Thursday, September 12, 2013

Crazy Car Economics

Does cheaper fuel mean a better life...or just more traffic jams?
A Bogotá city counciler wants to limit parking lot fees, altho they have been regulated over and over again in recent years.

Colmbia's public, Congress, truckers and legal system are fighting - as always - over the formula for pricing diesel and gasoline.

All of which makes me wonder: Why does Colombia insist on trying to control the prices of things driving related? If the government tried to control the prices of, say, carrots, shoes or newspapers, we´d call it ridiculous (and accuse the government of becoming Chavista, with all of the shortages and economic chaos government price controls bring.)

I have a modest proposal: Allow the market to set gasoline, parking and other prices. That's how Colombia, which so enthusiastically embraces free trade and capitalism, handles nearly all the rest of its economy.

Why should the car economy be different?

-A bus belches pollution. Deserving of cheap fuel?

In fact, subsidizing or limiting costs for driving is one of the most damaging things a country can do. Low prices produce short-term populist support for leaders but generate long-term damage for society. That's because of the huge externalities, or social impacts, which cars produce: stress, noise, pollution, traffic jams, sedentarism, inefficient use of land, global warming, and on and on. Gasoline and other taxes don't come close to paying for those costs.

Subsidizing gasoline is also a subsidy primarily for those who least need it - big corporations and the wealthy - who consume much more fuel than the poor do.

Lowering the fuel price will cost the treasury trillions of pesos, according to the government. That money supports destitute senior citizens and provides subsidies for poor families.  That will have to be made up somehow - either in fewer services or higher taxes somewhere else. Or else the poor will go cold and hungry for the sake of bigger traffic jams and more pollution.

Underpricing parking (and worst of all offering free parking) produces terrible urban impacts, including encouraging driving and creating parking shortages. The same drivers who celebrate low parking rates today will complain when parking lots shut down and then park their cars on the sidewalk.

Fuels should be taxed heavily in order to discourage unnecessary driving and to compensate for driving's huge infrastructure costs and impacts on society. But let markets determine the base price. That way, oil companies and gas stations will charge based on their costs and what they could get by exporting the fuel. In other words, they'd charge what the fuel is worth. What's wrong with that? After all, it's how the coffee, banana and flower markets work.

How will Colombia make up the huge deficit from cutting gasoline prices? How about taxing books? Food? Bicycles?
Graphic from El Tiempo comparing international gasoline prices. Colombia is at the upper - cheaper - end of the left-hand column. It's also notable that the western European nations, which have high standards of living, also have expensive gasoline. Basket cases such as Venezuela subsidize fuels.

By Mike Ceaser, of Bogotá Bike Tours

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