Fuel prices and well-being

According to a recent Gallup survey 32% of Americans would buy a more fuel-efficient car if gas prices kept rising. This pretty obvious finding highlights two facts that may not emerge in full clarity at first glance. First, the tax policy of the US government effectively encourages the use of bigger vehicles. Second, and more importantly, this is also a government policy that does not maximize its citizens well-being, in fact in many ways it reduces it. Let's look at the two issues in detail.

One may think, how in the world is government policy related to what car I drive? The reason is simple. The government has to receive a certain amount of tax money every year. If taxes on gas are kept low, taxes on other things - property taxes, corporate taxes, and so forth - must inevitably be kept higher. So today the US government is effectively telling its citizens through its tax policy "use more gas, do less of other things". That would be understandable if using more gas led people to better and happier lives. But I doubt it does, for several reasons.

First, driving a car is not simply a mean of transportation. Many people get a sense of enjoyment from owning and driving a certain type of car. A certain share of the population, specifically, enjoys driving a "big" car. But what does "big" really mean? "Big" is solely a relative term, it comes to have a meaning only when other things around are "smaller". If everyone was driving an SUV, then owning an SUV would feel more "normal" than it would feel "big". So through tax policy - i.e. increasing gas taxes - we could shrink the average size of the American car - including the average size of SUVs - while preserving the joy that SUV-lovers derive from owning a relatively "big" car. A progressive increase on gas taxes would result in less gas being used, less pollution, and an increase in tax revenues that could be put to good use - nowadays, for instance, to reduce the budget deficit.

Not only. Low taxes on gas also encourage longer drives and, specifically, longer commutes. Unfortunately long commutes have a major negative effect on people's well-being, scientists have found. How badly a long commute will impact your life is something that people do not easily foresee, but it is a real and strong drag on your life, as a number of studies have shown. Effectively here US tax policy is again encouraging a behavior that decreases well-being.

Finally, bigger cars have a number of other, better-known, negative effects. They cause more pollution, which we all pay for in terms of diseases and Medicare/Medicaid costs. They mean more wear and tear for the roads, which again we all have to pay for with other taxes. And they mean more damage to other vehicles and people in case of an accident. All those unnecessary costs could possibly be reduced through an appropriate tax policy  - i.e. progressively increasing taxes on gas. And while Detroit may not like that, automakers must understand that their industry is still effectively subsidized by the government through a lax tax policy, and that everybody else is paying for those subsidies.

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