Hmmm: $4 Gas is Good or Not

In a May, 2008 opinion piece Tom Friedman makes the argument that there should be a level at which gas prices should never fall below and that level is $4.

This candidate would note that $4-a-gallon gasoline is really starting to impact driving behavior and buying behavior in way that $3-a-gallon gas did not. The first time we got such a strong price signal, after the 1973 oil shock, we responded as a country by demanding and producing more fuel-efficient cars. But as soon as oil prices started falling in the late 1980s and early 1990s, we let Detroit get us readdicted to gas guzzlers, and the price steadily crept back up to where it is today.

We must not make that mistake again. Therefore, what our mythical candidate would be proposing, argues the energy economist Philip Verleger Jr., is a “price floor” for gasoline: $4 a gallon for regular unleaded, which is still half the going rate in Europe today.

It's a very interesting view and one that initially agreed with. Yes, high priced gas is an incentive for auto manufacturers and others to develop more fuel efficient cars and other alternative technologies, which is an outcome that will eventually serve us well.

However, in the short term high gas prices can have negative repercussions by inflicting severe financial difficulties on lower and middle income workers. People are being forced, as highlighted in a recent CNN story, to choose between buying gas to get to work or paying for health insurance for their family. This is a choice that shouldn't have to be made but then again, as Phil Gramm would say, maybe I'm just a "whiner."