RICHMOND

WITH GASOLINE PRICES near record highs, voters who may be excited about choosing between two somewhat unconventional presidential candidates are also sure to be vetting Barack Obama and John McCain’s energy-policy proposals.

Unfortunately, with the exception of a summer gasoline-tax holiday and an electric-car prize, those proposals thus far are conventional and old-fashioned. It appears that neither candidate has been paying attention to basic economic theory, which suggests an entirely different approach to reducing U.S. dependence on foreign oil.

Do you want to hurt OPEC? Then raise gasoline taxes, which will reduce U.S. oil imports. Do you want a cut in your income taxes? Then substitute increased revenue from higher fuel and energy taxes. By taxing products whose consumption hurts others, we don’t have to tax workers and investors as much. But neither the Republican Party nor the Democratic Party is thinking clearly about the efficient response to the U.S. energy situation.

First, we must realize that high energy prices are probably here to stay.

Oil prices are unlikely to return to their old levels on account of rising demand from growing economies around the world, especially China and India.

Obama’s main response to high energy prices is to propose $150 billion in federal spending on new energy sources. McCain wants a temporary federal gasoline-tax holiday, a $300 million prize for an electric car, and a removal of the ban on offshore drilling. Both support increased nuclear energy and cap-and-trade policies to reduce carbon emissions.

Having the federal government choose future energy alternatives is risky business. There is little reason to believe that bureaucrats have the best information and incentives to make the appropriate decisions. What did billions of federal dollars spent on synfuel research back in the 1970s give us? One wonders how appropriate technical requirements to win a $300 million prize can be written. If by chance the government should choose the correct standards, the company that wins probably doesn’t require a $300 million prize anyway to profit.

Economists know that the burden of gasoline excise taxes is shared by both consumers and producers. Similarly, a reduction in gasoline taxes would lower government revenue to the benefit of both consumers and producers. But it is not clear why oil companies require tax cuts to encourage more exploration. They possess the necessary capital already. We don’t require more incentives to find energy; we require the correct incentives. Further, cutting taxes when energy prices are high encourages OPEC to raise oil prices even further, since the quantity demanded would not fall if higher crude-oil prices are offset by reduced taxes.

A fundamental principle of economics is that to achieve efficiency, consumers must bear the full costs of their actions. To encourage the efficient use of gasoline, consumers must bear the full social cost of each gallon burned. Recently economists have estimated that for each gallon of gasoline purchased, there are additional external costs (those not borne by the driver) of between $1 and $2. These externalities arise because of increased road congestion, accident costs, global warming and U.S. military involvement around the world. Undesirable as it may seem, that implies a similarly sized gas tax to encourage an efficient response to the challenges facing the country.

Such a gasoline tax would lower imports and encourage research into the most realistic alternatives, not those favored by powerful politicians, but rather by profit-seeking firms and venture capitalists. Alternative-energy sources would become feasible and more profitable when traditional energy sources are priced at their true social cost.

While it is now difficult for politicians to propose higher gas taxes, it must be emphasized that increased gas taxes can be offset by reductions in other taxes. By taxing activities that create additional problems such as gasoline consumption, America could reduce taxes on efficient activities. In other words, income, payroll or capital-gains taxes could be reduced to offset higher energy taxes.

So, let’s leave behind the Republican demand for incentives for more of the same and the Democratic faith that government can identify the appropriate new energies. Instead, by ensuring that the price of a gallon of gasoline includes its true social costs, we will encourage both its efficient use and provide market opportunities for alternative-energy sources. At the same time, you can help drive a nail into OPEC’s coffin.

Erik Craft, an associate professor of economics at the University of Richmond’s Robins School of Business, is a transportation-economics expert.