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Thesis & Antithesis

A critical perspective on energy, international politics & current affairs

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Location: Washington, D.C.

greekdefaultwatch@gmail.com Natural gas consultant by day, blogger on the Greek economy by night. Trained as an economist and political scientist. I believe in common sense and in data, and my aim is to offer insight written in language that is clear and convincing.

07 October 2005

Petrol taxes

Samuel Bodman, US Secretary of Energy, resisted the idea that America should raise petrol taxes to encourage conservation because such taxes “would be more interference with the free market than we would like to see.” Now, the case against raising taxes today is sensible—with prices so high, taxes would be politically impossible and would add an undue burden on the markets, acting more as a distorting rather than a corrective adjustment.

But to claim that the case against petrol taxes has anything to do with the free market is silly. Given that petroleum production and consumption involve huge externalities—costs not borne by producers or consumers—this is a textbook scenario for a tax: to bring the social cost of petrol (the damage on the environment, its geopolitical costs, etc.) into the market price.

It is no accident that the Wealth of Nations is a 1000+ page book: there is more to a free market than the invisible hand. Those who preach the virtues of the market should do well to understand how it works.

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