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How much should gas cost?


“Externalities” represent a useful little concept from the wonderful world of economic analysis.

In technical terms, an externality is a cost (or a benefit) that an actor doesn’t take into account in regard to the actor’s decisions.

Example: Suppose I engage in some behavior that generates $1000 of benefit to me but imposes $1500 of costs on my neighbors (Pollution is the classic example). The problem here is that I’m up a thousand dollars but society as a whole is down $500. From the standpoint of efficiency — never mind fairness — it’s desirable for some mechanism to force me to pay the $1500 of damages I’m imposing on others, because I will then be forced to take that damage into account when deciding whether to engage in the behavior.

Obviously if I’m the fabled rational economic actor from the textbooks I won’t engage in the behavior since now I will be down the $500 in costs that formerly I was imposing on society as a whole. In other words, the externality will have been internalized efficiently, and I’ll stop hurting society, because my socially harmful behavior will no longer benefit my own selfish self.

The application of this concept to gasoline prices should be pretty obvious, at least in theory. If driving my hot rod Lincoln is imposing costs on society — like say cooking the planet a few years hence — that I’m not taking into account, because Freedom ™, then the straightforward thing would be to make me pay those costs via the price of the gas it takes to drive said hot rod Lincoln.

How much would gas cost then? Especially if the price of gas reflected other externalities, like traffic accidents that harm somebody other than the driver, the cost of maintaining the massive infrastructure necessary to drive my hot rod Lincoln so that I can live 40 miles from work so that I can afford an extra room for all the crap I’ve bought recently, the cost of sitting in traffic for hours per week, the cost of dedicating huge tracts of land to parking lots, etc?

I’m pretty sure the answer is “a lot more than gas currently costs, even though the current price is probably high enough to get Americans to vote for fascism rather than liberal democracy because we’re just that stupid.”

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