OIL prices continue to rise today. West Texas Intermediate is over $97 per barrel. Brent crude is closing in on $110 (for an explanation of why the two prices are diverging, click here). Treasury Secretary Tim Geithner isn't worried:

“The economy is in a much stronger position to handle” rising oil prices, Geithner said today during a Bloomberg Breakfast in Washington. “Central banks have a lot of experience in managing these things.”

But he probably should be:

Analysts at Morgan Stanley say sharp increases in oil prices pose the biggest threat to growth because consumers suffer a sudden hit to purchasing power. They note a 85 percent to 90 percent increase in the price of oil over a year was followed by U.S. recessions in 1975, 1980, 1990, 2000 and 2008.

Now, an increase in oil prices of that magnitude would take prices back to near $150 per barrel, and it's far from clear that they'll rise that high. But this is nonetheless a clear vulnerability for the American economy. And it's one that America has invited upon itself.

Petrol prices in America are substantially below levels elsewhere in the rich world, and this is almost entirely due to the rock bottom level of petrol tax rates. The low cost of petrol encourages greater dependence; the average American uses much more oil per day than other rich world citizens. This dependence also impacts infrastructure investment choices, leading to substantially more spending on highways than transit alternatives. And this, in turn, reduces the ability of American households to substitute away from driving when oil prices rise.

There are any number of good reasons to raise the petrol tax rate. The current rate no longer brings in enough money to cover current highway spending. Petrol taxes are an efficient way to raise revenue, and the government needs revenue; President Obama's deficit commission recommended an increase in the federal petrol tax rate. Burning oil produces carbon emissions, and dearer fuel would reduce America's sky-high per capita carbon footprint. But a higher tax rate would also diminish the possibility that a sudden rise in oil prices would throw the economy into recession. That would be a nice risk to minimise! And yes, higher tax rates would hit consumers just like rising oil prices. But those prices are rising anyway; better to capture the revenue and use it, all while improving behaviour.

It's hard to take any fiscal hawk seriously so long as this measure isn't on the table. It's as close to a win-win solution as one is likely to find.