Over the weekend, a good column by Thomas Friedman in the NY Times about Denmark’s success in insulating itself from high prices. I won’t try to reprise it here, but just want to highlight a critically important point:
“I have observed that in all other countries, including in America, people are complaining about how prices of [gasoline] are going up,” Denmark’s prime minister, Anders Fogh Rasmussen, told me. “The cure is not to reduce the price, but, on the contrary, to raise it even higher to break our addiction to oil. We are going to introduce a new tax reform in the direction of even higher taxation on energy and the revenue generated on that will be used to cut taxes on personal income—so we will improve incentives to work and improve incentives to save energy and develop renewable energy.”
Friedman doesn’t mention this, but Rasmussen heads a right-of-center coalition government. He’s not a lefty; he’s a fiscal conservative who is using a tax-shifting technique to continue a long-term strategy of making Denmark one of the most energy efficient economies on earth. As a consequence, skyrocketing energy prices are annoying to Denmark’s economy, but they aren’t devastating.
The problem, of course, is that to follow Denmark’s lead, we North Americans will have to get over our congenital aversion to higher energy prices.
After reading Friedman’s column, I turned on the Olympics last night. During the commercial breaks I was treated to ads from both Washington’s governor and her challenger—each accusing the other of “raising the gas tax” as if this were the worst imagineable sin. Unless I’m mistaken, that big scary tax hike was the recent “nickel tax,” equal to a whopping 1.3% of the current retail price of gasoline.