(Bloomberg Opinion) A wealth tax and a ban on hydraulic fracking, both of which have the support of Bernie Sanders and Elizabeth Warren, would address seemingly separate issues. Yet they stem from a common impulse, one that also undergirds the current trade war: to use the tax code to punish those seen as responsible for unfairness, even if doing so hurts the average American worker.Almost every attempt to model the economic implications of the wealth tax concludes that it would lead to a huge drop in U.S. savings. Some say that this would also result in a large decrease in wages as U.S. investment collapses.My own research suggests that while the wealth tax would lead to a huge savings decline, it would largely be supplanted by an inflow of foreign investment. So Sanders and Warren would succeed in freeing U.S. workers from under the thumb of the U.S. billionaire class — only to place them under the thumb of foreign billionaires.This process would also generate a large trade deficit. When there is an increased inflow of foreign capital, there is a corresponding shift in the flow of goods and services across the border. What’s difficult to determine from economic models is what form this shift will take.According to Sanders and Warren, the answer is that the U.S. will become a net importer of energy. This is not necessarily a good thing.The U.S. has long been the world’s largest consumer of energy. Fifteen years ago, the U.S. was also projected to be the world’s largest importer of energy, with petroleum imports rising by 2025 to 18.7 million barrels per day, or $341 billion per year at current prices.The fracking revolution changed all that. It has created hundreds of thousands (if not millions) of jobs in the U.S. and led to a boom in investment that has supported manufacturing.
A ban on fracking would bring a reversal of this trend — but do little to change the actual U.S. consumption of oil. Like financial capital, the price of oil is determined in international markets. Eliminating U.S. oil production would drive up those prices, although the global production of oil would probably rebound sharply, mitigating the effect.
That would leave a world in which the U.S. is poorer, foreign billionaires are richer, and the job prospects of many Americans — particularly those in the heartland — are worse. At the same time, little would have been done to address the underlying issues, namely the concentration of wealth in the U.S. and the emission of carbon into the atmosphere.
Both of these proposals — a wealth tax and a ban on fracking — are driven not by a compulsion to improve underlying conditions, but to punish bad actors. That may make for better sound bites, and in fact both policies may be emotionally satisfying. In the modern world of globalized markets, however, they are self-defeating. Worse, as these policies failed to produce the desired goals, they would increase the demand for exactly the kind of protectionism that is currently holding back the U.S. economy.
What the U.S. needs to do is turn away from the politics of grievance, whether against imported products, domestic billionaires or fossil-fuel companies. Instead, it needs more focus on policies — housing deregulation, wage subsidies, carbon taxes, to name a few — with a less visceral appeal but a more constructive impact.
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