But in a market system, a rise in the price of such a commodity prompts a change in behaviour. It increases supply by encouraging exploration for new sources, makes formerly uneconomic oilfields profitable and encourages the development of substitute fuels. At the same time, it reduces demand by encouraging consumers to use petrol more economically and search for cheaper substitutes. Put this reduction in demand together with the increase in supply and you see that a rise in prices should lead to a fall in prices.
So allowing retail petrol prices to move in response to market forces is the best way to minimise the long-term rise in prices likely to come from the developing world’s increasing demand for oil.
There’s evidence that motorists really are changing their behaviour in response to the higher prices of the past year or two. Despite the continuing growth in our economy, the quantity of petrol sold in Australia last year fell by 8 per cent.
In the purchasing of new cars there’s a marked swing away from four-wheel-drives and other gas-guzzlers and towards smaller cars. There are even signs of a modest switch back to travel by train and bus.
But the economists’ conventional response doesn’t fully capture the situation. With the evidence of global warming getting stronger, we need to be limiting our use of petrol and other fossil fuels in the interests of the environment.
So, if anything, the tax on petrol needs to be higher, not lower. The recent report on international tax comparisons showed that, in the December quarter of last year, we had the third-lowest level of taxation on unleaded petrol among the 30 members of the Organisation for Economic Co-operation and Development – 49 cents a litre compared with the average of $1.15 a litre.
That gap is likely to continue widening because of John Howard’s decision to abandon the annual indexation of the excise on petrol in 2001.
The Americans are by far the lowest taxing. And, since they consume about a quarter of the world’s oil, it has to be said that if only they were to levy an appropriate rate of tax, the resulting fall in consumption would significantly lower the world price of oil as well as improving the prospects for climate change.
It really is remarkable, the way we can have our regular bouts of indignation over the price of petrol without anyone thinking it relevant to mention greenhouse gases. Politicians and greenies who profess to be terribly concerned about our failure to sign the Kyoto Protocol keep their mouths firmly buttoned.
But, if you accept that the world price of oil is likely to stay high and go higher over the coming years, there’s a third respect in which we need to adjust rather than duck.
It concerns the way our state governments have persistently neglected public transport while desperately seeking to accommodate our desire to drive everywhere. Whatever the truth of the claim that in their obsession with reducing debt, the states have allowed public infrastructure to run down, it can’t be said of their continuing direct and indirect investment in expressways.
But it isn’t working. No matter how many improvements they make, the reduction in congestion is always temporary. Why? Because congestion is the only thing restraining our deep-seated preference for driving.
So, when conditions improve, driving increases until the degree of congestion returns to about its former level. The fact that public transport keeps getting worse doesn’t help, either, of course.
The point is that this pointless struggle to accommodate motoring won’t be able to continue. It fits neither with our need to reduce greenhouse gas emissions nor with the likely inexorable rise in the cost of private motoring.
But when finally our state governments get the message that they need to switch their investment from expressways to public transport – when they’re encouraging us off the roads rather than onto them – there’ll be a bonus for you and me.
Research into happiness shows that the aspect of people’s daily lives they least enjoy is commuting – with the journey to work a little worse than the journey home.
And much research by psychologists shows that people find driving through heavy commuter traffic particularly stressful. It’s so bad, people never get used to it. In extreme cases it can cause gastrointestinal problems, headaches and anxiety. Elevated blood pressure is common.
But if driving through heavy traffic is so bad for us, why do so many of us want to do it? Because human nature is full of contradictions. The state pollie who wakes up to this one will do wonders for our health and happiness.