• U.S.

Energy: Rationing, Tax–or White Market?

8 minute read

Some time around Christmas, President Nixon will have to make a decision that he would dearly love to avoid. His advisers calculate that America’s motorists must cut gasoline use no less than 30% by mid-February if supply is to come anywhere near meeting demand—especially since the Government is now pressing refineries to shift some output from gasoline into heating oil. In the next few weeks, it should become clear whether the President’s call for a lower nationwide speed limit, the ban on Sunday gasoline sales and inevitable price hikes will do the job. In the event that they will not, the President must choose between rationing, or taxing gas so heavily that the ordinary motorist cannot buy as much as he wants, or some combination of the two. The choice is agonizing, and it has to be made quickly in order to get the bureaucratic machinery in place for rationing or the legislative approval for taxing.

The arguments for rationing are simple. It would enable the Government to regulate consumption fairly precisely by printing ration coupons for, say, only 1.4 billion gal. per week; no more could be legally sold. (Actually, cards similar to credit cards might be used instead.) More important, under rationing the Government would at least attempt to dole out supplies on the basis of the need to drive, rather than ability to pay. The rich could not buy up all the gasoline, and the poor would be assured of some fuel. Even the most vocal advocates, however, concede that rationing has flaws. Banker David Rockefeller, for example, supports it as “the most equitable” method of sharing the hardship, but adds that “rationing is a very unappetizing and inefficient and undesirable kind of thing.”

Presumably, rationing would work somewhat as it did in World War II. There would be a basic allowance, currently pegged by planners at around ten gallons per week. That would permit the average car to be driven about 130 miles, but some Cadillac owners could go only 80 miles while some Datsun drivers could roll 290 miles. People who could demonstrate a need to drive—the Nevada rancher, say, who lives 50 miles from the nearest church—would get extra rations. Doctors, plumbers, salesmen and others whose cars are absolutely vital to their jobs would get still more.

Truck lines and bus companies would get unlimited rations. Some 6,000 local boards, consisting of both unpaid volunteers and full-time paid workers, would decide who got how much.

Mob Theft. The complexities would be horrifying. To begin with, how would the basic ration be apportioned? If each car got a ration, as in World War II, the self-indulgent, three-car family (which scarcely existed then) could drive three times as much as the family that had held down traffic congestion and air pollution by using only one auto. If every driver received coupons, the family with four licensed drivers—husband, wife and two teen-agers—would get four times as much gas as the family in which Dad did all the driving. Rations could be allotted by family unit—but what constitutes a “family”? Would the 20-year-old Harvard sophomore get his own ration, or would he be forced to share coupons with his parents in San Diego? Government planners have not even begun to figure out how rationing would be applied to the car-rental business.

Beyond that, how could “need to drive” be decided? Does the suburbanite who lives five miles from a railroad station where commuter service is infrequent and erratic “have” to drive to work? Is a weekly 20-mile trip to a psychiatrist’s office essential, and if so, for whom—only those who suffer severe mental illness, or people troubled by vague anxieties? The inescapable need to adjudicate such questions would give the Government decision-making power over minute details of people’s lives.

The nation barely tolerated such regulation even in World War II. Gas rationing then drastically slashed driving (no wonder: the basic ration fluctuated between two and four gallons per week). But even in a society not yet wedded to the road, and moved by intense feelings of patriotism, rationing prompted outraged howls about unfairness. Worse, rationing led to widespread cheating. Most drivers broke the rules, if only by slipping occasional coupons to a friend. Mob-organized theft and counterfeiting of coupons were common. The Government estimated that 5% of all gasoline was black-marketed and that 15% of the C (unlimited-ration) coupons were phony. Gasoline black markets would probably flourish even more now because Americans have become far more accustomed to driving as often and as far as they please. In fact, the Mafia seems better organized for gas rationing than the Government. Mafia chieftains already have lined up printing firms to produce counterfeit ration coupons, and held a series of conferences to decide which don will control the counterfeiting racket in each area.

Your Friends. By contrast, curtailing driving by heavily taxing gasoline would avoid both the incitement to crime and the snooping regulation of rationing. Under the plan favored by all three members of Nixon’s Council of Economic Advisers, the Government would raise the cost of gasoline 400 per gal., mostly by boosting taxes but partly by permitting price hikes. Pump prices would rise to more than 800 per gal. People could still decide for themselves how much they really needed to drive, rather than bare their souls to “a board of your friends and neighbors.” CEA Member William Fellner calculates that a 400 tax would raise about $32 billion a year. Theoretically, the Government could spend the money on aid to mass transit, research into ways to build safer nuclear power plants or other methods of easing the energy crisis.

Alas, this kind of plan would also reduce consumer purchasing power enough to cause a possibly shattering recession—to say nothing of the brutal penalty it would levy on a poorly paid night hospital attendant who had to drive to her job because no buses ran when her shift began. Fellner and other advocates concede that the Government would have to quickly refund most of the money, especially to the poor. This would probably require a rejiggering of income tax withholding rates that would present administrative complexities of its own.

The plan would raise living costs and funnel gasoline to those who could most easily afford it, rather than to the people who needed it most. For these reasons, Washington Democrat Henry Jackson, the Senate’s leading champion of emergency energy legislation, insists that Congress would defeat any such tax plan by a lopsided vote.

A third idea is to make gasoline more expensive by lifting price controls and letting the price rise as high as the traffic would bear. That idea is supported by free-market advocates but has no serious support within the Government. It would be as unwieldy and inequitable as the tax plan—and would channel gargantuan added revenues not to the Government but to gas-station owners and oil companies.

Happily, though, the choice is not strictly either/or. Some combinations of rationing and free markets are possible, intriguing and likely. One ingenious idea gaining some Government attention is to add to rationing what would amount to a federally operated black market (or “white market” as planners call it). Ration coupons would be issued in roughly equal amounts to everyone holding a driver’s license, but they could be transferred, unlike World War II coupons.

The Government would allow people who use mass transit rather than their cars to sell their coupons for cash. The rich and those who badly needed to drive could buy those coupons, possibly through official exchanges, if they were willing to pay the price.

Washington could still regulate tightly the total amount of gasoline consumed. Drivers would be assured of a basic supply, and they could freely choose how much more they wanted.

Under one version of this plan, marketable coupons would be issued not just to drivers but to anyone who had a Social Security number; this method could accomplish a redistribution of income from rich to poor that even George McGovern might approve. But there might still be a true black market alongside the white one. Counterfeiting of coupons might still be profitable if the resale supply of legitimate coupons was tight and prices skyhigh.

Social Cost. A less fanciful proposal would meld rationing and taxes.

Every driver might get a card entitling him to purchase a stated, small ration and pay the current gasoline taxes. If he bought additional gallons, the Government would tax him heavily at the pump. Everyone would be assured of a basic supply, but people who needed or wanted more could buy it, and the Government would collect additional revenue. Prices would rise, too, under this plan—or indeed any plan.

Neither the white market nor the rationing-plus-taxes plan is perfect. Both would preserve freedom of choice at the social cost of basing access to the gas pump at least partly on income. But given the nightmare complexities of war-type rationing and the inequities of limiting driving solely by taxation or higher prices, one or the other seems worth a try.

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