James Pethokoukis

Politics and policy from inside Washington

Why are Democrats pushing cap-and-trade? An explanation

Dec 8, 2009 20:32 UTC

Joel Kotkin thinks he knows:

Today’s environmental movement reflects the values of a large portion of the post-industrial upper class. The big money behind the warming industry includes many powerful corporate interests that would benefit from a super-regulated environment that would all but eliminate potential upstarts.

These people generally also do not fear the loss of millions of factory, truck, construction and agriculture-related jobs slated to be “de-developed.” These tasks can shift to China, India or Vietnam–where the net emissions would no doubt be higher–at little immediate cost to tenured professors, nonprofit executives or investment bankers. The endowments and the investment funds can just as happily mint their profits in Chongqing as in Chicago.

So who benefits from this collective ritual seppuku? Hegemony-seeking communist capitalists in China might fancy seeing America and the West decline to the point that they can no longer compete or fund their militaries. A weakened European Union or U.S. also won’t be able provide a model of a more democratic version of capitalism to counter China’s ultra-authoritarian version.

Yet most people in the developing world will not benefit from the suicide of the West. The warmists’ vision is not one of growing prosperity, but of capping wealth at a comparatively low level. De-industrialization means the West falls back while emerging economies grow a bit. The “prosperity gap” may close, but ultimately everyone is left with less prosperity.

COMMENT

Good analysis. These environmentalist types, in my memory, have always been anti-progress. Thirty-eight years ago I recall reading Paul Ehrlich’s Population Bomb and his pleas for a slowing down in economic growth, and now this guy is one of the high priests of the ‘de-development’ movement. Nowadays he’s nice and tenured and likely has a nice fat pension waiting for him when he retires from Stanford. His pal John Holdren (I think that’s right) is an advisor to Barack Obama so watch out!

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Obama’s jobs plan

Dec 8, 2009 20:15 UTC

A few cents from IHS Global:

The President’s speech was short in terms of the details. He did not specify how much of the remaining resources from TARP should be dedicated to deficit reduction versus additional stimulus spending. Nor did he specify any targets for spending under the four areas that were highlighted in his speech. Effectively the President has kicked the ball into Congress’s court in order to work out the details.

The problem right now is that Congress is overwhelmed with a range of high priority legislative measures ranging from health care reform to financial regulation. How soon Congress will be able to consider new stimulus measures is really hard to say, but we would not expect a bill to be proposed until January or February of the New Year.

The bottom-line is that these measures to stimulate small business in particular are critical in order to have any hope at all of getting the job market turned around in 2010.

Congress has a short window here in order to accomplish this, but if the bill is delayed beyond the January/February window then there is little chance of this happening.

Me: I think the timing issue is critical, both from a political and economic standpoint. Timing is running out given the difficulties of passing much in an contentious election year

Obama and jobs, take two

Dec 8, 2009 19:38 UTC

A few thoughts on the Brookings speech:

1) Lots of big ideas from liberal thinks on  how to boost jobs. Obama pretty much took a pass.

2) Obama proposals certainly aren’t game changers

3) To a great extent, Obama will still be relying on the unspent 70 percent of his $787 billion stimulus plan, passed earlier this year, to perk up the flaccid labor market.

4) It’s clear that the deficit is driving policy.The high government debt-to-GDP ratio of the U.S. risks crowding out private investment, reducing the future potential of the economy to grow. And rising deficits increase investors’ fears about the creditworthiness of the U.S. government.

5) Obama needs to keep interest rates as low as possible to boost growth and not worsen interest payments. So no mega-stimulus. This is his version of Clinton’s bond market strategy.

Here is Michael Feroli of JP Morgan:

For now, we’re not pencilling in any major change to our growth forecast for 2010. Many of the proposals — listed below — are business tax cuts which are infra-marginal and will probably have a muted impact on behavior. In addition, there are some one-time tax cuts or bonus payments which are less likely to affect household behavior than more permanent tax cuts. It is possible that accelerated infrastructure investment and some other secondary proposals will be significant enough to lead to a forecast revision.

Proposals:
* One year elimination of capital gains on small business stock
* One year expensing of up to $250,000 of capital investment for small businesses
* One year extension of bonus depreciation expensing
* “A new tax cut for small businesses to encourage hiring in 2010″
* Eliminating SBA fees and increasing guarantees
* More infrastructure spending, including “merit-based” infrastructure
* Incentives for energy efficient home retrofits, including expanding programs from the first stimulus
* Extending unemployment insurance (presumably extending past December 31, not extending past 99 weeks).
* Extending COBRA benefits
* Another $250 one-time bonus payment to social security recipients
* “Taking steps to ensure that state and local governments are not forced to layoff teachers”

The EPA and Obama’s Uncertainty Tax

Dec 8, 2009 11:23 UTC

Here’s the theory about the new U.S. position on greenhouse gases. The official finding by the U.S. Environmental Protection Agency that the emissions endanger human health sets the stage for permit requirements on power plants, factories and automobiles. It also supplies President Barack Obama with more evidence at the Copenhagen summit of a “new normal” in America when it comes to climate policy. And back home, it supposedly gives a nudge to the Senate where cap-and-trade legislation is stuck on the back burner.

But in practice, the only thing certain about the EPA ruling is more regulatory uncertainty leading to less economic growth and fewer jobs. Bad news, to be sure, for American businesses already flummoxed by the mercurial state of healthcare, financial and tax reform. Call it Obama’s Uncertainty Tax.

While a cap-and-trade bill has already passed the House of Representatives, few Capitol Hill observers expected the Senate to approve one, even by the end of 2010 thanks to the anemic economy and political risks for incumbent Democrats facing midterm elections. What’s more, expectations of a more Republican-leaning congress after 2010 made it seem like economy-wide carbon caps were sliding off the Obama agenda for the foreseeable future.

But now it’s conceivable carbon restrictions would be implemented as early as next year – even though the EPA itself admits its efforts would be more disruptive and less efficient than congressional action. Such an optimistic timetable assumes no legal challenges. But there will be plenty of those. Already, business groups are preparing to file suit against the EPA. It could fall to U.S. courts to determine the future of the nation’s approach to climate policy. This is a nightmare scenario for the private sector when it comes to planning for new expansion or hiring. Note that the big problem with the job market at the moment is not so much job losses and zippo new jobs being created. It will take a year of 4 percent growth adding 250,000 jobs a month to lower the unemployment rate to 9 percent.

Of course, about the only thing worse than regulatory uncertainty would be for the EPA to follow through with its top-down, command-and-control approach to dealing with perceived climate change.

One solution would be for Congress itself to act. GOP strategists would love to disrupt reeling Democrats with another controversial proposal – which is precisely why it won’t happen. Dems in the Senate are well aware of the shellacking their House colleagues have taken on their cap-and-trade vote.

Another option would be for the White House to devise a plan that would generate some bipartisan support. One idea might be a carbon tax whose revenue could be distributed back to citizens as a dividend, or used to offset payroll taxes. Such a refund could be progressive and popular.

But the most likely scenario is no cap-and-trade and no carbon tax, just more government “investment” in clean energy. But for now, workers and business are left to keep paying the Uncertainty Tax.

COMMENT

its been proved that these tax reforms will only bring more pain in the long term

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