Happy Independence Day!

We Can Lower Oil Prices Now

Martin Feldstein:

Any policy that causes the expected future oil price to fall can cause the current price to fall, or to rise less than it would otherwise do. In other words, it is possible to bring down today's price of oil with policies that will have their physical impact on oil demand or supply only in the future.

For example, increases in government subsidies to develop technology that will make future cars more efficient, or tighter standards that gradually improve the gas mileage of the stock of cars, would lower the future demand for oil and therefore the price of oil today.

That means an immediate combination of more drilling, development of alternative sources of energy (i.e. nuclear and solar), subsidies to encourage and speed up that development, requiring more efficient vehicles or even a Pigovian tax on oil/carbon-based energy. It would also be helpful to aid China and India in developing and implementing more efficient energy consumption methods to reduce their demand for oil.