Posted: February 01, 2009

Cheap is nice but unsustainable

Rundles' wrap-up

Jeff Rundles

We couldn’t believe it. My wife and I did grocery shopping sometime over the holiday period and spent a considerable sum, and Safeway offered us an extraordinary discount on gasoline as a way of saying Thank You!

We took the van down there, where the retail price on gas was something like $1.50, and we were surprised – pleasantly – that we were able to fill up for 89.9 cents a gallon. It was unreal; I haven’t paid so little for gas in several years and never thought I’d see a sub-dollar price again, even on special.

It would have amazed me a year ago or two years ago, but it was all the more astonishing given the fact that just a few months ago I was paying more than four times that amount, more than $4 a gallon. Like everyone else, I would love to see the price of gas, or any everyday commodity, stay low and ease the pressure on my budget. I am old enough to remember full-service gas being 25 cents and less, and it would be cool to see milk and bread at $1, and steak dinners for $5.

But the truth is, while it would be cool for me personally, and for you, it would end up being a disaster in a very short time. Cheap milk and bread and steak dinners will put farmers out of business, and the prices will rise astronomically. Cheap is unsustainable. And while gasoline, even at full retail, is relatively cheap right now, it is simply unrealistic to think that it will stay that way. Analysts are predicting that by late 2010, and certainly by 2011 or 2012, the price of crude oil that drove $4 gasoline — $150 a barrel – could seem like a bargain.

Now I know that economic times are tough, and I know everyone is being pinched, but I believe now is the time to actually raise the price of gasoline. And I also think that in the long run, it will be good for the economy and each person’s pocketbook. What I am proposing is that we raise the gasoline tax. The federal government is already talking about raising its portion of the gas tax – 18.4 cents per gallon for gasoline and 24.5 cents per gallon for diesel – and now would be a great time to raise the tax that Colorado collects, as well – currently 22 cents a gallon on gas, and 20.44 cents a gallon on diesel.

The first reason is that the disaster I mentioned earlier is already going on. Roads and bridges in Colorado and the nation are in a state of often severe disrepair, especially the bridges. This is already beginning to create a hassle in many areas, but also safety issues of an enormous degree. Remember the Minneapolis bridge collapse in 2007? The funding for road and bridge maintenance and new construction comes primarily from fuel taxes, and the truth is that a combination of high fuel prices and a push for more fuel economy does and will take a bite out of that. And make no mistake: The need is critical.

The second reason, believe it or not, is that higher fuel taxes will actually keep the price of fuel lower. Here’s how: This past year’s unprecedented hike in worldwide crude oil prices offers us a unique perspective on the future. We already have seen that higher fuel costs drive down the demand for gasoline. From November 2007 to October 2008 Americans drove 100 billion fewer miles than the year before. Also, the combination of higher fuel costs last year and the onset of the recession appear to have permanently altered driving choices: Americans have seemingly given up their unsustainable desire for SUVs and gas-guzzlers. Automakers, Americans and foreigners alike, are headed in a more economic, higher mpg direction in the kind of vehicles they offer. Once again, lower demand. Since the oil companies and the speculators on Wall Street work in the world of supply and demand, lower demand should limit their ability to jack the price of crude up too high.

Of course, there are many other factors – worldwide demand, especially in India and China — could grow uninhibited and negate our efforts; and, sometimes there are people, and industries, who have proven to be above the law, even the law of supply and demand. But as I said earlier, while cheap is nice, it is unsustainable. The oil companies made a fortune on $4 gasoline; at least with my plan we’d get better roads.

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Jeff Rundles is a former editor of ColoradoBiz and a regular columnist. Email him at jrundles@cobizmag.com.

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