View From a Height

Jaw-droppingly, that's what Martin Feldstein proposes in today's Wall Street Journal.

In a system of tradeable gasoline rights, the government would give each adult a TGR debit card. The gasoline pumps at service stations that now read credit cards and debit cards would be modified to read these new TGR debit cards as well. Buying a gallon of gasoline would require using up one tradeable gasoline right as well as paying money.

The government would decide how many gallons of gasoline should be consumed per year and would give out that total number of TGRs. In 2006, Americans will buy about 110 billion gallons of gasoline. To keep that total unchanged in 2007, the government would distribute 110 billion TGRs. To reduce total gasoline consumption by 5%, it would cut the number of TGRs to 104.5 billion.

The government could distribute TGRs to reflect geographic differences in driving patterns. Additional TGRs would be distributed to each debit account at the end of each month to avoid problems of expiring rights. Businesses that use trucks would also get TGRs.

This was a column that just didn't get printed in time for the April 1st edition, right? Or maybe Feldstein was cleaning out his liquor cabinet and found this draft next to the Purim leftovers.

This is WWII rationing, pure and simple.

More likely, Feldstein has spent so long analyzing government policy on Social Security, Health Care, taxes, fiscal and monetary stimulus, that he's forgotten that we have a perfectly good system for encouraging conservation - it's called, "prices."

One wonders why Feldstein stops with gasoline. Surely a government capable of calculating how much gasoline each neighborhood needs to consume is capable of much, much more.

UPDATE: Feldstein's proposal is generating a fair amount of blogospheric comment: I still think the fundamental question is why on earth anyone thinks any government system of allocating credits ahead of time is going to be a more efficient aggregator of need than the market. Given the national balkanization of fuel mixtures and the refining process, this can only lead to more shortages.

Greg Mankiw: I have said many times that I like the idea of higher gasoline taxes, but Marty's scheme leaves me cold. Do we need to create a new administrative bureaucracy because politicians are afraid to use the word tax? I hope not.

lynne Kriesling: But it is so potentially prone to political manipulation, and over such a large number of possible stakeholder organizations, that I think it would distort decision-making enough to generate bad outcomes and entrench special interests.

John Caddell: And Feldstein has a pretty good argument as to why fuel economy standards, while well-intentioned, won't make enough difference to reduce our overall consumption quickly.

Mark Thoma: In addition, while this proposal does provide the correct incentive at the margin, I can envision an endless political fight over the allocation of credits.

Glittering Eye: I have a more basic question. Perhaps I’m being dense but how is this approach better than any other fiat system (it is a fiat system: the government is setting a quota)? Why not just let prices rise? Are they convinced that the demand for oil is infinitely inelastic?

Brad DeLong: I think Marty's right. I think it's a clever idea--and much better than tightening CAFE. Tom Kalil was talking about higher gasoline taxes with the revenue dedicated to paying the first X thousand of individuals' Social Security taxes. But I think Marty's scheme is more transparent, which gives it powerful political-economy advantages.

Arnold Kling: One gets the feeling that his main concern is to fend off fuel economy regulations, which are indeed exercises in moral vanity--they do little to reduce gasoline consumption but they do help to brand auto companies as villains.