Thursday, October 07, 2004

The Cost of Taxes
Let me start today by saying that Tom Friedman is my hero. In his columns in the New York Times and his appearances on PBS's News Hour and elsewhere, he has never flinched from the articulate description of the world's ills, as he sees them, no matter whose sacred cows are involved. Today is one of those rare occasions when I may agree in principle with his commentary, but must disagree strongly with its recommendations.

Mr. Friedman rightly points out that the resource curse of abundant oil has helped to create the conditions that have fostered a violently anti-Western, nihilistic strain of Islamic radicalism in the Arab world, along with the complacent or complicit attitude of many Arab governments towards it. But blaming our appetite for oil and suggesting that curbing it would stimulate genuine economic and social development puts too much of the responsibility for a century of stagnation on us and too little on them.

It's also important to understand the full implications of a sudden, large increase in gasoline taxes in this country. Europe has had taxes of the kind Mr. Friedman suggests for decades, and they have indeed resulted in a more efficient car fleet and better public transport. However, none of this was achieved overnight, but rather as a result of deliberate and remarkably persistent public policy. It is facile to suggest we should have done the same thing here; we didn't and must start from where we are.

Without a decade in which to transform the car fleet into a more efficient one, Americans would have only two choices: drive less or consume less of other products to pay for gasoline. Either choice exacts a price on the economy. In the former case, whatever economic benefit was attached to the incremental driving, whether it be shopping, an evening out, or some kind of work-related activity, is lost. In the latter, the overall demand for goods and services falls. We've seen some of this already, since gasoline prices have risen by more than $0.50/gallon over the last year.

Now, such a tax phased in over many years would probably be good policy and allow time for the necessary adjustments, but it would fall short of achieving what Mr. Friedman and others seek. Considering the cost to the economy of a suddenly higher gas tax, we need to ask if we are willing to change our lifestyles and make real sacrifices to achieve the impact such a move would have on the war on terrorism. Perhaps that's the real question Tom Friedman is asking us today.

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