Thought of the Week - are Chavez and Putin good for the environment?

For those who don't know, the "Pigou Club" is a name econ bloggers use to refer to anyone who is in favor of Pigovian taxes. And what are those, you ask? Well, Pigovian taxes are taxes on goods that have negative externalities - i.e., good that, when you buy them, create some bad effect for others. The most common example, of course, is oil. The negative externality is global warming.

So, for several years, economists like Harvard's Greg Mankiw have been proposing a tax as a way to fix this problem. Taxes on carbon will discourage people from using oil, benefiting the environment; the tax revenue can then be returned to the people via a tax cut or government programs. Sadly, this good idea will probably never be implemented in America, because drivers like to drive, and they will promptly boot any politician who makes it more expensive for them to do so.

Coincidentally, a big current trend in world politics is resource nationalism. Oil-producing countries like Venezuela and Russia have been taking control of their oil and gas industries and booting multinational corporations. As a result, more and more oil - now about 77% - is controlled by governments. Of course, most of these government oil companies are extremely inefficient - instead of using oil revenues to invest in new technology and production capacity, they typically just hand them out to the people, sometimes as social programs, sometimes to boost the power of the ruling elite. As a result, investment falls, supply of oil eventually falls, and oil prices go up up up.

So my thought is: Could this rise in prices act like a Pigovian tax? Oil nationalization in places like Venezuela makes gasoline more expensive for countries like the U.S. and China, which discourages us from using it. That in turn could be a big help for the environment. since a Pigovian tax will never pass here in the U.S., resource nationalization by regimes like those of Hugo Chavez and Vladimir Putin might be the second best option for curbing oil use.

There are a couple problems with this theory. The first is that the money from this "tax" flows not into U.S. government coffers, but into the coffers of Chavez and Putin (usually not the friendliest of fellows). The second is that, with less oil available, the U.S. and China might turn to coal, which - unless we quickly develop clean-coal technologies - produces even more greenhouse gases.

But then again, in the medium-term, resource nationalism will bankrupt the governments of Venezuela, et al. If you neglect investment long enough, and if you kick out the companies with the best extraction technologies, eventually your overall oil revenue will go down down down. Case in point - Iran, which has the second-most oil of all countries on Earth and yet is in an economic death spiral despite record high oil prices. Eventually, that means leaders like Chavez and Putin and Iran's mullahs will find their coffers empty, and their countries will have no choice but to switch to labor-intensive industries that are more conducive to democracy and shared wealth.

In any case, whether resource nationalism is good or bad for the world is still an open question. I say, bring it on. The quicker we get rid of the world's oil dependence, the better.