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Obama bails on ‘cap-and-trade thing’

President Barack Obama is now calling the carbon trading scheme that is supposed to heal the planet a “cap-and trade-thing.” That can’t be a good sign for the concept.

Here is the president in New Hampshire yesterday: “”The most controversial aspects of the energy debate that we’ve been having — the House passed an energy bill and people complained about, well, there’s this cap and trade thing. And you just mentioned, let’s do the fun stuff before we do the hard stuff. The only thing I would say about it is this: We may be able to separate these things out. And it’s conceivable that that’s where the Senate ends up.”

Whatever the impact on the environment, the probable demise of President Barack Obama’s cap-and-trade carbon plan would be a much bigger fiscal failure for the White House than the implosion of healthcare reform, at least over the near term. Taxing carbon was the hidden key to funding his administration’s policy agenda while limiting budget deficits. Now the White House is scrambling for a realistic Plan B.

For months, the Capitol Hill consensus has been that a legislative limit on carbon emissions isn’t going anywhere in 2010 or beyond. New job-killing regulations and taxes just aren’t popular when unemployment is in double digits. Now the White House seems to agree on the plan’s political prospects. But there already were hints of this in the new Obama budget proposal. Now Obama’s budget last year assumed auctioning emissions permits would generate $646 billion in revenue over 10 years. Of that amount, a fifth would have gone toward funding clean energy research, and four fifths to funding a worker income tax credit.

Illinois Senate race … meh

Illinois voters are not too thrilled with their choices for US Senate, according to Public Policy Polling:

I think one of the most striking things about last night’s Illinois primary results for Senate is how poorly both Alexi Giannoulias and Mark Kirk closed.

In the December Chicago Tribune poll Giannoulias was at 31%, followed by Cheryle Jackson at 17%, and David Hoffman with 9%. There were 35% undecided. Giannoulias ended up with 39% to 34% for Hoffman and 20% for Jackson. That suggests that over the final seven weeks of the campaign Hoffman picked up more than 70% of those who had been undecided to 23% for Giannoulias and less than 10% for Jackson. Not too impressive and you have to wonder how far Hoffman’s momentum would have carried him if he’d had another week or two.

Kirk didn’t do all that well as the campaign heated up either though. In that December survey he had 41% to 3% for Patrick Hughes and a total of 10% for the variety of lower tier candidates in the race. Based on the final results he appears to have picked up about 37% of the undecideds from that point on to 35% for Hughes and 28% for the assortment of less serious candidates. Given how little money any of his opponents were spending that’s not too impressive.

The next Treasury secretary will be …

Well, Simon Johnson thinks it should be Tom Hoenig, president of the Kansas City Fed:

There will be objections to be sure.

Obama and middle-class tax cuts

The Tax Foundation thinks the White House is too sensitive about charges that middle-class taxes are going up:

The Administration’s outrage is a bit overdone, though, for three reasons:

Democrats didn’t support most of the middle-class tax cuts in 2001. The only Bush tax cut provisions that enjoyed any Democratic Party support in 2001 were the 10% rate and the doubling of the child tax credit from $500 to $1,000. In running for president, Obama made the political calculation that the middle- and upper-middle income tax cuts (marriage penalty relief, cutting the 28% rate to 25%, and cutting the 31% rate to 28%) were unassailable; hence the $250K threshold promise. (Throw AMT relief in that basket.) In his progressive heart, Obama can’t really believe those cuts were virtuous. And now the Administration is desperate for big new sources of tax revenue, so there is suspicion that middle-class tax hikes are coming. As many commentators are pointing out, the new fiscal commission is exactly the vehicle that could deliver those tax hikes in a way that would look as if the President were being forced to do it, that he didn’t break his tax promise willingly. Bush’s middle-class tax cuts were huge. Even now the President uses the phrase “mostly for the wealthy” in describing the Bush tax cuts as a package, which is false (at least by his own, new definition of wealthy — over $250K). Even the most anti-Bush tax think tank in town, Citizens for Tax Justice, can’t come up with numbers that portray the tax cuts for people over $250K as reaching 50% of the whole package.

So many shocking things have happened that rational expectations are shaken. No one thought this Congress and Administration would allow the estate tax to reach full repeal, as it did on January 1, a month ago. But they did, violating every premise of progressive tax policy. And quite aside from politics, it’s a nightmare for executors. Following that shocker was the health bill train wreck, resulting in a level of political and fiscal uncertainty that is almost unprecedented for a non-crisis situation.

We are all Austrians now (when it comes to economics)

Or so says Ed Yardeni, who puts the current economic situation in a philosophical perspective:

We are all Austrians now. Over the past few weeks, in Los Angeles, San Francisco, Sacramento, New York City, and London, I’ve run into more and more institutional investors whose economic and financial views either knowingly or unknowingly reflect the influence of the Austrian School of Economics. I am in Zurich today and Geneva tomorrow.  … How do you know if you are an Austrian? Here is a simple test. Answer yes or no to the following question: “I believe that this will all end very badly.” If you agree, then you are probably worried that all the government policies that rescued us from a depression in 2008 and 2009 only postponed the coming wipe-out of debt and the collapse of asset prices–and will actually make the inevitable calamity even worse.

I share these concerns, but I believe that Globalization will save us from such an awful fate. The end of the Cold War marked the end of the greatest trade barrier of all times. The resulting proliferation of free trade liberated billions of people around the world from their lives of quiet desperation. Standards of living are rising rapidly, especially in emerging economies, as prosperity displaces subsistence. Previously immiserated people are less miserable. They are earning enough so that they can both save and have more discretionary income to improve their material well-being. In other words, Globalization is stimulating more growth in incomes, saving, and consumption. Such growth is the best antidote for the grim Austrian prescription of debt deflation.

Obama’s unemployment forecasts

Brad DeLong looks at the Obama unemployment forecasting record:

Cutting spending vs. raising taxes

The Washington consensus is that taxes will go up sharply because there is no will to cut spending. Yet that may not be the view outside of the 202 area code.I just got back from a wing-ding at the Hoover Institution where economist Robert Hall quite matter-of-factly assumed big future spending  cuts because, in his opinion, Washington did not have the will to broadly raise taxes. Certainly, the new Obama budget sticks to the Dem pattern of only raising investment and incomes taxes on the so-called wealthy, at least transparently.

The real message of the Scott Brown victory

Via John Ellis:

The answer, I think, is that whatever pivot is made will be irrelevant. The fact is President Obama doesn’t have the luxury of proposing an agenda. Agendas (or at least, agendas as we have come to think of them) are for people who have money. The United States is broke. And the debt gets worse by the day.

Therefore, President Obama’s job is to get us out of debt (or start us down the path toward that end). This job would be difficult in the best of times. President Obama has to do it in the midst of the worst recession since the 1930s. He has to do it in the midst of two wars in regions perpetually hostile to foreign influence. And he has to do it in the midst of a global recession so severe that it now threatens what erudite commentators call the “social cohesion” of our allies and trading partners around the world.

That being the case, and I think it is inarguably the case, President Obama will never be successful until he accepts the assignment that history has given him. No one (anywhere) believes for one moment that he can add 30-35 million people to the health insurance rolls and not increase (sharply) the cost of health insurance. President Obama has been peddling this fable for months now and it has only served to make him look either (a) naive, or (b) utterly cynical. No one believes that “cap and trade” legislation is anything like an urgent priority at this time. No one believes that securing the Olympics for Chicago in 2016 is an urgent use of the President’s time. No one believes that President Obama deserved or should have accepted the Nobel Peace Prize. The reason that Obama has seen his approval rating fall sharply is that people think he’s not doing his job.

So-so growth for 2010?

That is how IHS Global calls it:

The fourth-quarter GDP surge was produced by a sharp turn in the inventory cycle. Firms still cut inventories in the fourth quarter, but much less severely than in the third. That led to increased production, which boosted GDP. Final sales growth, a better guide to the underlying path of the economy, was much more sedate, at 2.2%, but that was still an improvement on the third quarter’s 1.5% pace.

The best news in final sales was on exports and business spending. Exports surged 18.1%, their second strong increase in a row. And there was a 13.3% increase in business spending on equipment and software (two-fifths of which came from computers). The improving trend in capital goods orders suggests more gains in equipment spending ahead. If firms are feeling confident enough to raise their equipment spending, they’re probably confident enough to start hiring again. That will support consumer spending, which showed a moderate 2.0% gain in the fourth quarter.

The weakest spot was business structures spending, down sharply again as the commercial real estate crisis took its toll.