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01 December 2008

Gas Tax Theory

I'm not providing evidence for this yet. It exists, I'm just lazy at the moment. Okay, here goes: I posit that American automobile manufacturers, in part, built and invested their resources in SUV's, trucks, and large cars because gas is and has been historically cheap in the US.

My logic is this; the cost of gas for the average household is about 5% of their total income. Everything in the market tends to have a kind of "natural rate" of consumption. For example the unemployment rate tends to hover around 5%, inflation tends to sit around 3%, and mortgages tend to (well up until now) cost the average person 25-30% of their take home. These things fluctuate over time, but my point is that people are only willing to give up so much of their income for certain things. In Europe, along with almost the entire rest of the world, they tax their gasoline heavily resulting in prices that are usually about 2-3 times what ours are. Not entirely suprisingly Europeans end up buying cars that are more efficient and subsequently drive less. My hunch is that they too spend about 5% of their salaries on gasoline.

American car producers have for a long time sold cars abroad that they don't sell here. For years my father has been telling me this story about a small car produced by Ford that they drove all over England that got 40 MPG. He said he loved it and he'd buy one here if only they sold them in the US. But whatever, back to my theory...

The tax on gasoline isn't adjusted for inflation. It's fixed, so essentially every year it decreases. Combined with the fact that the tax is ridiculously low to begin with. Side note: when you do something like pollute, you are causing an externality. An externality is an unwanted product of your consumption of a good. If you can quantify these unwanted things, such as pollution, you can tax them. This way the consumers of said good pay the cost that their consumption imposes on society. For example, semis pay a lot more for a license plate because they do more damage to the road than your Toyota. Charging them more limits the number of semis to some degree and raises more money to repair the damage they've done to the road. Leading economists in America think the gas tax should be around $2 a gallon. Yesterday gas cost me $1.70 with tax.

So what? Basically American auto producers have been, in some part, kind of screwed by a low gas tax. The low tax has enabled all of us to consume more of it, thus enabling the manufacturers to produce cars that burn more of it. While foreign car companies had to inovate smaller, lighter, more fuel efficient cars we focused on power, SUV's, planned obsolescence and Hummers. Why hasn't this been the case for foreign auto producers in countries where the gas tax is low? Simple, they don't exist. The auto industry is based in the US, Europe, Japan, and Southeast Asia.

So there you have it America. Your thirst for cheap gas has to some degree contributed to the demise of our auto industry.

EDIT: I'm not changing the origional post, however the origional does give the impression that this wasn't the American auto manufacturers fault. But of course they are in large part to blame. They lobby congress for these things. What I am saying is; be willing to pay a lot more for gas because it's better for everyone. I'm just a really bad writer. I have no dilusions that I'll ever be great, or even good. But one day I'd like to be able to communicate counterintuative ideas to people so that they understand them with as little bias as possible.


Dave Agnos said...

Watch the documentary "Who Killed the Electric Car?"... it will make you glad that American automakers are suffering right now.

Logan said...

I've seen it, and I liked it. It could have been a bit more laconic.

I think I need to post a follow up to this. I've had one other friend comment on how nice I was to the auto companies, essentially. I just thought it was a novel idea... the low gas tax as destructive, but yea car companies lobby for that stuff so...