicles creates pollution and emits carbon dioxide that contributes significantly to global warming; and curtailing driving in order to reduce the consumption of gasoline would alleviate traffic congestion. Furthermore, a large part of the world's oil supply comes from nations such as Venezuela, Nigeria, Iraq, Iran, Saudi Arabia, and Russia that are actually or potentially unstable, hostile to the United States, or both, and it would be prudent to reduce our dependence on such suppliers. And in fact output has fallen recently in the first four nations in the list, which has contributed to the price spike.

But the best way to keep gasoline prices high may be through heavy taxes, which might actually reduce the cost of oil and hence the incomes of the oil-exporting nations (which is in the U.S. national interest to the extent that those nations are indeed hostile, as Iran notably is). If, by increasing the price of gasoline, taxes reduce consumption, the price of oil will decline because the average cost of oil increases with the quantity produced. Just as an increase in demand will cause higher-cost oil to be produced--oil that would not have been economical to produce when the market price was lower--so a reduction in demand will cause that higher-cost oil to be withdrawn from the market and so the average price of oil will fall. In effect, income of the producing nations will be transferred to the consuming nations in the form of gasoline taxes imposed by those nations.

Judge Posner acknowledges in a follow-up post that high gas prices maintained through more taxation will disproportionately hurt people of moderate income. But, he suggests, that problem could be dealt with by phasing in the taxes and by making gas taxes revenue-neutral through tax relief targeted to those consumers.

Judge Posner's analysis highlights an irony in the current political atmosphere. On the one hand, the Bush administration has suffered relatively little in public opinion for a number of problems over which it has substantial control: indefinite detentions of American citizens without charge or trial, the abuse of prisoners, warrantless domestic surveillance, and the extraordinary growth in the federal deficit, to name a few. On the other hand, the Bush administration has suffered grievously in public opinion for rising gas prices, a trend it cannot and — if Judge Posner is right — should not reverse.

	[Dale Carpenter, May 11, 2006 at 7:56pm] Trackbacks Gas prices are higher, and that's a good thing: Judge Posner has a typically provocative view of the recent spike in gas prices. He even suggests that if the price doesn't stay high, gas should be taxed more to keep it high. From the broad national standpoint, we should welcome high gasoline prices because it is in the national interest to reduce our consumption of gasoline, and high prices will do that, dramatically so in the long run when more substitution is possible. The burning of gasoline in vehicles creates pollution and emits carbon dioxide that contributes significantly to global warming; and curtailing driving in order to reduce the consumption of gasoline would alleviate traffic congestion. Furthermore, a large part of the world's oil supply comes from nations such as Venezuela, Nigeria, Iraq, Iran, Saudi Arabia, and Russia that are actually or potentially unstable, hostile to the United States, or both, and it would be prudent to reduce our dependence on such suppliers. And in fact output has fallen recently in the first four nations in the list, which has contributed to the price spike. But the best way to keep gasoline prices high may be through heavy taxes, which might actually reduce the cost of oil and hence the incomes of the oil-exporting nations (which is in the U.S. national interest to the extent that those nations are indeed hostile, as Iran notably is). If, by increasing the price of gasoline, taxes reduce consumption, the price of oil will decline because the average cost of oil increases with the quantity produced. Just as an increase in demand will cause higher-cost oil to be produced--oil that would not have been economical to produce when the market price was lower--so a reduction in demand will cause that higher-cost oil to be withdrawn from the market and so the average price of oil will fall. In effect, income of the producing nations will be transferred to the consuming nations in the form of gasoline taxes imposed by those nations. Judge Posner acknowledges in a follow-up post that high gas prices maintained through more taxation will disproportionately hurt people of moderate income. But, he suggests, that problem could be dealt with by phasing in the taxes and by making gas taxes revenue-neutral through tax relief targeted to those consumers. Judge Posner's analysis highlights an irony in the current political atmosphere. On the one hand, the Bush administration has suffered relatively little in public opinion for a number of problems over which it has substantial control: indefinite detentions of American citizens without charge or trial, the abuse of prisoners, warrantless domestic surveillance, and the extraordinary growth in the federal deficit, to name a few. On the other hand, the Bush administration has suffered grievously in public opinion for rising gas prices, a trend it cannot and — if Judge Posner is right — should not reverse.