No One Calls It Socialized Gasoline

The President is trying to get Congress to move on health care, and the debate is not remotely honest. The opposition harps on the perils of socialized medicine, for example—even if government is only spending about twenty percent of health care dollars.

Are we ever warned about socialized gasoline? We should be. That we do not hear such warnings tells me the health care reform opposition is ideological talking points. Here is why the Republicans should be all over socialized gasoline.

The average cost of gasoline in the United States this week is about $3. The average price of the standard benchmark barrel of oil is about $70. But those prices are heavily subsidized by government policies. Oil costs a lot more.

We should admit our military presence in the Middle East is largely a consequence of oil, and that we pay for oil partly through the defense budget. It may be an enduring national interest to control the world’s flow of oil, but that is only a way of saying that oil deserves the subsidy.

How much does our Middle East military presence cost? The cost of the war in Iraq, all by itself, is about a trillion dollars of budget expenditures, and another trillion or two in veteran health care costs, wear on existing equipment, and so on.* Add to this the two and sometimes three carrier task force groups around the Middle East, the amount of aid we send to various parties in the region, and the other bases and supplies and people to sustain the military presence, and we get very large numbers.

Using very conservative estimates, the Center for Technology Assessment, whose biases lie in their respect for science and engineering, found the annual military and security subsidy to gasoline to be about thirty cents per gallon—but that assumes the cost is spread over all the gasoline we consume, assuming the cost falls as well on Venezuelan derived gasoline.** If we consider Middle East derived gasoline alone, which actually generates the subsidy, the figure adjusts to a bit over two dollars per gallon. Using less conservative assumptions than the Center about the costs of the war in Iraq and Afghanistan, for example, easily doubles those estimates.

A different cost of gasoline derives from the economic effects of sending our wealth to oil-producing nations, the disruptions that occur because of price spikes from international turmoil, and the sometimes successful efforts of oil producers to raise prices. Economists employed by Oak Ridge Laboratories added these up over the last generation, and found they probably cost us a bit over two hundred billion dollars each year, or about a dollar and sixty cents per gallon.***

The other costs of gasoline, imposed no matter from what source, include the effects on the climate, the air we breathe, and so on. These total anywhere from about five to fifteen dollars per gallon.

These are all estimates, but the overall message is rather clear. The use of gasoline imposes real costs on us, and we pay only a fraction of it at the pump. The rest are paid in the military budget, in the climate effects, in the lost economic growth—and that the sum total of these costs are at least three to five times what we pay at the pump. That’s right, the real cost is about nine to fifteen dollars a gallon.

Why care about this? Reminders are everywhere. I received one in the mail. Our city council is considering a rezoning plan to encourage the development of neighborhood centers, something some planners and real estate developers have been working on for years. One piece of the current plan includes reducing the number of parking places required for multi-family property developments. One argument supporting the change is that people will use cars less if they live in neighborhoods where they can walk to stores and to work. It’s a nice argument—but where we have built these walkable neighborhoods in our region the households still have two or more cars. The streets are choked with parked cars. The streets in my neighborhood were laid out around the time of World War I. One neighbor has a truck as large as some tanks used in that war. We have so many of these huge vehicles in our old neighborhoods because gasoline is so cheap. It is unrealistic to expect the local government to deal with a problem made worse by national gasoline subsidies.

I look at how the city is developing, and I curse socialized gasoline.

Ignoring the effects of energy policy hurts us all. We should stop subsidizing gasoline.

NOTES

*See the extended discussion of how to estimate the costs of war in Joseph Stiglitz and Linda Bilmes, The Three Trillion Dollar War: The True Cost of the Iraq Conflict (NY: Norton, 2008).

**International Center for Technology Assessment, Gasoline Cost Externalities: Security and Protection Services, An Update to CTA’s “Real Price of Gasoline” Report, Washington D.C., January 25, 2005; International Center for Technology Assessment, The Real Price of Gasoline: Report No. 3, An Analysis of the Hidden External Costs Consumers Pay to Fuel Their Automobiles, Washington, D.C., November 1998.

***David L. Greene and Sanjana Ahmad, Costs of U.S. Oil Dependence: 2005 Update, Oak Ridge National Laboratory, February 2005.