6.02.2008

MORE BACK TO THE POOR

A common nervousness that people feel about rising energy prices is what it will mean for the poorest among us. This is a valid concern; but the economists will tell you that a bad solution to that problem is to make energy prices lower.

Despite high prices at the pump and on our utilities bills, energy costs are still artificially low, when you factor in important things like, oh I don’t know, the long-term survival of the human race. Lower prices mean more consumption than is economically optimal; truer prices lead to good things, like conservationism and innovation.

What to do about those for whom a big hike in energy prices is especially painful though? A recent economics paper confirms that these hikes are fairly regressive, in terms of causing more distress for lower-income folks than others, and that the best solution is a more aggressive give-back on income taxes, like the very effective Earned Income Tax Credit program (of which none other than Milton Friedman was a huge fan).

I’ve said it before and I’ll say it again: we should tax more what we want people to do less of (consume energy) and tax less what we want people to do more of (work). Even higher energy prices may seem painful to us all and particularly unfair to the poorest among us; but if we don’t start making our energy consumption decisions based on accurate assessments of their true costs, we’re all going to be in for a world of pain.
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