Arnold Kling  

Oil Econ 102

Building a Better Llama... Correction to Modigliani-Mille...

Terrific econoblog featuring James econbrowser Hamilton and Robert (what, no blog?) Kaufmann on long-term oil supply and policy issues.
Hamilton writes,

If you ask people today to make huge sacrifices that later turn out to be unnecessary or to be following a dead-end technological alternative, you've created poverty as a deliberate object of policy. I don't see uncertainty about the world as something that would give us a good reason to prefer government intervention over market solutions; if the market is uncertain, then so should you be about what the best government policy would be.

Kaufmann writes,

Sound policy should establish an economic environment that increases the economic returns and reduces the risk to long-term research and development on alternative energies. Specifically, policy should impose a large energy tax that is phased in over a long period, perhaps 20 years. Furthermore, increases in the energy tax should be "offset" by reducing other taxes, such as payroll or corporate taxes. Economic studies show that such an approach can generate a "win-win" solution -- reduce energy use (and the environmental damages not paid by users), stimulate research and development on alternative energies, and speed economic growth. Phasing in an energy tax would send a signal to entrepreneurs that there will be a market for alternative energies. The tax does not pick technologies -- that will be left to the market, which is smarter than any Democrat, Republican, or even myself!

Read the whole thing. Neither debater endorses the recent energy bill.

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COMMENTS (5 to date)
james governor writes:

how about small sacrifices? poverty as an end goal? give me a freaking break. that is just autistic economics combined with right wing rhetoric. the debate at the WSJ is also less contentious than you make out. both sides are agreed- huston, we have a problem

Robert writes:

A energy tax encourages conservation, but I do not see how in and of itself it encourages research towards securing future energy supplies.

Now, if one believes that the market is incorrectly investing more in present than future energy supplies, then it seems the correct intervention is to subsidize future energy at the expense of present energy. That is, present energy should be taxed, and the proceeds of this year's tax should be distributed to energy producers 10 years from now, in proportion to the amount of energy they produce, thus providing an incentive to ensure one will be able to produce energy 10 years from now.

Chris Bolts writes:

Phasing in an energy tax over a specified period of time to reduce energy consumption is a great idea. The problem, however, is that the government would never cut taxes proportional to the increases in energy tax revenues. In order for the plan to work, there must be a provision included that expressly forces government to cut other taxes or if it fails to cut other taxes, then it must forgo the energy tax revenues. If this happened, then entrepreneurs would be guaranteed that the government would not penalize them for investing in new technologies and if they were penalized the government wouldn't be able to profit from it.

Nicholas Weininger writes:

Sounds like Kaufman is claiming that one can achieve a so-called "strong double dividend" effect by shifting taxes onto energy use. He might have at least acknowledged that the existence of such an effect is disputed, and perhaps hinted at a response to e.g. the arguments of Parry and Oates against it.

William Sekerak writes:

Why not let the collective wisdom of billions of consumers and investors determine the future of which form of energy is wanted. Certainly as the cost of fossil fuel rises , alternatives will be become more viable. In fact , I think an arguement could be made that previous and existing taxes and other market distortions by government intervention have delayed new technologies as resources have been diverted from those who are most efficeint at energy production, ie. current producers.
It is no secret that central government authority intervention in ANY market is counterproductive in the long run.

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