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Monday, September 26, 2005

Friedman's Flat Economics

Tim Russert interviewed 3 superstar NYT editorialists yesterday, 2 “liberals” and a “conservative”: Maureen Dowd, Tom Friedman and David Brooks. Near the end of the interview, alleged free marketer Friedman, author of the book “The World Is Flat: A Brief History of the Twenty-first Century” joined the other 2 in suggesting tax increases are needed to defray the costs that hurricanes Katrina and Rita will impose on the government's budget.

From the on-line transcript:

Mr. Friedman: I just want to say one thing in response to market forces--letting market forces send the signal for you to go buy a hybrid. When market--when you leave that to market forces, what you do basically is take all that money that we could be galvanize--that we could be gathering with a gas tax, and you transfer it to Saudi Arabia. We are funding, Tim, both sides in the war on terrorism. And we had a gas tax on the morning of 9/12, 2001, a $1 a gallon gas tax--that money would have gone to our deficits, our schools, our budgets, our infrastructure. Instead it has gone to the infrastructure of Saudi Arabia, some of the worst regimes in the world, who are using that money to kill our soldiers on the ground. We are funding both sides in the war on terrorism. That's what happens when you leave it to the market.

I do not take issue with Friedman's suspicion that Saudi Arabia spends part of its oil revenue in support of terrorism against the US. But, does Friedman think Saudi Arabia would not have sold its oil for exactly the same price (known as market prices) to another willing buyer? I would think that he is aware that with a “flat world” there are fuel buyers in places besides the US.

And I wonder how this earlier enacted $1 per gallon gas tax would harm Saudi income while paying for “our deficits, our schools, our budgets, our infrastructure”. Besides impoverishing Americans (including those middle-class Americans that politicians and the NYT claim to care so much about), the reduced demand caused by such an artificially high price would net very little additional tax revenues to pay for “our deficits, our schools, our budgets, our infrastructure”. I think we know that such a $1 tax on gas would likely have reduced government revenue due to lower growth and exacerbated the deficit and hamstrung locals dealing with the 2 natural disasters.

You can write a whole book on world economics and have learned very little.


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