Jeffrey Frankel at Econbrowser:
World oil prices have been highly volatile during the last decade. Over the past year they have fallen more than 50%.
Should we root for prices to go up, down, or stay the same? The economic effects of falling oil prices are negative overall for oil-exporting countries, of course, and positive for oil-importing countries. The US is now surprisingly close to energy self-sufficiency, so that the macroeconomic effects roughly net out to zero. But what about effects that are not directly economic? If we care about environmental and other externalities, should we want oil prices to go up or down? Up, because that will discourage oil consumption? Or down because that will discourage oil production?
The answer is that countries should seek to do both: lower the price paid to oil producers and raise the price paid by oil consumers. How? By cutting subsidies to oil and refined products or raising taxes on them. Many emerging market countries have taken advantage of the last year of falling oil prices to implement such reforms. The US should do it too.
Congress continues to shamefully evade its responsibility to fund the Federal Highway Trust Fund. On July 30 it punted with a 3-month stop-gap measure, the 35th time since 2009 that it has kicked the gas-can down the road! There is little disagreement that the nation’s roads and bridges are crumbling and that the national transportation infrastructure requires a renewal of spending on investment and maintenance. The reason for the repeated failure to put the highway fund on a sound basis for the longer term is the question of how to pay for it. The obvious answer is, in part, an increase in America’s gasoline taxes, as economists have long urged. The federal gas tax has been stuck at 18.4 cents a gallon since 1993, the lowest among advanced countries. Ideally the tax rate would be put on a gradually rising future path.
Fuel pricing is a striking exception to the general rule that if the government has only one policy instrument it can achieve only one policy objective. A reduction in subsidies or increase in taxes in the oil sector could help accomplish objectives in at least six areas at the same time …
Five of the six areas are those that have been repeated over and over by economists with little effect (why are we so easy to ignore? is it the brown shoes? the mumbling?): revenue, less pollution, climate change, less traffic congestion and more road safety, national security. Mitigation of income inequality is number 6.
Note that the link in the phrase "as economists have long urged" is, coincidentally and ironically (is that irony?), to Mankiw.
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