Arnold Kling  

Gas Taxes and Foreign Policy

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Jerry Taylor and Peter Van Doren write,


some observers have argued that if gasoline taxes were increased and other taxes decreased so that overall revenue remained constant, a gasoline tax hike would provide a “double dividend.” That is, it would reduce the negative externalities associated with gasoline consumption while also reducing the welfare losses associated with taxation. Even if a gasoline tax created no net benefits, as long as the welfare losses associated with a gasoline tax were smaller than the welfare gains associated with cuts in other more distortionary taxes, a gasoline tax hike would make economic sense.

But if gasoline taxes produce such benefits, a tax on vehicle miles traveled would be even better because the demand for vehicle miles traveled is even more inelastic than demand for fuel.81 Given that monitoring vehicle miles traveled is quite simple and not particularly costly, analysts who embrace the “double dividend” argument have no good reason to prefer fuel taxes over taxes on vehicle miles traveled.


They call for abolishing the gas tax. But what should replace it? The logic of their argument is that the gas tax should be replaced with a tax on vehicle-miles traveled or a tax on auto emissions. But they do not call for either of those tax increases. This undermines the credibility of the paper, which otherwise makes at least one valid point: a gasoline tax is a feeble weapon in the war against terrorism.

On the other hand, after reading Paul Collier's The Bottom Billion, I think that the case for my wife's energy policy--"just take the oil"--is strengthened. Collier says that underdeveloped countries are hampered by bad governance, which is compounded by the "resource curse." He writes (p. 46)


We found that resource rents gradually erode checks and balances. This leaves electoral competition unconstrained by the niceties of due process. Political parties are freed to compete for votes by means of patronage...

Some democracies are long on electoral competition and short on checks and balances...Whereas electoral competition significantly worsened the contribution of of resource rents to growth, restraints significantly improved it.


Collier thinks that some countries are so poorly governed that military intervention may be justified. He thinks that countries that are resource-rich tend to be "cursed" by corrupt government. My thinking (not Collier's) is that we should connect these two ideas.

Suppose that we used military force to take over oil, keeping it in the hands of private companies and taking it out of the hands of governments. This would not only serve my wife's purpose of keeping oil money away from terrorists. As I read Collier, such a policy would improve the governance and economic development of the countries afflicted with the "resource curse." We would be doing the people (as opposed to the governments) a favor.


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COMMENTS (15 to date)
Neel Krishnaswami writes:

You know, Hayek's insights do not stop at the border. What makes you think a giant government program to send troops overseas, have them murder a bunch of people and steal their property, and then auction off contracts to drill oil wells has the remotest hope in hell of working?

Arnold Kling writes:

What makes you think that waiting for utopian anarchy to emerge in Venezuela and Saudi Arabia has the remotest hope of working?

conchis writes:

Now Arnold, that's not the next best alternative to "take the oil" and you know it. That doing nothing is a bad idea doesn't make your bad idea any better.

8 writes:

Make sure the Russians and Chinese agree to split the oil assets in the Middle East and there will be absolutely no credible opposition. In a strange way it may lead to a even far more peaceful world than you expect, because there are Chinese and American analysts who predict the two countries will be fighting for resources in the not too distant future.

Matt writes:

Hard for a libertarian to argue for military intervention, especially since military ventures are very high risk and it is hard to get partners.

ed writes:

This sounds like the worst idea I've ever read on this usually excellent blog. I'm having a hard time believing that Arnold is serious.

For example, how does taking oil by military force constitute "keeping it out of the hands of governments?"

Overall, I'd say we should just let the Venezuelans and Saudis have their terrible governments, since we can't fix them without making a lot of things things worse.

8 writes:

We're already involved militarily, that's the point.

Ray G writes:

Because it would be our oil then, and would not serve to finance further terror in the world.

Of course, the NY Times and the global Left would call our actions terrorism, but that doesn't make it so.

And it's easy to make a libertarian case for military action once the ideological blinders are taken off. An ideologue draws a line and says "Never shall we do thus and this" completely ignoring reality and that there may actually be a time for "thus and this."

It's kind of like conscientious objectors; none that I've ever spoken with would refuse to defend their own lives if pressed into the corner of their own house by a bad man. But they refuse to defend their lives in the macro sense of defending the national sovereignty that provides them the comfort from which to dream up unrealistic ideological views.

Because of course they know someone else is doing the dirty work for them. So it is with the well protected and very comfortable of Western civ who are indeed waiting for Utopia to break out in the Middle East.

Jose writes:

Arnold:

You and who's army are going to seize the oilfields? Haven't you heard that they are a little busy right now in Iraq? Ships and aircraft can't hold turf. Start a draft? Outsource the military action to China? To Executive Outcomes?

Consumatopia writes:

My thinking (not Collier's) is that we should connect these two ideas.

But the reason Taylor and Van Doren claim that gas taxes are unrelated to national security is their believe that oil producing countries have every incentive to keep selling us oil, and the only explanation for our foreign policy expenditures is therefore friendship with Israel and other Middle East states. (We love Saud, apparently.) They also warn that reducing oil profits would make terrorist recruiting worse.

It seems odd that anyone would try to use that as an excuse for more foreign policy expenditures, and odder still to link it to any concept of "resource curse", which they seem to deny.

I don't think they are correct in that regard, and I don't think replacing gas taxes with a complicated set of local congestion, vehicle miles traveled, and emissions taxes is a sincere alternative. They are to be commended with addressing pretty much every possible argument for a gas tax, but none of those addresses seemed very deep.

HealOurWaters writes:

The intersection of economics and the environment is interesting!

There is a coalition coming out with an economic report in a couple weeks showing that cleaning up the Great Lakes will turn out to be CHEAPER in the long-term. Take a look at the site:

http://www.healthylakes.org/

Floccina writes:

Is there any empiracle evidence that this:

"He thinks that countries that are resource-rich tend to be "cursed" by corrupt government. "

is true. Canada is very resource-rich, Syria is not, Egypt is not, Pakistan is not. Norway is resource-rich as is Iceland and the USA. Iceland and the USA have always been very resource-rich. El Salvador is resource poor and speaking of Chaves Cuba is not very resource-rich and was not even realtively poor before Castro.

Floccina writes:

Oh BTW Rather than a negative tool to reduce congestion how about a positive tool: Perhaps scooter lanes would encourage people to leave the car home and ride scooters in congested areas. There is a scooter the BMW C1 200 that claims to ba as safe as a car and it provides some weather protection (also see the Tango car).

Mr. Econotarian writes:

The simple solution to the "dependency on foreign oil", "global warming", and "resource curse" problem is simply to "bomb the oil wells".

To great extent, this is being tested in Iraq...

fkaJames writes:

Oh, my. "They" are always the corrupt governments, but control of the world's oil (yes, you say in the hands of private companies, but (a) who puts it there? and (b) who is charged with keeping it there?) in "our" government won't lead to corruption, right? Because we haven't seen any corruption in "our" government, ever, have we? Especially when it is associated with imposing our view of what "doing the people ... a favor" would look like. But, no, we certainly have no perception bias going on here.

Everyone's allowed a few bogeys when brainstorming big ideas, so let's take this as one of yours.

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