Free Markets, Free People
Senator’s Lindsey Graham, John Kerry and Joe Lieberman have bought the premise that “carbon = bad”. But being politicians, looking at the economy and understanding the discontent of the voters with both health care reform and cap-and-trade, they’ve decided on a more incremental approach to implementing the latter.
First, they announce that “cap-and-trade as we know it is dead“. Of course cap-and-trade is, at base, a tax on carbon which is now considered a “pollutant” by the anointed. Apparently they believe you’ll believe that since it isn’t a comprehensive, across the board imposition of carbon taxation via the method of cap-and-trade, you’ll buy into the basic lie that this is wholly different.
Then they proffer their plan, which, of course, they claim is nothing like cap-and-trade. Really. It’s not:
Rather than include all major industrial sources of greenhouse gases in one broad economywide cap-and-trade system, the Senate trio will propose different types of limits for different sectors of the economy, beginning with electric utilities and then turning later to manufacturers such as chemical plants and pulp and paper mills.
Said another way, they prefer to tax carbon incrementally and not all at once. And that is the only real difference between Graham/Kerry/Lieberman and cap-and-trade.
The result? Read this finely wrought paragraph carefully to glean the effect:
“The bottom line with utilities is they’ll assume a compliance obligation from day one of the program,” the Senate staffer said, adding that no decisions have been made on how to allocate valuable emission allowances to the power companies except to incorporate an industry recommendation to shuttle revenue toward consumers to help pay for higher energy bills.
You have to love the “nuance” – the intent is to agree with the industry (allow them to raise their rates commensurate with the increase in cost to them) and “shuttle revenue toward consumers to help pay for higher energy bills”. In other words, subsidize consumers to pay for industry’s upgrades to cut carbon dioxide output.
The bottom line is your utility bills are going up from day one of the passage of this bill and the taxpayer – you – will be on the hook to subsidize yourself to pay for the increased cost.
Another in a long line of schemes we simply can’t afford and a convoluted and costly method of implementation.
And eventually, of course, the cost of other products (chemical companies? paper mills?) to include transportation and certainly at some point, gasoline and home heating oil will all be taxed as well.
Transportation fuels can expect a carbon tax that rises based on the compliance costs faced by the other major emitters. Several major oil companies, including Shell Oil Co., ConocoPhillips and BP America, floated the original idea on Capitol Hill, and the Senate trio has evolved their plan by funneling revenue toward transportation projects, reducing fuel consumption and lowering domestic reliance on foreign oil. The Highway Trust Fund is also a potential recipient of the carbon tax revenue, Senate aides said.
A carbon tax, by any other name, is still a carbon tax, isn’t it? And the timing of such legislation is just perfect. If passed anytime soon, the increased costs to industry should hit just about the time they’re beginning to climb out of recession.
As they make their case for the legislation, the three senators plan to tout their effort to incorporate energy and climate proposals into one overall package. And they will highlight the shift on carbon pricing away from cap and trade.
“It will be different from anything that’s been put on the table in the House or Senate to date,” Kerry said last week. “It’ll be comprehensive. And I hope it’ll change the debate.”
But it’s not “different” in the most important aspect – it taxes carbon. The premise is that carbon dioxide is a pollutant. For those who don’t accept the premise as accurate or scientifically valid, this is no different than cap-and-trade. It aims at the same result (taxing carbon) only approaching it in a slightly different and incremental manner.
Today Paul Krugman attempts to make the case that “government intervention isn’t always bad”. However, he says such an argument has a tough time establishing itself because the “zombie ideas” of Reaganism just won’t die, i.e.”government intervention is always bad.”
You know, I don’t remember it that way at all. In fact, few will argue that all government intervention is bad, to include Ronald Reagan. Reagan did say that most times not only is government not the solution, but it is the problem. But I’m not sure that translates into what Krugman is claiming.
As we’ve said many times, the primary function of government is to protect the rights of its citizens and it does so by protecting them from force or fraud. That obviously requires some level of government intrusion and intervention. I don’t think Reagan saw it any differently. As I recall, he, unlike Krugman, just didn’t see government as the solution for the vast majority of problems we encountered.
So what Krugman has erected is a strawmen argument. Most see some role for government that they’d deem necessary and legitimate. But not necessarily in all areas. What Reaganism said was that there are areas of our life and economy which are much more efficiently run by the private side. Government should stick to the protection game – something it actually does relatively well – and leave the rest to private enterprise.
That, of course, doesn’t sit well with the “government is always the answer” crowd. It is a battle they’ve been fighting – and losing – for decades. What is really bothering Krugman is he is seeing it happen again at a time when he believes it should finally be clear sailing for the government intervention crowd.
This how Krugman begins his argument today:
The debate over the “public option” in health care has been dismaying in many ways. Perhaps the most depressing aspect for progressives, however, has been the extent to which opponents of greater choice in health care have gained traction — in Congress, if not with the broader public — simply by repeating, over and over again, that the public option would be, horrors, a government program.
You have to appreciate his choice of wording. Krugman has come right out and said that he sees the public option as one that could “evolve” into what he prefers, single-payer. Yet within two sentences, he tries to brand those who are against the public choice trojan horse as “opponents of greater choice in health care”. Nice try, but no cigar, Mr. Krugman.
He then launches into a fairly incoherent attempt at “proving” Reaganism (as he’s defined it) failed.
But in fact, it didn’t fail. People remember the ’80s and the prosperity they brought with some fondness. It’s one of the reasons voters were willing to give an uninspiring Republican VP a shot, before turning him out of town for another smooth talking Democrat who promised “change”. But what should you believe, Krugman’s version or your own lying eyes?
Krugman transparently attempts to erect this strawman of Reaganism, declare it thoroughly discredited, further declare its “zombie” ideas to be worthless and proclaim that since he’s destroyed the zombie, the opposite (don’t try to apply logic here) must be true – i.e. government intervention is good. And if government intervention is good, then it follows it must then be good in all areas, to include health care.
Of course even Krugman’s hero, Barack Obama, in a Freudian moment, mentioned that it wasn’t UPS or FedEx constantly in financial trouble, no siree – it was the good old, government run USPS that couldn’t quite cut the mustard.
But some of the blame also must rest with President Obama, who famously praised Reagan during the Democratic primary, and hasn’t used the bully pulpit to confront government-is-bad fundamentalism.
My goodness, you’d think praising Reagan was akin to praising some fascist who made the trains run on time, wouldn’t you? But for those who are deacons in the church of “government intervention is good”, that’s probably a valid comparison. Because everyone knows history is rife with examples of government intervention success stories . That’s why people are constantly trotting them out instead of attempting to discredit arguments about government that were never made.
Paul Krugman has seen the new Treasury plan (the “Geithner plan” as he calls it) that addresses the problem with the banks and he finds it wanting:
The Geithner plan has now been leaked in detail. It’s exactly the plan that was widely analyzed — and found wanting — a couple of weeks ago. The zombie ideas have won.
The Obama administration is now completely wedded to the idea that there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank. As Tim Duy put it, there are no bad assets, only misunderstood assets. And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved.
The plan itself is a three part plan as described here:
The plan to be announced next week involves three separate approaches. In one, the Federal Deposit Insurance Corporation will set up special-purpose investment partnerships and lend about 85 percent of the money that those partnerships will need to buy up troubled assets that banks want to sell.
In the second, the Treasury will hire four or five investment management firms, matching the private money that each of the firms puts up on a dollar-for-dollar basis with government money.
In the third piece, the Treasury plans to expand lending through the Term Asset-Backed Securities Loan Facility, a joint venture with the Federal Reserve.
The goal of the plan is to leverage the dwindling resources of the Treasury Department’s bailout program with money from private investors to buy up as many of those toxic assets as possible and free the banks to resume more normal lending.
As noted, Krugman is not impressed. In fact, he suddenly discovers the problem of “skewed incentives” and “massive” moral hazard:
To this end the plan proposes to create funds in which private investors put in a small amount of their own money, and in return get large, non-recourse loans from the taxpayer, with which to buy bad — I mean misunderstood — assets. This is supposed to lead to fair prices because the funds will engage in competitive bidding.
But it’s immediately obvious, if you think about it, that these funds will have skewed incentives. In effect, Treasury will be creating — deliberately! — the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities. For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn’t, that’s someone else’s problem.
Or to put it another way, Treasury has decided that what we have is nothing but a confidence problem, which it proposes to cure by creating massive moral hazard.
How in the world could the level of intrusion contemplated by the government create anything but “skewed incentive” and “massive moral hazard”? But that aside, will it work?
Per Krugman, probably not:
This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized. And I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: it won’t be able to come back to Congress for a plan that might actually work.
What an awful mess.
Indeed. And an amazing admission by Krugman who was as sure as anyone in the tank for Obama that he’d be “the answer” to all of our problems. Instead he’s discovering what a lot of Obama supporters are discovering – Obama’s an empty suit who is more interested in the perks and rewards of the office than the work it entails.