Green Shoots Doused?

The Obama Administration is touting "green shoots," their language for signs on progress the economy is turning around. Small pieces of data, they say, indicate that their stimulus package is beginning to work. One such data point is the unemployment rate which was announced last week. While 9.5% is the highest in over 20 years, the Administration asserts that the rate of increase in unemployment is slowing down. I feel better already.

But really, the economy is still reeling and the slightest hiccup can cause problems. Over the past few weeks gas prices have soared. The price of a barrel of oil has risen even more and for the first time in a long long time, gas prices have not even kept up with the price of oil. Increasing oil prices are frequently a sign that the economy is growing. Most oil traders subscribe to the notions of supply and demand. If the economy is growing, demand for oil increases and given the oil cartels and, well, er, greed of the big oil companies, supply is often limited. When the Obama Administration announces there are green shoots, in other words, hope for the economy, oil traders boost the price of oil and gas prices soar.

But here is the problem. Over 9.5% of Americans are unemployed. In most places it takes a car to look for work. Go to the unemployment office, to job interviews scattered throughout the area, pick up kids from school, network with employed parents on the sidelines of the soccer game, you get the idea. If the cost of gas increases, as it has, then something on a fix income has to go. Green shoots wither.

And of course, there are the transportation wonks who advocate increasing federal gas taxes so people can not afford to drive (one of these days I will talk about all my environmental colleagues who owned large cars and drove to work, every day).

I don't envy the economists and budget gurus advising President Obama. This is a delicate and tough time. Hopefully, however, they are paying attention to the little things that can send families over the edge. Gas prices are certainly one of them.

Gas Tax

Recently, the New York Times editorial board encouraged Congress and the Obama Administration to increase the federal gas tax.  Their reasoning is, of course, that the more we pay at the pump the less we consume.  Which is traditional economic theory.

There is some good policy reasons behind this idea.  Oil, whether we are at peak oil or not, probably is a finite resource.  And clearly, as we witnessed during the summer of 2008, global consumption has vastly increased, causing prices here in the US to soar suddenly and with consequences to consumer's pocketbooks.  On the global security front, relying on international sources for oil obviously dictates our foreign policy in ways which probably cause diplomats to cringe.  We are held hostage to our consumption.

Decreasing that dependence as well as conserving a resource that no matter what, we will continue to use, is good public policy.

However, here we are teetering on a depression the breadth and depth is probably unknown to us.  The fact gas prices have declined is a good thing for most Americans, freeing up dollars to spend on food, clothing, education (and yes, a flat screen TV).  For those of us who heat with fuel oil, certainly the decline in oil prices is helping (I can actually feel comfortable turning on the heat!).

The reality is that our whole economy is wrapped up with oil.  Not just for cars driving in cities, but fertilizers for farming, resins for plastics, and jet fuel, to name a few.  While the proponents of an increased gas tax appear to only be leveling their tax at gasoline, whole economies will suffer having to pay more for gas.  For instance, not everyone lives in a city.  Rather, farmers and ranchers, from who we get our food, have to use lots of gasoline.  Increases in prices could severely hurt them.  Or what about the families that are trying to keep kids off the streets by participating in after school or Saturday programs, where a parent is required to shuttle their children across town?  

The one-size fits all policies attempting to solve environmental issues only backfires, causing resentment for taxing or regulation based solutions.

Rather, we need to look at our oil consumption issues much more holistically and broadly.  For instance, Wes Jackson and Wendell Berry have written about totally revising our farming policy.  

Their ideas are an example of how we need to seek solutions that have a much longer and larger view.  That are incentive based and help people live quality lives, not struggle trying to figure out how they can get by or around government policies.  Encouraging perennial crops in order to use less fertilizer and stabilize the soil (a natural resource if there ever was one) seems simple but will take lots of effort to overcome a century of farm policies intended to grow crops by pummeling the land.  But their suggestions are long sighted and can help reduce our dependence on oil.

Before we decide to attempt standard economic theory to change people's behavior, we really do need to understand all the consequences.  

In the meantime, walking is a good thing!

Since writing this, President-elect Barack Obama announced the appointment of Cass Sunstein as an advisor.  Sunstein, who taught at University of Chicago School of Law and is now at Harvard (also married to Obama's foreign policy advisor, Samantha Powers) is a proponent of behavioral economics, which, among other things, encourages, for lack of a better word, nudges, inducements, to get people to "behave" differently.  I suspect he would not support an increase in the gas tax.