Bring Back The Free Market To Gas Prices
Lawrence Solomon writes in the Financial Post:
There actually is a silver bullet, and it would lower gas costs ... for the U.S. and the rest of the industrialized world. The silver bullet is a free market in gasoline, something that was abandoned almost a century ago, when the auto industry convinced governments to finance roads through a gasoline tax, and something that subsequent government interventions have further distorted. A return to a free market would not only dramatically raise the supply of gasoline, as the Republicans claim, but would also reduce the demand, as many Democrats desire. The combination of higher supply and lower demand would whiplash gasoline prices downward.Step one in restoring a free market in gasoline is removing its punishing taxes -- levies of about 40¢ per gallon in the U.S. over and above the sales taxes that normally apply and much more in Canada and Europe. The road-building rationale for these extraordinary taxes will soon be ending in any case, both because governments now realize that they won't be able to raise enough money in future through gas taxes to meet motorists' needs and because modern toll road technology allows for true user fees for roads, based on the specific costs of using specific roads. When consumers pay for their gasoline at the pump, they should be charged the market price for gasoline, no more no less.
Unbundling the cost of gasoline from road use would enable the law of supply and demand to function. Once each new road is financed on the basis of its ability to pay its own way, rather than from a pot of gas taxes that becomes dispensed politically, road building will become rational. Uneconomic roads won't be built, resulting in less sprawl-related demand for gasoline. And because tolled roads tend to be free flowing -- the price of driving increases as necessary to reduce congestion -- less fuel is wasted in stop-and-start traffic. Tolled roads also reduce demand for gasoline by encouraging drivers to use their cars more sparingly -- in tolled parts of London, for example, public transit use is up, walking is up, bicycling is up, taxi use is up, ride sharing is up and unnecessary trips are down as drivers, faced with more accurate pricing, reassess the costs and benefits of driving versus other modes of travel. As experience around the world shows, when consumers face unbundled price signals and better appreciate the cost of each mile travelled, they tend to drive less. Tolls discourage needless driving much better than gas taxes do.
A map of gasoline excise taxes per gallon in the USA.







Yeah, but then the roads would be paid for by a higher tax on EVERYONE, not just car users, which seems unfair. Why should someone who never drives have to fund roads for people who joyride everywhere? The gas tax makes a lot of sense, actually, you use the roads more, you pay more for them.
We all use roads to some extent, even if we don't drive we probably buy products that were driven somewhere, but it makes sense that people who use them more should pay more.
And tolls are a PITA that stop traffic. Better to pay your tax at the pump where you've stopped anyways.
NicoleK at March 26, 2012 1:22 AM
I don't see how removing the taxes makes it a free market solution. Unless there's some stricture that prevents companies from charging what they like, it's just a surchage (albeit a high one) over whatever the free market price of gas is.
After the tax, as far I've ever understood it, the biggest cause for increase of the price is speculation, something Obama has been pointing out. People who don't make the product, don't sell the product to the public, they just...hold it for a while.
In fairness, it's so much the commodities market itself, but the influx of day-traders. When a commodity is treated more like a collectible, proces skyrocket for no reason, and drop for the same reason. Most of the chaos we're seeing is because long-term investments like real estate have turned into short-term ones.
Vinnie Bartilucci at March 26, 2012 7:39 AM
And tolls are a PITA that stop traffic. Better to pay your tax at the pump where you've stopped anyways.
I take it that you don't know that there are little devices you can put in your car that count toll booths as you drive past them?
https://www.sunpass.com/howSunPassWorks
Oh, hey, that one is a pre-paid account! no billing required.
I R A Darth Aggie at March 26, 2012 7:44 AM
That's a big disingenuous. Actually, no, a _lot_. Hell, there's nothing there that's actually truthful.
The free market doesn't mean "tax free".
Once each new road is financed on the basis of its ability to pay its own way,
But that's distorting the free market!
C'mon, at least stay consistent with your own thesis for at _least_ the same article!
And because tolled roads tend to be free flowing -- the price of driving increases as necessary to reduce congestion -- less fuel is wasted in stop-and-start traffic.
To some extent now - because there's an option. Once the option is all tolls all the time - and theoretically, it would be the "same cost" either way, the tolled roads would be just as congested.
BUT remember, gas is going to get cheaper! Because we're somehow reducing demand AND cost at the same time? (It didn't work that way in any econ example I've ever had to work.)
But then we get to the real reason:
Tolled roads also reduce demand for gasoline"
Wait, if there's a free market in gasoline, why are we worried about demand for it? The demand will equal the supply, right? UNLESS... That's not actually his goal.
by encouraging drivers to use their cars more sparingly
And a gas tax doesn't? The price of gas is one of the major factors in my thinking of travel right now.
Also, the price of gas is somewhat consistent - it might be a little higher on my route (and I can check it easily). But factoring the price of gas AND trying to figure out what tolls I'd be paying, plus dealing with multiple systems of toll enforcement AND/OR stopping by multiple toll booths... yeah, I don't think "Free market" is his actual goal.
in tolled parts of London, for example, public transit use is up, walking is up, bicycling is up, taxi use is up, ride sharing is up and unnecessary trips are down as drivers, faced with more accurate pricing, reassess the costs and benefits of driving versus other modes of travel.
Except the tolls in London were introduced not to phase out gas taxes, but exactly for the effect he's talking about. To decrease people driving, because it's "bad". To influence/force people to stop this pesky "me me me, I wanna I wanna" bullshit and get with the correct program of listening to their betters.
It's not "accurate pricing", it's punitive social engineering.
As experience around the world shows, when consumers face unbundled price signals and better appreciate the cost of each mile travelled, they tend to drive less. Tolls discourage needless driving much better than gas taxes do."
Needless? Who in the HELL does he think he is to tell me whether my needs are true or not?
Which is why the real issue here is "get hoi-polloi I don't like off the road, so I can drive where I want to faster.
IOW: we can raise tolls a lot more a lot faster, and I think that's good, cause I got the money, (and haven't stopped to think through how damn high the tolls will get when those poor people aren't paying into the roads they're no longer using, and then I'll have to find some other way to blame them.
Free market, my ass.
Unix-Jedi at March 26, 2012 7:45 AM
Darth Aggie:
Most every tolling system is separate. They might could be combined into one - but that is not *currently* the case, nor even planned, since every tolling authority wants to be in charge of their own data and billing.
There's also fraud and privacy issues with the RFID chips, and once everybody is paying tolls, the fraud would skyrocket.
Unix-Jedi at March 26, 2012 7:49 AM
Making every road a toll road is not practical ... for a host of reasons.
First, new roads still have construction costs to be paid off. Will these newer roads be able to charge more in order to earn back construction costs, while older roads would need only to earn their maintenance costs?
If so, those older roads would be cheaper, attracting more drivers, and would become more congested. This would cause a revenue shortfall for the newer roads ... and a subsequent rise in tolls as the owners try to earn back the construction costs in time to pay off the bonds.
What will this do to the taxi industry? If tolls are different for different roads, they'll have to charge for the route taken. Passengers will need a pocket computer and a GPS system to calculate fares by route to make sure they're getting the best fare.
If tolls are charged by the mile (or section) of a highway, look for drivers to exit and enter highways frequently taking cheaper surface streets for part of their journey in an effort to minimize the cost of their trip.
Once the less-travelled, more expensive, newer roadways are discovered to be utilized more by the rich and generally avoided by the poor, look for "social justice" champions to demand tolls be charged by income level so the poor can afford to drive on the newer roadways.
Since the various toll collection and processing systems across the country are different, each toll collection point will need a manual pay station option. Manual stations would need at least one human being on duty at all times to oversee the collections, clear jams, etc. This will increase the costs of the toll collection (and increase the toll amount).
People will have to reprogram their Garmins or Tom-Toms to find the cheapest routes. What about people looking for a cheaper route while driving? Will they cause more accidents than people who use cell phones while driving?
All of this will increase fuel consumption as people drive more miles in an effort to reduce toll expenses.
Trucking companies that can't afford full-time geographers to plan routes will find themselves at a competitive disadvantage and go out of business, leaving the industry in the hands of only a few companies, driving up the price of truck transit.
Eventually, some activist group(s) will decide the toll road system is completely unfair to the poor who can't afford GPS systems that enable them to avoid expensive roads. Sandra Fluke will appear before Congress demanding that the government supply poor people (and Georgetown Law students) with free GPS subscriptions - right before she jets off to Europe with her boyfriend.
At some point, people will come to the conclusion that the toll system is fractured, difficult to administer, and a hinderance to commerce - and demand the country replace it with a gasoline tax.
Of course, all of this assumes the government continues to be the "owner" of the road. Add private construction and ownership of roads and watch the complexity grow.
Conan the Grammarian at March 26, 2012 11:10 AM
That piece is both ridiculous and horrendously wrong! Anyone who takes it seriously should either read a basic macro economics textbook; or just stop following economics related stories.
I would debunk the piece but I don't have the time right now, and UNIX Jedi has already done the heavy lifting for me.
Mike Hunter at March 26, 2012 11:33 AM
So, we reduce the incentive to buy fuel-efficient vehicles by charging by the mile and less for gasoline, and that is a silver bullet?
Somebody slept through Econ 101, and it wasn't me.
Here's a clue. The tolls on the NY Thruway were supposed to be removed when the bonds were paid off. The bonds were paid off. The tolls were not eliminated, they were raised, because "we need the money."
There is no end to the need for your money. You'll get your per-mile charge and the gas taxes at or above current levels.
MarkD at March 26, 2012 11:56 AM
Consider also: paying tolls w/your RFID chip, it'll be real easy for our "betters" to start levying speeding tickets based on the time elapsed between the in/out distance on the toll road.
I'm not for giving these control freaks any more levers to pull on my behavior
Tony G at March 26, 2012 12:08 PM
Replace the gasoline tax[es] with tolls? Replace private cars with buses and other "public" transport?
Toll roads have their place. To travel West from Boston Massachusetts the main options are the MassPike toll road and the non-toll Rte. 9. The Pike is a toll road - with a speed limit of 60mph (last I knew, years ago) and no Stop signs/lights, while Rte. 9 averages 25mph with stops roughly every half-mile. Commuters use both, for various reasons.
But shoppers use Rte. 9, which is why it is somewhat congested for more than 12 hours per day, while the Pike is [relatively] empty except for perhaps four hours per day.
Buses and other "public" transport are fairly good(Except during commuting hours), at least the State bus service where I live. But use it for, say, grocery shopping? ROFL! I actually had to for a couple of years. Far from pleasant - especially the times a driver would not let me board because the groceries would either "take an extra seat" or "block the aisles." And even if everything went well, frozen stuff would not be when I got home. Not to mention having to walk over half a mile to and from the closest bus stop, at age 64 with painful circulation problems. And that was in the capitol city - suburban access might mean a walk of miles each way. Rural? Gosh, I'm back on the floor laughing hysterically.
I could go on for hours, but why bother? No "limousine Liberal" will actually lsten. Like the Governor in teh neighnoring State, who made a big deal of [sometimes] using Public Transport to travel to and from home - while his secretary commuted in a chauffer-driven limousine...
John A at March 26, 2012 12:19 PM
This article makes no mathematical sense. The gas tax increases the price per gallon by a set amount in local markets. That doesn't stop the free market from working. What does stop the free market from working are other laws that limit the flexibility of businesses to change the price of gas. In my state it's against the law for any business to sell gas for below market value. Were that law eliminated, every supermarket and convenient store would slash the price of gas as a way to attract customers.
Joe at March 26, 2012 1:29 PM
A far more effective and faster-to-implement measure would be to mandate that the EPA reduce the ridiculous 50-something different blends of gasoline that it demands for different urban areas to four or five.
Cousin Dave at March 26, 2012 9:03 PM
IRA, even if you have EZPass, Fast Lane, or the equivalent, you still have to slow down to pass the toll.
NicoleK at March 27, 2012 3:47 AM
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