Sunday, December 28, 2008

Score one for Thomas Friedman

I usually don't have much use for Thomas Friedman's column: I often find him credulous, obvious, and tendentious. But "obvious" has its good side, and he's been hammering home the need to tax energy for a long time. His prescription for Obama today is dead-on:

Today’s financial crisis is Obama’s 9/11. The public is ready to be mobilized. Obama is coming in with enormous popularity. This is his best window of opportunity to impose a gas tax. And he could make it painless: offset the gas tax by lowering payroll taxes, or phase it in over two years at 10 cents a month. But if Obama, like Bush, wills the ends and not the means — wills a green economy without the price signals needed to change consumer behavior and drive innovation — he will fail.

The two most important rules about energy innovation are: 1) Price matters — when prices go up people change their habits. 2) You need a systemic approach. It makes no sense for Congress to pump $13.4 billion into bailing out Detroit — and demand that the auto companies use this cash to make more fuel-efficient cars — and then do nothing to shape consumer behavior with a gas tax so more Americans will want to buy those cars. As long as gas is cheap, people will go out and buy used S.U.V.’s and Hummers.
During the transition I've wondered: beyond the terrifying deficits that Obama clearly needs to run up in the next two years, how can he secure the long-term fiscal health of the Federal government? I see three broad focal points: 1) reform healthcare in a manner that, whatever the initial Federal outlay, slows the growth of medical costs by a) reducing the role of private insurance, b) changing doctors' incentives (payment per procedure) and disincentives (through a measure of tort reform), and c) rewards preventive care; 2) cut spending on big-ticket military hardware (but not on the kind of counterinsurgency capabilities that Gates wants to bolster); and 3) tax the hell out of energy consumption -- with the offsetting tax cuts (at first) that Friedman suggests.

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