“Be kind, for everyone you meet is fighting a hard battle” - Often attributed to Plato but likely from Ian McLaren (pseudonym of Reverend John Watson)

Sunday, December 07, 2008

Trade deficit

Because we are consuming significantly less oil and that oil is much cheaper than it was a short six months ago, and because we import a large portion of the oil we use, one would expect a very large reduction in our monthly trade deficit beginning sometime around mid-summer of 2008. In most ways, this is a good thing though it's certainly the byproduct of some very bad economic conditions. Nevertheless, if we continue to import the same fraction of our oil as we did last summer, we should see a net reduction in trade deficit of something like $1.3 Billion per day, or just under $40 Billion per month. This is serious money, even by U.S. debt standards.

It's my opinion that immediate steps should be taken to invest this money in the things that will soften the blow. But since the money isn't really sitting in a pot but rather in the pockets of those who purchase fossil fuel (at any level), what method can be employed to "pool" this money? There are certainly a couple of ways. One would be to place a tax on fossil fuels in one form or another, and let the government determine how to fund the various projects that would be necessary to accomplish the goal of transition to a future of severely limited fossil fuel availability. As regular readers of my blog will know, I'm not a fan of government involvement, being a libertarian philosophically.

So, what else? I'm a strong believer in the innovative capabilities of the entrepreneur. Therefore, I would propose a program of incentivizing this type of entrepreneurial activity with tax incentives, research grants, regulatory encouragement, and team building. Now, I concede that this doesn't sound like laissez faire economics. But as I've mentioned in previous posts, our "this quarter's bottom line" corporate environment (with its consequent risk of shareholder lawsuits and loss of control to pirate capitalists such as Carl Icahn - see here or here) is ill-suited to undertake long term projects that throw off so-called "public goods."

How to evaluate the projects these policies would be meant to encourage? Well, this particular blog isn't about carbon footprints, but I think a good way to determine the extent to which a given project would be effective in reducing our need for fossil fuels would be to estimate the net reduction in CO2 emissions as a result of that project. I haven't worked out every detail (in case anyone hadn't figured that out) but I'd love to get feedback on this proposal. There really is no time to lose.

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