Should We Raise the Price of Gas and Use the Extra to Fund the Big Three Bailout?

BY busadmin  December 1, 2008 at 10:58 AM EST

Woman pumps gas; AP photo

Question/Comment: There was an article in the New York Times suggesting we peg gas prices at $3.50 and use the income to fund the Big Three bailout and future alternative energy research. This would also keep the pressure on to avoid gas guzzler autos. Is anyone who counts taking this idea seriously?

Paul Solman: I don’t know. I DO know that people who “count” in MY book certainly have been — for quite awhile. I’ve written about the idea of an oil price floor here on The Business Desk. I’d originally heard it from the co-founder of the Sun computer company, Vinod Khosla, now a major venture capitalist in alternative energy. You can find the full transcript here, but I wanted to reproduce the relevant exchange – from two and a half years ago:

VINOD KHOSLA: I was recently at a conference where one of the senior executives of a major national oil company from Saudi Arabia, Aramco, came up to me and said, “Be careful.” It was almost a warning. He said, “Be careful, because if biofuels are successful, we will drop the price of oil.

PAUL SOLMAN: As a result, Khosla’s got a scheme to stabilize the price of oil through a hike in the gas tax if prices go down. He insists that predictable oil prices are crucial to the alternative fuel industry to give more faith that their investments will pay off.

Harvard economists Robert Lawrence and Ricardo Hausmann have also proposed just such a floor on gas prices. As has the New York Times’ Thomas Friedman.

Lawrence and Hausmann argued when oil passed $100 a barrel (it went up to nearly $150, remember), who would have cared about (or even noticed) a price floor at, say, $60 a barrel?

I’m afraid the most apt quote may now be the last line of Dr. Seuss’s immortal poem, “Too Many Daves”: we “didn’t do it, and now it’s too late.”