Monday, June 14, 2010

The True Cost of Gasoline

Ezra very eloquently makes the case that it's much higher then what we're currently paying. He begins:
But as the sludge choking the Gulf of Mexico shows, nothing is easy when it comes to oil. Not even the price. In fact, especially not the price.
Most of us would call the BP spill a tragedy. Ask an economist what it is, however, and you'll hear a different word: "externality." An externality is a cost that's not paid by the person, or people, using the good that creates the cost. The BP spill is going to cost fishermen, it's going to cost the gulf's ecosystem, and it's going to cost the region's tourism industry. But that cost won't be paid by the people who wanted that oil for their cars. It'll fall on taxpayers, on Gulf Coast residents who need new jobs, on the poisoned wildlife on the seafloor.
That means the gasoline you're buying at the pump is -- stick with me here -- too cheap. The price you pay is less than the product's true cost. A lot less, actually. And it's not just catastrophic spills and dramatic disruptions in the Middle East that add to the price. Gasoline has so many hidden costs that there's a cottage industry devoted to tallying them up. At least the ones that can be tallied up.

The whole thing is worth reading.

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