VERY GRADUALLY, the process of decontrolling oil prices is beginning. The effects on fuel costs will hardly be perceptible before next year, but the political debate is already reaching full volume. President Catrter has made the rigfht choice. But he has left a great many people under the impression that decontrol will necessarily impose tremendous costs on them in order to get only a trivial reduction in oil imports. The case for decontrol is far better than that.
The purpose of decontrol is to hold down American consumption and, in cooperation with other industrial countries, create a little slack in world oil markets. In a slack market, with just a bit more oil for sale than the buyers need, the oil-exporting countries can't keep raising prices or leveling political threats at their customers. The difference between slack and shortage is no more than a couple of percentage points. Changes in Ammerican oil imports that look small in absolute terms are, in fact, extremely important in the strategy to recover from OPEC the leverage that, unthinkingly and most unwisely, the industrial nations lost to it in the early 1970s.
As the price of oil goes up, people will find other ways to accomplish the same purposes that oil serves. The greatest inhibition to the wider use of solar energy is simply the low cost of oil. At present prices, it's still cheaper for a lot of homeowners to waste heat than to install storm windows. That's why most of the major conservation and environmental organizations support the decontrol of oil prices.
Nobody knows whether higher prices will bring large new oil discoveries in the United States. But it's perfectly obvious that the system of controls was artifically holding down production. Under decontrol, that perversity has already been largely eliminated.
With decontrol, the price of oil will certainly rise. But doesn't it strike you that, even under the protection of controls, it has been rising fiercely fast? That protection is, in fact, spurious. Because controls have held domestic prices low, Americans have used more than otherwise they would have done, and that in turn has made it much easier for the oil-exporting countries to keep raising the world prices that are now feeding back into the American economy. It is quite possible that Americans are paying higher oil prices today, after eight years of controls, than they would be paying if there had been no controls at all.
For the furture, a stiff tax on oil production can recapture part of this rising cost for the public. If congress uses the money to cut payroll taxes, as it ought to do, it will both hold down inflation and soften the impact on consumers. The burdens of decontrol can be mitigated by careful public policy. The benefits of decontrol are indispensable.