An income tax discourages work; a carbon tax discourages pollution. Which one makes more sense to you?
That is the most concise argument for the revenue-neutral carbon tax.
…But I digress. The point of this column is that are still a lot more shoes to drop as the result of high oil prices. We’ve only seen the first wave of behavioral changes. If gas prices stay high — and I have every reason to believe they will — then we can expect a series of other social changes that are less obvious and longer term.
Economists speak about the “short run” and the “long run.” Believe it or not, these are actually technical terms. In the “short run,” many factors of production are fixed, meaning that individuals and firms can only modify their behavior in some ways. A person can start taking the train to work in the short run, for example, but he can’t easily sell his house and buy a smaller condominium with a shorter commute.
In the “long run”, everything is up for grabs — where we live, how we live, how we get around, and even where we go. Smart folks ought to start thinking about what happens when energy prices are four or five times what they’ve been for most of the automobile age. It’s not rocket science: Prices go up, and rational people and firms try to avoid those higher costs.
More from economist Charles Wheelan.
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