Free Markets, Free People
Dan Neil, an LA Times entertainment writer, takes this lesson from the GM bankruptcy:
The final chapter of that merger plays out this week as GM weathers a reorganization that will leave the federal government owning 70% of the company. In the midst of the deepest recession since the 1930s, it’s hard not to see GM’s bankruptcy as a signal moment in a larger history. If mighty GM can fail, cannot also the United States? And the answer is, absolutely.
This is the lesson of GM’s bankruptcy, and it has little to do with market share and miles per gallon. It’s a rebuff of the notion of exceptionalism. Any organization that fails to sufficiently safeguard its means of self-correction and reform, that forsakes long-term investment for short-term gain, that piles up debt year after year, will eventually fail, no matter how grand its history or noble its purpose. If you don’t feel the tingle of national mortality in all this, you’re not paying attention.
While I essentially agree with the thrust of his point, I don’t think the term “exceptionalism” as it is used when speaking of America, has anything to do with flouting the laws of economics. They are called “laws” for a reason, and no one has yet to find an “exception” to them. We have, however, discovered over and over again that attempts to make exceptions to them fail miserably.
The exceptionalism most speak of when they use the term in conjunction with America has to do with law, ethics and philosophy of life – the foundations of the country that make it exceptional. But economics? Of course we can “fail” if we do the stupid things we’re doing. And, unfortunately, we seem bound and determined right now to prove that point. But that has nothing to do with our “exceptionalism”.
Martin Feldstein, a professor of economics at Harvard University, president emeritus of the nonprofit National Bureau of Economic Research, and former chairman of the Council of Economic Advisers from 1982 to 1984 has concluded that the Waxman/Markey cap-and-trade legislation is a bad idea. He comes to that conclusion for a number of reasons.
First, his understanding of the legislation and its economic impact:
The leading legislative proposal, the Waxman-Markey bill that was recently passed out of the House Energy and Commerce Committee, would reduce allowable CO2 emissions to 83 percent of the 2005 level by 2020, then gradually decrease the amount further. Under the cap-and-trade system, the federal government would limit the total volume of CO2 that U.S. companies can emit each year and would issue permits that companies would be required to have for each ton of CO2 emitted. Once issued, these permits would be tradable and could be bought and sold, establishing a market price reflecting the targeted CO2 reduction, with a tougher CO2 standard and fewer available permits leading to higher prices.
Companies would buy permits from each other as long as it is cheaper to do that than to make the technological changes needed to eliminate an equivalent amount of CO2 emissions. Companies would also pass along the cost of the permits in their prices, pushing up the relative price of CO2-intensive goods and services such as gasoline, electricity and a range of industrial products. Consumers would respond by cutting back on consumption of CO2-intensive products in favor of other goods and services. This pass-through of the permit cost in higher consumer prices is the primary way the cap-and-trade system would reduce the production of CO2 in the United States.
Note that he doesn’t play any games when talking about where the cost of such permits will end up – passed through to consumers. He prefers the CBO’s lower estimate of the impact per family of about $1,600 per “typical” family to some of the higher estimates in the $3,000 t0 $4,000. But they’re all estimates and they all say, even at the low end, that the impact is going to be significant.
Feldstein then looks at the possible payoff and challenges Americans to ask a very pertinent question. He also calls the plan exactly what it is – a tax:
Americans should ask themselves whether this annual tax of $1,600-plus per family is justified by the very small resulting decline in global CO2. Since the U.S. share of global CO2 production is now less than 25 percent (and is projected to decline as China and other developing nations grow), a 15 percent fall in U.S. CO2 output would lower global CO2 output by less than 4 percent. Its impact on global warming would be virtually unnoticeable.
But its impact on the American economy? Well, you don’t have to be a Harvard economist to figure that out. And a quick glance at Europe and how quickly most of the countries there figured out a way to ignore Kyoto should tell you the rest of the story.
Feldstein may or may not believe the theory that says CO2 is a pollutant and the cause of “global climate change”. But what is clear is he certainly doesn’t believe our seeming desire to strap ourselves economically without the big emitters (China and India) doing the same is a) worth it economically and b) make a bit of difference in real terms. Doing it without those two and all others included is about as smart as committing to unilateral nuclear disarmarment.
Feldstein goes on to attack the pending cap-and-trade legislation for other reasons as well – mostly on a revenue and impact basis (and how revenue can soften the impact – yeah, subsidy – at the “payee” end – i.e. consumers. Of course, only a certain class of consumers would most likely be eligable and it will be up to the more well-to-do to pay their “fair share”). But the two big points of his criticism are the most important in my thinking.
1. It will, regardless of how it is structured, have a negative economic impact on every American household and thus our economy.
2. It won’t make a bit of real difference unless everyone is involved in such reductions. Exclusion of the big emitters makes our “economic sacrifice” literally worthless in terms of the supposed overall goal of cutting CO2 worldwide.
Because of those two points alone, we should demand that such legislation be voted down. I think the focus on CO2 is a load of unscientific nonsense, but politically that has no legs at this time. But what does have legs is the argument summed up in those two points and opponents of cap-and-trade should use them (and Feldstein’s name) to make the argument against the pending legislation.
Here’s a question for readers of all political stripes:
How big would a moral outrage have to be before you turned to violence?
Imagine that you live in a place in which what you perceive as a grave moral injustice–specifically violence against innocents–is enshrined in law. You may perceive your opponents as anywhere from mean-spirited to perfectly well-meaning, but either way they are determined to continue, and your prospects for overturning this outrage through the normal legal process any time soon are scarce or nil. In the meantime, you believe something horrific is happening on a massive scale.
For our purposes, try to think of different governments — direct democracy, representative democracy, oligarchy, monarchy, whatever.
At what point do you decide to act against law, by an alternative code? And specifically, I mean turning to violence: threats, destruction of property, assault, assassination, even terrorism* and revolution.
What prevents you from acting violently up to that point?
- The high personal cost?
- The low probability of success?
- The fear that things will turn out worse than simply allowing the grave injustice to continue?
- Simple aversion to personally engaging in violence, despite your belief that the status quo is violence under color of law?
I’m trying to get at what flips a switch in someone to get them to turn to political violence. Can you imagine a situation in which you would turn to such violence?
I suppose this turned into more of a thought experiment than a question. But your input is welcome.
* I prefer Philip Bobbitt’s definition of terrorism in Terror and Consent as “the pursuit of political goals through the use of violence against noncombatants in order to dissuade them from doing what they have a lawful right to do,” so remember, you oppose these noncombatants for supporting laws.