Newt is right about gas prices

Newt Is Right About Gas Prices
Washington was against cheap gasoline before it was for it.
By HOLMAN W. JENKINS, JR.
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A Newt Gingrich administration, the candidate says, would deliver a $2.50 price of gasoline. Absurd, say the talking heads. And yet it's not.

Expectations about public policy have a profound impact on the market price of gasoline, and President Gingrich would author a veritable policy revolution by putting the U.S government unambiguously in favor of cheaper gasoline. He'd arguably be the first president since Reagan who didn't believe gasoline is a bad, obsolete product and priced too low.

"The Gingrich two-fifty plan slashes gas prices by increasing domestic production, opening up off-shore drilling, building the Keystone Pipeline, cutting red-tape regulation," claims a 30-second Gingrich spot.

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Don't underestimate the psychological and political upheaval this would bring about. For decades, U.S. policy has been riven with a costly ambiguity about Washington's real aim for gasoline prices. In 2008, both parties nominated climate warriors for president, and both parties at times have favored dramatically increased fuel-mileage mandates, which imply higher gas prices unless Washington intends auto makers to go broke selling vehicles consumers don't want.

For decades, too, the EPA, in pursuit of relatively small air quality gains, has been allowed to balkanize the U.S. refining market with "boutique" fuels, driving up the price everywhere. For decades, environmentalists have been empowered to put domestic resources off-limits not just to preserve pristine nature, but to express disapproval of our energy "addiction."

Every once in a while these urges even threaten to coalesce into coherence with an outright policy of higher gasoline prices, as when the Clinton administration flirted with a BTU tax or the Obama administration plumped for cap and trade.

Against this, of course, must be weighed the absolute panic of politicians when actually faced with the higher gasoline prices their policies portend. In a rare moment of sentience, the White House press this week confronted President Obama with the paradox. His response was telling: "Do you think the president of the United States going into re-election wants gas prices to go up higher? Is there anybody here who thinks that makes a lot of sense?"

Before and after the 2000 race, Al Gore decried America's reliance on fossil fuels. During the 2000 race, he wanted cheap gas for voters too and insisted the strategic reserve be opened. (Bill Clinton acceded.)

It's impossible to exaggerate how much U.S. policy is saturated with the idea that cheap gasoline, which we crave, is undesirable and unnatural. Our minds are possessed by this gestalt. Whenever prices go up, the media insists the reason is resource exhaustion. People like Mr. Gingrich, who suggest prices could and should be lower, are assumed to be reality deniers. Any idea that ever-higher energy prices are not foreordained is practically a revolutionary concept.

Yet look carefully at the U.S. Energy Department's estimate of the long-term, inflation-adjusted price of gasoline. In some sense oil has been running out since its first discovery, but for the entirety of the automotive age the retail price of gasoline has nonetheless loitered consistently between $2 and $4 in current dollars.

No law of nature says it will ever be thus, but it would be unwise to discount such a strong historical demonstration of the apparent elasticities involved. Consumers decide what they're willing to pay for gasoline; prices gravitate within a range that preserves the public's willingness to buy and the oil industry's willingness to produce. Which means, even without President Gingrich, gas prices are more likely to be lower than higher a year from now.

When under assault, we reach for whatever club is at hand, and Mr. Obama defended himself by pointing to his fuel economy mandates, reflecting a common thinking: We'll use less gas and the price will be lower.

But, of course, then we'll use more gas.

The Jevons Paradox is named for a British economist of the 19th century. It holds that, when a resource is used more efficiently, its consumption increases rather than decreases. Thus our Priuses cover more miles than we ever drove our '68 Impalas. We live farther from town, in bigger houses (with bigger furnaces). More energy is consumed to deliver to our far-flung exurbs the goods and services we desire.

David Owen, a writer for the New Yorker magazine, offers an unwelcome new book on this very subject, entitled "The Conundrum," and subtitled, in part, "How increased efficiency can make our energy and climate problems worse." A reader might say "What about global warming?" That question has proved itself a political irrelevancy. Mr. Obama this week couldn't have stated it more clearly: Politicians would rather win elections than tell Americans they must pay higher gasoline prices.

A version of this article appeared Mar. 10, 2012, on page A13 in some U.S. editions of The Wall Street Journal, with the headline: Newt Is Right About Gas Prices.

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About Holman W. Jenkins Jr.
Holman W. Jenkins Jr. is a member of the editorial board of The Wall Street Journal and writes editorials and the weekly Business World column.

Mr. Jenkins joined the Journal in May 1992 as a writer for the editorial page in New York. In February 1994, he moved to Hong Kong as editor of The Asian Wall Street Journal's editorial page. He returned to the domestic Journal in December 1995 as a member of the paper's editorial board and was based in San Francisco. In April 1997, he returned to the Journal's New York office. Mr. Jenkins won a 1997 Gerald Loeb Award for distinguished business and financial coverage.

Born in Philadelphia, Mr. Jenkins received a bachelor's degree from Hobart and William Smith Colleges in Geneva, N.Y. He received a master's degree in journalism from Northwestern University in Evanston, Ill., and studied at the University of Michigan on a journalism fellowship.

Email:holman.jenkins@wsj.com

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