James Pethokoukis

Politics and policy from inside Washington

A pro-market, not pro-business, energy strategy

Sep 27, 2010 19:06 UTC

Here is my Reuters Breakingviews piece from last week:

General Electric boss Jeffrey Immelt last Thursday castigated Washington for neglecting the U.S. energy industry, calling current policy “stupid.” Sure, Immelt was talking his own book — a third of GE’s profit last year came from its power unit. But the lack of a comprehensive energy strategy is still an economic drag.

Immelt was a big fan of President Barack Obama’s energy plan, which proposed a cap-and-trade system for reducing carbon emissions. The version of the Obama plan that died in the U.S. Senate also contained new incentives for nuclear power. Immelt, working hard to boost GE’s reactor business, would surely have welcomed those. So on one level, Immelt’s complaints are gripes from a CEO trying to boost his business.

But his critique goes further. The demise of the Obama plan — Republicans killed the bill by portraying it as an economy-crippling energy tax — left in place a policy vacuum. Immelt also lambasted the current patchwork U.S. regulatory structure as an 18th century relic that “has fundamentally no basis in the modern world.”

The lack of clarity in government policy has become a big concern for corporate America. One obvious example is the continued absence of a defined approach to pricing carbon. Despite faults including needless complexity, Obama’s cap-and-trade plan would have supplied that. Meanwhile, the volatility of oil prices already makes investments in fossil fuel-substitutes such a nuclear, solar and wind power risky enough, without further uncertainty over tax treatment and other government-influenced costs.

But Immelt should take heart. Although cap-and-trade is dead, the idea of a simple carbon tax with revenues used to reduce other taxes still has a pulse among both Democrats and Republicans. Even more likely, perhaps when Congress meets after the November congressional elections, is passage of a nationwide renewable energy standard. The law would require utilities across America to deliver 15 percent of their power from renewable sources, or by ramping up energy efficiency, by 2021. Currently standards vary state by state — exactly the sort of thing that irks Immelt.

But while an energy strategy should mean greater regulatory and pricing certainty, it should be not be a euphemism for massive government subsidies. That would merely reward effective lobbying by energy companies instead of market success. Immelt is right to expect a hand up — but not a handout.

Me: Certainly we don’t need a massive regulatory structure put in place, along with billions or hundreds of billion in subsidies.  I have an upcoming chat with Glenn Hubbard about his idea for a flexible carbon tax.

Can Obama be deprogrammed?

Sep 27, 2010 14:29 UTC

Some interesting stuff in this piece by Michael Lind:

Instead of the updated Rooseveltonomics that America needs, Obama’s team offers warmed-over Rubinomics from the 1990s. Consider the priorities of the Obama administration: the environment, healthcare and education. Why these priorities, as opposed to others, like employment, high wages and manufacturing? The answer is that these three goals co-opt the activist left while fitting neatly into a neoliberal narrative that could as easily have been told in 1999 as in 2009. The story is this: New Dealers and Keynesians are wrong to think that industrial capitalism is permanently and inherently prone to self-destruction, if left to itself. Except in hundred-year disasters, the market economy is basically sound and self-correcting. Government can, however, help the market indirectly, by providing these three public goods, which, thanks to “market failures,” the private sector will not provide.

Me: To me the biggest issue that Obama needs to change his mind on is that economic inequality/redistribution is America’s biggest problem rather than slow growth.(It is certainly not working politically.) Of course, it may be that Obama is such a New Normal believer that he thinks slow growth is a given.

COMMENT

I don’t know what world you live in, but the capitalism I see is becoming less stable and more destructive. With each passing recession, the results get worse and the time interval gets less and less. Looks like a complex system de-constructing

Posted by dcrimso | Report as abusive

What’s wrong with the U.S. economy in one chart

Sep 27, 2010 14:14 UTC

Tax rates matter. You tend to get the stuff you tax lightly and don’t get what you tax heavily. Wonder why America had a housing boom and why we are wallowing in debt? Here is why:

taxchart

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