Higher Gas Tax, Not Ethanol Subsidy
Jan. 25, 2007: Marketplace—Forget Ethanol, Raise the Gas Tax
Summary: "SCOTT JAGOW: In the State of the Union, President Bush said he wanted to mandate the use of certain gasoline alternatives like ethanol and force higher fuel economy standards for cars. I called up our economics correspondent Chris Farrell to get his thoughts on the Bush energy plan. In a nutshell, good intentions but the wrong approach.
CHRIS FARRELL: Do you really think that the government is in the best position to determine that ethanol is the right alternative fuel? What I would much rather see, what I would have really liked to have seen, now it would have been a moment, but if the President had said, ‘you know what, I’m going to join the Pigou Club. . .’ "
Pigouvians urge a much higher gas tax to allow market forces and inventors to solve the problem of excessive petroleum consumption. Think about how smoking rates tend to decrease as cigarette taxes rise, and you’ve got a good argument for raising gas taxes as well.