Thursday, November 15, 2007

Financing Our Enemies

Several prominent journalists, Thomas Friedman of the New York Times and Martin Wolf of the Financial Times, have chimed in on the theme of "financing our enemies." Every day the United States transfers over a billion dollars to oil-exporting nations. Among these are Russia, Venezuela, and Middle Eastern nations. Russia has rediscovered nationalism and patriotism stemming from its economic turnaround and accumulation of $400 billion in foreign currency reserves. It is becoming less cooperative with the United States and Europe on military and strategic issues. Venezuela is using its oil wealth to undercut U.S. interests throughout Latin America. Saudi Arabia, which the State Department terms a U.S. ally, has been and remains the principle source of funding for the extremist Wahabi, anti-Western rendition of Islam.

Friedman and Wolf, among others, increasingly talk of the economic and national security benefits of imposing a substantial tax on imported oil. The purposes are to reduce consumption thereby driving down the price of oil, encourage the manufacture of more fuel-efficient vehicles, guarantee producers of alternative sources of energy that there will be a floor under the price of oil, and use the revenue to reduce such other taxes as payroll taxes.

The proposal to levy a heavy tax on each barrel of imported oil has not yet gained much traction. Politicians and voters/consumers have very short-term horizons. Consumers will complain vigorously if gasoline costs $4-5 a gallon, and voters will select politicians who promise to reduce gasoline and heating oil prices. Thus far none of the major candidates has enunciated a national energy policy to reduce U.S. dependence on imported oil. Will it take another oil embargo or a dramatic disruption in supply to get the country's attention?

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