Let’s try for a little perspective. The BP oil spill threatens to cause something like $10 billion worth of damage. That’s pretty bad. By contrast, an extra trillion dollars worth of federal spending threatens to cause something like $300 billion worth of deadweight loss (that is, underproduction due to tax avoidance and disincentives to work). That’s 30 times worse. How is it that so much angst about the former seems to be coming from people with a history of shrugging their shoulders at the latter?
Both $10 billion and $300 billion are extremely rough guesses, but the $300 billion figure comes from the widely cited estimates of Harvard’s Martin Feldstein, according to which a one dollar tax increase triggers about 30 cents in deadweight losses. Since a trillion in new spending means a trillion in new taxes (either now or in the future), we get $300 billion in deadweight loss.
Of course $10 billion worth of oil-related damage is still big enough to be worth a goodly dollop of angst. But keep these things in mind:
- Occasional disasters are part of the cost of using fossil fuels. This might be a cost worth paying.
- On the other hand, even when a cost is worth paying, it’s still better to pay less. And this particular cost is likely to be excessive, both because limited liability inspires recklessness and because, in a sane world, we’d be drilling in the Arctic rather than a mile underwater near a population center. (Charles Krauthammer has made the latter point more elaborately.)
- On still another hand, excessive as the cost may be, it’s still piddling compared to the deadweight loss of taxation. Destroying $10 billion worth of what we’ve already got is not nearly as bad as destroying in advance $300 billion worth of what we could have had.
Now maybe $300 billion in deadweight loss is a price worth paying for the benefits of ObamaCare and the stimulus package—just as maybe $10 billion in damage is a price worth paying for the way we use energy. And maybe with wiser policies we could have slashed one or both of those costs. But one of them is thirty times the other, and if you’re looking to be justifiably angstful, that’s probably your better bet.