Oil Econ 102
By Arnold Kling
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.
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.