Economics and Government

Last week in Economic Freedom we discussed drilling in Alaska. I was quite interested when I found this article today. One thing I question is why this is such a party divided issue. What motivation is there for the Democrats to oppose drilling in Alaska, and what motivation is there for many Republicans to back it? Why do only some Republicans back it and not all?

It seems to me that the motivation comes from the incentive for re-election. Many environmentalists are Democrats, or at least vote for Democrats. The incentive for all parties involved, whether Democrat or Republican, is to make the greatest number of people happy with their decision. Since this is the case, what would the majority of people in the U.S. want? There are two sides to the argument. One is that oil drilling would cause harm to the environment so it should not be allowed. The other is that we need to be less dependent on outside sources of oil and that the drilling could help reduce the price of oil. Is there a way in which both sides of the argument could be satisfied?

I think there is a way that both camps can be content; it is based on economic efficiency.

For the sake of the argument, assume that drilling creates a negative externality. I think that a negative externality could be argued for, since there would be at least some environmental damage if there was going to be drilling in an otherwise untouched area, and that would seem to me to qualify as a negative externality. The best way to correct a negative externality would be a tax. Perhaps, in order to allow drilling we should charge a tax. The tax could either be on the driller in the form of a lump sum, or it could be in then form of an excise tax, that does not matter too terribly much. What matters is that people would experience the full cost of oil drilled in Alaska. I think that, with a good explanation to accompany the idea, both camps could agree on drilling in Alaska if this plan was proposed. After all, environmentalists want to help the environment and preserve it, and tax money could go toward that. I think that the Republicans are most interested in reducing the price of oil and being less dependent on other countries for our supply of oil. As far as I can tell this solution could satisfy most people.

It seems to me that this solution could also improve the chances of passing the budget. There are some cuts proposed, and an increase in revenue would have a similar effect, logically. Again, I think this would make both parties somewhat more inclined to pass the bill since it would create more money for them to spend, while at the same time keeping the people that want budget cuts happy.

# posted by Anonymous : 11:25 AM