Patriotism and the Economics of Climate Change

Paul Krugman recently wrote about the relatively cheap cost of addressing climate change compared to the fears that many seem to have of smothering growth. As he points out, many of the barriers to actually doing something about climate change are related less to how much these measures cost us as a nation, than to exactly who would gain and who would lose. More to the point, he correctly notes the political problem: Many of those who would suffer if we did things like discouraging energy use with new taxes have up-and-running lobbying organizations, while many of the would-be-winners don’t. For example, the oil companies and the entire state of Texas (among others) are opposed to measures to make oil products more expensive, while the new industries that might be expected to spring up (more efficient engines, solar collector manufacturers, etc.) have yet to grow and become rich and powerful enough to have any political clout at all.

Krugman is certainly right about that, and most economists who look at this area would put it even more strongly: There are dozens of reasons to do things like tax oil consumption, as the Europeans have long done, and we economists have been advocating since the first oil shock in 1973. But it never really happens, and the blame is usually fixed on what I think of as “fake” reasons rather than the real political reasons. “Fake” reasons include things like our lower population density, which supposedly makes mass transit investment less viable in the US than in more densely populated Europe (though this isn’t true everywhere in the US), and the fact that poor people are disproportionately disadvantaged by an oil consumption tax because they spend a lot of money on gas to get to work (they do, but that would change if they drove smaller cars and besides we can give the money back some other way, e.g., through their paychecks). The list goes on, but it is mainly a rehash of arguments we have had for the past three or four decades.

What are the “real” reasons we don’t take measures to address climate change? Krugman is certainly right about the existing lobbies. But there is a bigger political reason: In Europe, a decision to tax, e.g., gasoline, is not as controversial as it is in the US because everyone in Europe is a consumer of oil, and nobody’s income is tied to increased production of it. In the US, the debate always ends up being some version of Texans vs. New Yorkers, or name-your-producing-state vs. name-your-consuming-state. Even those Europeans who have oil (UK and Norway) had their tax policy in place before their discoveries started flowing, so they haven’t had this problem.

But there is a still bigger context. We economists have no doubt that, with enough insulation in our houses and enough of a tax on gasoline, we could have drastically reduced our oil consumption after 1973. We never did either of these, but don’t think you haven’t paid the price. Rather than paying at the pump via a gas tax, we have been paying for our oil through the Defense Department. How many trillions have we spent on Middle East wars and Rapid Deployment Forces and patrolling the waters in that region? Would we be doing ANY of this if we weren’t so dependent on their oil? Not only that, but if the US consumed significantly less oil, the price would be way lower than it is today.

But wait a minute you say – if we were to pay a gas tax instead of paying through consumption, we would still be paying the same amount in the end, right? Well, no. If we pay a tax we are paying it to ourselves. As it stands now, with the price of oil around $70/bbl, the producing countries get all the money. But really, how patriotic does anyone feel when paying a gas tax? Compared to paying for our sons and daughters to go in harm’s way there really is no contest. Many people feel completely gung ho about anything military and even Dems are too scared not to be as hawkish as they can. But wouldn’t we all rather pay a tax and drive a smaller car than continue to care, about and militarily intervene, in the Byzantine complexities of Middle East politics?