Balloon Juice comments on Thomas Friedman's Sunday column on taxing gasoline. I think John Cole's got the commentary all wrong. Sure, if it were a conventional tax, it would do all the stupid things that are in the article (and especially the comments section, he's a little short in the article). But the problem is, even under liberal orthodox economics, Friedman's column doesn't do what it says it will do. If there would be a tax put equally on all fuel, it would not discourage imports. It would reduce fuel demand by some unknown measure and would reduce the amount of oil pumped at the most expensive wells that are only marginally profitable right now. Depending on where those wells are, the proportion of our oil that is imported could well increase.
So how would a tax on oil discourage imports and reduce OPEC incomes, making "OPEC pay" for reconstruction? If it were applied to OPEC oil before it were exported, the picture changes considerably. OPEC oil becomes less competitive so oil from domestic sources becomes the superior choice, decreasing imports. This would still have negative economic effects but we would be sharing the pain, worldwide and thus for the US would only be shooting ourselves in one foot instead of both of them. Our competitive position would not be damaged nearly as much and vis a vis countries that import even a higher percentage of their oil our competitive position would be improved.
But that leaves out the big question, how would such a scheme happen? You can't expect the oil ministers in OPEC to become US tax collectors. Well, you could if you decided to invade all significant OPEC producers and create the most punitive peace treaty since Versailles. Yes, to actually do what he said it would, the tax would have to turn the US into the biggest expansionary power since the USSR and this is all proposed innocently enough on the pages of our leading liberal paper. Amazing.
Tom Friedman's oil tax, dumber than you think.
Posted by TMLutas at October 6, 2003 10:11 AM