It’s become a ritual: The economy grows sluggish and politicians rush to “do something” about it. What they do almost never has a beneficial economic impact, as any reputable economist will tell you.

But what if lawmakers could guarantee that the price you pay to fill the tank of your car will go down, not up, in the years ahead? What if they could launch a new industry that creates more jobs for more Americans? What if this would produce environmental benefits, too? Would that not send a message to the markets? And would that not represent the kind of change so many politicians have been promising?

Here’s the deal: Everyone who is not an economic illiterate knows that competition leads to lower prices. But there is no competitive market in transportation fuels. In most parts of the country, you can buy gasoline or you can buy gasoline. And most cars can run on gasoline or gasoline.

It doesn’t have to be that way. There are alternative fuels. And there are automobiles built to burn them. But there is a chicken-and-egg dilemma: Why buy a car that can use alternative fuels if those fuels are not readily available at a local service station? Why devote a pump at a local service station to alternative fuels if there are few customers asking for them?

Elected officials could solve this problem with a stroke of the pen. An “open standards” fuel law would require that all new cars sold in the United States be Flexible Fuel Vehicles – able to run not just on gasoline, but also on a variety of alcohol-based fuels.

A car that is flexible fuel capable costs only about $100 more. But if you want to make this transition cost-neutral for the automobile companies, consider a tax break to reward them for making the transition as quickly as possible.

American companies would benefit most – they are ahead of the pack in their development of flexible fuel technologies. (For example, check out www.chevy.com to see how many Flexible Fuel Vehicles already are being manufactured by Chevrolet.)

Why not a tax break, too, for anyone who buys a new Flexible Fuel Vehicle? If people took advantage of the offer, that would energize the economy while also producing environmental benefits because new cars run cleaner than old cars and because ethanol – the most common alcohol fuel – burns cleaner than gasoline. Continued...