How High Gas Prices Can Save the Car Industry

(Letter to the authors of the article "How High Gas Prices Can Save the Car Industry" published in the New York Times on Sunday 16 November.)

Dears Daniel Sperling and Deborah Gordon

I am writing about your piece in the NYTimes entitled "How High Gas Prices Can Save the Car Industry". You have not considered the implications that a variable tax in the form of a price floor would have on international politics and domestic security. If such a tax were enacted, US oil companies would lose all incentive or leverage to negotiate lower crude oil prices from suppliers. The consequence will be an increase in prices towards the level determined by the floor, limited perhaps thanks to other oil importing nations that do not follow such a wrong-headed floor policy.

Producers - rather than the US Treasury - would be able to keep a big part of the increase of consumer prices due to the floor. Oil exporters such as Iran, Russia, Venezuela, and Saudi Arabia are involved in most of the sources of geopolitical instability in today's world. Many are run by tyrants and supporters of international terrorism, and most of their leaders care very little for our democratic values. Their windfall profits would be a disaster for the free world.

Much better for the US would be a straight tax on imports of fossil fuels from outside North America, at a rate equivalent to $70 per barrel or so. That would have a similar effect on promoting conservation and fuel efficiency, without diverting funds to oil exporting countries. It is very dangerous to formulate policy without considering all its implications. Your piece looked at the question of oil taxes exclusively from the point of view of your narrow specialty, and came up with a disastrous proposal.

Yours sincerely,
Felipe Pait
University of São Paulo