Monday, May 3, 2010

Talking Sense on Oil

Great post on the Economist Free Exchange blog on the need to raise taxes on oil. The benefits of doing this are very well understood, as well as the political costs. I don't have a lot to add here, every argument in favor of raising these taxes has already been made and those that haven't been convinced won't be. I do think this particular disaster is way too small to have a significant effect on anyone's political calculus though.

Actually, I do have something to add. Drawing from Braudel, though he's hardly the only one to make this observation, society and the economy has a tendency to fall into a path-dependent stagnancy. The free market on its own does not stop this from happening, global trade has been around for a long time and often quite robust, letting it run on its own won't shock us out of complacency or lead to innovation. Our dependency on oil seems to be an example of how this stagnancy can set in even in a modern economy. It takes a shock, either government driven or driven by fundamentals, to get a society out of this sort of stagnancy. Since oil will eventually run out we're probably going to get hit with this shock either way. Our choice is whether we're going to let the government ease us into this, or have it hit all at once.

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