Monday, February 07, 2005

How not to fight Saudi Arabia

Arnold Kling provides a helpful economic reminder about Saudi oil and the pernicious ideas it finances. He argues that if the goal is to peacefullyreduce Saudi oil revenues, then in order of increasing cost-effectiveness, we have subsidization of alternative energies, forced reduction of our energy consumption, and some form of tax on oil. Note that our current policy is a mild dose of the first option - it may not be effective, but it's relatively cheap, and subsidies are always more popular than taxes. Also note that energy subsidies have purely domestic policy goals.

Kling's conclusion is absolutely right:
Even if we were to succeed in lowering the price of oil, it is not clear that this would have much effect on the Saudi policies that concern us. ... In contrast, if we were to invade Saudi Arabia, it would cost less and we could be more certain of achieving the desired policy changes there. Does that make an invasion a good idea? No. The point is that launching an economic war to try to reduce the price of oil is an even worse idea.


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