The Miracle Cure

By now you should know I am a totally crazy left wing environmental nut. No not really, but I love the idea of a carbon tax. I know there are people opposed to a gradual (not sudden) increase in oil prices, but the majority of economists, left and right, support the idea of a carbon tax.  My concern is is not so much environmental, but on minimizing the impacts of oil shocks on the economy. Here's an article by Alan Blinder (complete opposite in his political views compared to Greg Mankiw) about carbon taxes but both are two highly respected economists. And yes I do think it could be a miracle cure.

The Carbon Tax Miracle Cure, by Alan Blinder, Commentary, WSJ: In his State of the Union address..., President Obama called for a major technological push for cleaner energy: "the Apollo projects of our time." But when the details emerge, it is predictable that his political foes will object to the new government spending and decry the "heavy hand" of government in telling business what to do. Fortunately, there is a marvelous way to square the circle.

Under this policy approach, decision-making is left in private hands and the jobs created will be in the private sector. Furthermore, the policy would ... eventually reduce the federal budget deficit significantly. Plus, there are a few nice side effects, like reducing our trade deficit, making our economy more efficient, ameliorating global warming, and showing the world that American capitalism has not lost its edge.

What is this miraculous policy? It's called a carbon tax—really, a carbon dioxide tax—but one that starts at zero and ramps up gradually over time.

The timing is critical. With the recovery just starting—we hope—to gather steam, this is a terrible time to hit it with some big new tax. Hence, while the CO2 tax should be enacted now, it should be set at zero for 2011 and 2012. After that, it would ramp up gradually. ...

Think about what would happen. Once America's entrepreneurs and corporate executives see lucrative opportunities from carbon-saving devices and technologies, they will start investing right away—and in ways that make the most economic sense. ... Jobs follow investment, and ... many of the new jobs will be good jobs with good wages, just what America needs right now. ...

Up to now, our country has done approximately nothing to curb CO2 emissions. A stiff tax would make a world of difference. ...

I know this sounds like a pipe dream now. America has elected a Republican House of Representatives... These folks are not about to vote for a CO2 tax, even one starting at zero. ... But eventually we'll succumb to the inexorable logic of a phased-in CO2 tax. Just watch—if you're young enough to live that long.