Broken Windows, Broken Logic

My colleague Drew Tidwell and I just sent this letter to Time:

To the editor:

Michael Kinsley’s latest missive in Time falls prey to one of the oldest traps in economics — Bastiat’s broken window fallacy. Kinsley begins, “Oil prices are low. Too low. Let’s finally impose a big energy tax and use the windfall to help create jobs.”

The problem is that an energy tax cannot create new jobs. Just different ones. The money Kinsley hopes to inject into the economy must first be taken out of it. Add in collection costs and the usual political malfeasance, and we have a net loss to the economy.

There’s more.

Kinsley argues that last summer’s high oil prices were essentially a “tax” on consumers. The money just went to oil companies instead of government. But he forgets that oil companies do not have control over their prices. If they did, then why would oil prices ever drop? Kinsley’s logic does not follow.

Ryan Young and Drew Tidwell

The rest of the piece is similarly incoherent; maybe CEI’s energy experts can get in some target practice.