Whatever else Black Mondays I and II may ultimately prove to mean, they have transformed the political landscape. Policy measures that have been dismissed for years as politically impossible can now at last be judged on their merits. Far and away the most important of these is a gradually rising gasoline tax. Such a tax would produce enough revenue to service and gradually eliminate the debt, thereby solving the financial crisis. Almost as important, it would help put our badly mismanaged energy house in order.
Conferences on energy problems are filling calendars as though it were the 1970s again. But this time, experts who once disagreed fiercely are all saying the same things: U.S. oil production is declining and will continue to decline. Oil imports have already risen from 27 percent of total consumption two years ago to 37 percent today, and are headed straight up. The United States is likely to be 50 percent dependent on imports by the early to mid-1990s.
The energy industry rightly fumes that Washington is doing nothing. Even Interior Secretary Donald Hodel, a member of the do-nothing team, predicts the reappearance of gasoline lines as early as 1990, and warns that failing to curb oil imports is like telling oil-producing countries: "Take advantage of us; we're not going to defend ourselves."
The currently popular solution to this mess is an oil import fee. It is the quintessential quick fix: obvious, simple and wrong. While properly designed government regulations can achieve a great deal, one thing no government is equipped to do is to decide what is the "right" price for oil or any other commodity. There is, in addition, the damage that would be done to the credibility of a nation that is ostensibly committed to lowering, not raising, trade barriers. Add to this the number of exceptions to the tariff that would have to be made for friends and allies (Great Britain, Canada, Venezuela, Mexico, perhaps Saudi Arabia) and the ugly conflicts that would have to be managed between those parts of the country that are heavily dependent on oil imports and those that are not, and you have a classic recipe for an unworkable policy whose costs would far outweigh its benefits.
There is a much better way to reduce imports, and that is to reduce consumption in the transportation sector. Alone among all major forms of energy use, transportation is directly tied to oil use, not energy broadly. Two out of every three barrels of oil consumed in the United States are used in vehicles, and gasoline alone accounts for 44 percent of total domestic oil use. The transportation sector is also the choice because, unlike other energy-use sectors, its energy efficiency is not improving, and because the potential for rapid savings is so huge.
The efficiency of the U.S. auto fleet could be boosted by simply raising the current regulatory standard, but such a step would generate no revenue and would leave consumer preferences, which are slowly shifting back toward gas guzzlers, untouched. Today's standard calls for a new car fleet average of 26 miles per gallon, and the U.S. fleet as a whole gets 18 mpg.
This is a substantial improvement over the 13-mpg fleet of 1978, when the standards were imposed (already saving us more than a million barrels per day in oil imports), but it is nowhere near what even currently available technology allows. Toyota has produced a prototype car that gets 98 miles per gallon on the EPA combined city-highway test. European producers have models that run in the 60-to-80-mpg range.
It is impossible to predict how great the future savings would be from a policy that both influenced consumer choices and gave industry a clear signal, with time to adjust and to redirect its formidable research and development capacities.
Last year the average retail price for all types of gasoline in U.S. cities was 93 cents per gallon, down from $1.19 the year before and from the 1981 all-time high of $1.63 (in 1986 dollars). The price won't stay this low for long. Now, therefore, is the economically and psychologically easiest moment to introduce a substantial gasoline tax.
Unpalatable as it may sound, our attachment to cheap gasoline is an anachronistic luxury this country can no longer afford. Current U.S. gasoline consumption is about 100 billion gallons per year, which makes pencil-and-paper policy experiments convenient. Consider a tax that would add 10 cents a year to the current gasoline tax for 10 years, raising it to $1 per gallon by 1998. This would make the total tax about equal to European and Japanese gasoline taxestoday.
In its first year the tax would generate $10 billion, enough to provide almost 50 percent of the 1988 Gramm-Rudman-Hollings target. Such a small tax would have little effect on immediate consumption or on economic growth. By 1998, however, the tax would generate a whopping $100 billion per year, and would transform everything from the federal deficit to pressures on world oil prices. (This assumes that the decline in consumption per car roughly offsets the expected rise in number of cars and milesdriven.)
Paying more for gasoline is no one's choice, but the choice is not whether to pay more, but when and to whom -- ourselves or foreign oil producers? Remember the union song from the great Broadway hit "Pajama Game"? "Seven and a half cents doesn't buy a heck of a lot/Seven and a half cents doesn't mean a thing/But give it to me every hour, 40 hours every week/That's enough for me to be livin' like a king."
We won't be living like kings, but a phased-in gasoline tax would be enough to buy us reduced energy imports, a smaller trade deficit, a substantial measure of added energy security, reduced pressure on the upward march of world oil prices and high-efficiency cars that would be able to compete with Japanese and European models when oil supplies tighten and prices rise, as they eventually will. All this and a large, continuing and predictable flow of funds to reduce the deficit -- and leash the bears on Wall Street.
We might some day look back rather fondly on the Crash of '87 as the jolt that brought us to our senses and finally made it possible for us to do the obvious. The writer is vice president and director of research at the World Resources Institute, a policy research center in Washington