Takes on neocon politics and comes up with some interesting recommendations and some controversial conclusions.

In Oil Econ 101, I tried to explain why there is no way to extricate ourselves from the market for Saudi oil. ...it is possible, and sensible, to separate economic issues from political issues. That is, it is possible to confront Saudi Arabia concerning policies that allegedly contribute to terrorism without first reducing our demand for oil. In fact, in a narrow sense I believe that we have brought the Saudi government around to the view that the militants are the bad guys.

My sense is that the Administration is more squeamish than I am about taking on Islamic extremism as a religious issue and more hopeful than I am about the democratization strategy for undermining radical Islam.

I have received emails suggesting that the United States should aim for a 10 percent reduction in its energy consumption, because this would cause a significant drop in the price of oil. But how much would this reduce our GDP? Perhaps by as much as 10 percent. Even if it only were to reduce our GDP by 5 percent, that would be $500 billion. If your goal is to change the foreign policy of Saudi Arabia, my guess is that there are ways of doing so that would cost less than $500 billion. The reality is that energy conservation is a feeble tool for foreign policy.

The most cost-effective policy for trying to reduce the oil revenues received by Saudi Arabia would be some sort of tax that encourages energy conservation. A very high gasoline tax (more than one dollar per gallon), perhaps along with taxes on other oil-based fuels, such as jet fuel, would serve that purpose. Although a gasoline tax would make our economy less efficient and reduce our GDP, it would succeed in transferring some revenue from the owners of oil to our government.

Compared to a tax, other policies, such as fuel economy standards for automobiles, would be less effective.
In my view, the worst policy option of all is to subsidize the use of alternative forms of energy. If other forms of energy are not economical on their own, then taxpayer subsidies are only harmful. The use of subsidized alternative energy does more damage to our own economy than to Saudi Arabia's.

We have a real foreign policy issue regarding Saudi Arabia. We should be leaning on the Saudis to reduce funding for radical Islamic schools and mosques.