I had three reactions to yesterday's cap-and-trade vote, two of which came from The New York Times article that I read this morning and one of which came from Stan's very smart post. Here they are:
- From the article, "Only eight Republicans voted for the bill, which runs to more than 1,300 pages."
- From the article, "The bill would grant a majority of the permits free in the early years of the program, to keep costs low."
- From Stan, "But the bigger story is that the White House once again has demonstrated an excellent ability to get Congress to go along with the things it wants."
And now let me take each one in turn.
1) From the article, "Only eight Republicans voted for the bill, which runs to more than 1,300 pages."
Much as you may like the idea, this is another 1300 pages of complexity and loopholes. Buried in there, I'll wager, are more than enough ways for large organizations (the ones who hire lobbyists) to get all the exemption and evasion they'll need. Consider the alternative of a carbon tax calibrated to achieve the same emission reductions, and applied to all sectors including vehicle fuel consumption. I'm no expert on translating ideas into pages of a bill, but that can't be much. And given that it allows us to do away with the CAFE standards, I figure we've done a great service of dramatically simplifying the whole regulatory process for carbon emissions.
2) From the article, "The bill would grant a majority of the permits free in the early years of the program, to keep costs low."
That's a couple of interesting pages, no? This is the critical issue and the bill is flawed for giving into the special interests who demanded and got this giveaway. The caps require the price to go up, much like a tax would. Advocates of a green tax swap, like me, would like the additional revenue that consumers of carbon-intensive products pay to be returned to the private sector in a way that lowers the taxes on something desirable, like payroll. Giving the revenue back to the producers should not be an option.
3) From Stan, "But the bigger story is that the White House once again has demonstrated an excellent ability to get Congress to go along with the things it wants."
I think that this sentence -- which is a completely accurate description of the way policy gets made in Washington -- is also an indication of what's backwards about the way policy gets made in Washington. The power in government should reside with the legislature, not the executive. I think that much of the reason why the presidential election season has grown to its current monstrous proportions (a full two years of campaigning) is that politicians have realized that the presidency has all the power and the Congress has made itself a weak, secondary player. I'll be a much happier citizen when Stan has occasion to write, "But the bigger story is that the Congress once again has demonstrated an excellent ability to get the White House to go along with the things it wants."
So how does all of this make me a man without a party? On each one of these issues, my reading of the polical landscape is that the Republicans are further from the correct policy action than the Democrats.
Andrew, Although it's true
Andrew,
Although it's true that the reflexive Republican opposition to explicit, overt tax increases has precluded the smart policy, a carbon tax, to a large extent this is a "politician problem" that applies largely to Democrats as well -- they, too, would much prefer 1,300 pages of mumbo jumbo over an explicit, overt, universal tax on all Americans, no matter how superior the latter. Of course, that doesn't help you out with your party-lessness, but I think it's an appropriate perspective on blame.
And I'd add that the American public bear some blame too: politicians often choose far inferior policy over far superior policy because it will improve their chances of re-election, but that can only be the case if the voters fail to educate themselves on the issue and approach it reasonably objectively, rationally, and responsibly.
The bigger story about the cap-and-trade bill
2) From the article, "The bill would grant a majority of the permits free in the early years of the program, to keep costs low."
A "majority" being >85%, and, um, what costs are being kept low? This is just an unhappy transfer from one group to another, as Orszag describes (unhappily) below.
3) From Stan, "But the bigger story is that the White House once again has demonstrated an excellent ability to get Congress to go along with the things it wants."
Really??? Three months ago Obama and Orszag were pretty darn clear that what they wanted was a bill without all the permits being handed out free to every dang interest group that put in a claim for them. Quoting:
~~~
Obama:"Now, the experience of a cap and trade system thus far is that if you’re giving away carbon permits for free, then basically you’re not really pricing the thing and it doesn’t work -- or people can game the system in so many ways that it’s not creating the incentive structures that we’re looking for."
Orszag: "If you didn't auction the permits, it would represent the largest corporate welfare program that has ever been enacted in the history of the United States.
"In particular, all of the evidence suggests that what would occur is the corporate profits would increase by approximately the value of the permits.
"So that -- whatever that is, $600 billion, $800 billion, whatever the value is, would go in a sense almost directly into corporate profits rather than being available to fund energy efficiency investments and to provide a cushion or some compensation to American households.
"That is why the president, I think, has made absolutely the right choice in saying that the permits should be auctioned".
~~~
Now if I was even a bit cynical, I'd say the bigger story here is that the Obama Administration has shown "excellent ability to get Congress to go along" by being willing to be rapidly rolled into approving anything Congress wants, now matter how against its own express public wishes, to be able to claim "success" at passing something instead of nothing.
Even to the extent of being willing to pass bad legislation, instead of no legislation.
Specifically, legislation creating a program on a model that just three months ago Obama himself said "wouldn't work" and which Orszag decried as "the largest corporate welfare program that has ever been enacted in the history of the United States."
This may indeed be news about the Obama Administration, but is it good news?
BTW, as an afternote, didn't Obama and the Democrats get elected claiming to be "progressive" about the income distribution issue?
Odd then that they choose this "corporate welfare" model that CBO scores (figure 1) [.pdf] as regressively pushing income to the top quintile (the owners of the corporate profits) at the cost of the lower four (instead of the no-gift-permits model that takes income from the top quintile and gives it to the others). And without a single word of whistful regret about it uttered anywhere.
I keep waiting for even one voice of conscience from the "progressive" Democratic left to speak up about this -- what would certainly be a sellout to "the rich" and their corporate interests if it had been done by Republicans -- but ... [silence] ...
If I was even a bit cynical, I might think the corporate interests have an even more complete hold on Obama and the Dems than they did on Dubya and the Repubs -- and one that is far more astute and effective PR-wise as well.
Thank my Maker, I live a happy life without a cynical bone in my body. ;-)
I completely agree with Jim
I completely agree with Jim regarding Obama and the Congress. Obama does seem to be successful in influencing the agenda (stimulus, climate change, health care), but has handed implementation almost completely over to the legislature.
Andrew says that this is the way it should be but given the outcome, I can't help but wish for a technocrat-driven rather than politician-driven solution.
No, I think it is exactly backwards
I think that PJ O'Rourke had it right -- you get the government you settle for.
"I'm a fan of PJ, but ..."
To settle for less one must have an option that offers more.
I've been a person without a party too -- a registered independent -- my entire voting life, because what's the superior option?
I've always voted ala carte, for what seems most pragmatic at the time (if only via the "least bad" option). In my youth that tended Democratic, more recently it's tended Republican (most definitely via the "least bad" option).
For instance, if my only choice is between two political parties, both of which are going to speed the country to national bankruptcy in the 2030s by buying votes today via incurring costs recklessly dropped on the future, but...
1) One does so with tax cuts, which at least have some sort of short-term stimulative effect, and which are easily reversed; while
2) The other does so with spending increases, putting all kinds of spending like this (among examples hugely larger) on the govt's tab permanently, consuming real resources, and near impossible to reverse...
Well, the party following option #1 is the pragmatic choice for me. When the day of reckoning comes, we'll have more uncommitted resources available, and the big tax hikes that arrive will be from a lower base, leaving the nation with a lower total tax level than option #2.
That's not a happy course of fiscal irresponsibility, but it's the least bad one, IMHO. And if PJ wants to say I'm "settling" for it, he has to show me a #3 option that's available to me.
Take Pigovian taxes. My academic econ friends keep telling me, "Yes now for gas tax, for CO2 tax! Because Pigovian taxes are so good they are good even if your drop the tax receipts in the ocean!"
But being a private sector guy (who's seen too much of the NYC and NYS legislatures in action) I keep warning them, No, No, No, wait a few years. Because if you enact these taxes now the politicans will just dole that money out to buy votes with the Murtha Airport Terminal Extension and expanded pensions for train yard workers, etc., etc., writ large enough to spend it all. That money will go into the budget line forever and you'll never get it back.
Then comes 2017, when both Moody's and S&P have projected the credit rating of the US government to start to fall on current policy (as of before Obama's extra trillions added to the debt) and you REALLY NEED extra revenue!
Where's your "good tax" then, when you really need it? After the revenue from it has already been blown? What taxes are you going to raise then?
Just look at what just happend with Obama's cap and trade: All the tax revenue from it (the equivalent from a potential carbon tax) has aleady been blown on one of the greatest pork distributions ever, Orszag's "greatest act of corporate welfare in history".
Once all those industries are on that dole and all those new government agencies are running it for them, the government and Treasury have about as much chance of "clawing back" that revenue as NYC landlords have of escaping the "emergency" rent controls put into effect in the 1940s ... as NYC residents like me have of escaping the taxi fares needed to cover the cost of $200,000 taxi medallions -- an innovation of the Depression intended to boost fares for drivers ... as the federal govt has of escaping the cost of agricultural subsidies created during the Depression, etc.
If the Republicans had still been in power they'd have blocked all this. The when the REAL need for this revenue arrived ten years from now, it would be there and a Pigovian tax that killed two birds with one stone constructively would be a real option.
OK, the Republicans might have blocked it as a bunch of reality-denying-in-many-ways Luddites -- but it would still be the "least bad" policy in practice. I'm generally not happy aligning with Luddites, but what's the third option?
In contrast, Obama just giving away all that revenue -- when he knew it was wrong, as both he and Orszag said just three months ago, making no effort to retain it -- may have been "smart politics" as to its getting a bill passed quickly, as it has been praised here, but it was evil as to the national fiscal welfare! It's an $80 billion a year tax giveaway to the rich -- put that up against the Dubya tax giveaway of your choice.
The old saying in DC is that there is an evil party and a stupid party. I don't want to settle for that, PJ, please, give me a third option! But until you do, it looks like I'm going to keep tending stupid.
Not sure I get the premise
The meme that Democrats spend and Republicans don't is so, well, 20th century. George II and his republican parliament spent in 2 ways: massive entitlements (prescription coverage with no ability to control costs, farm subsidies, etc. ad nauseum) and massive borrowing to finance an unnecessary, ruinously expensive war. As Stan has pointed out here numerous times, all spending is taxing...just deferred.
Both parties will spend (and thus, tax) if they control the entire process. Period. The questions are who are they spending for? When are they spending it? When do they collect the taxes (or hike up inflation) to cover it? Over the last 20 years, it's only Clinton (a Democrat) with a Republican congress who have balanced a budget...
Professor Samwick -- All
Professor Samwick --
All three of your points measure against some theoretical yardstick in your head whose relevance is seriously questionable.
(1)The bill is 1300 pages long. But a change of such magnitude and complexity in the private sector would also require at least 1300 pages of contracts, etc. In the public or private realms, pages 1-10 set overall direction; pages 11-1300 deal with the exceptions, special cases, transition provisions, contingencies, etc. That's life, even if theory favors a crisp one-page memo.
(2) Carbon tax vs. cap-and-trade giveaway. The two alternatives will have the substantially same effects on prices and carbon emissions. The issue is who gets the revenue. And the answer is simple--If you actually want emissions limited, then you have to defuse the opposition. The main organized opoposition are the industries whose investments would get devalued by carbon limits. They'll fight like terriers to avoid that. So we can spend 10+ years wearing them down, while greenhouse gas emissions continue; or we can buy them off with some free permits. Buying them off is cheaper in the long run, since it limits carbon faster ... even if it's less theoretically pure.
(3) The power in government should reside with the legislature. That's quite a "should" you're wielding. The current executive/legislative balance in Washington has prevailed for the past cewntury, at least. Over that time, the United States has succeeded--politically, technologically, socially, militarily-- beyond anyone's wildest dreams in 1900. But you don't like the political mechanism that supported those successes ... apparently for theoretical reasons.
"Carbon tax vs. cap-and-trade giveaway."
"The two alternatives will have the substantially same effects on prices and carbon emissions."
An extremely dubious proposition. The two plans have the same effect if optimally implemented -- but there's nothing optimal about this 1,300-page pork fest of a permit give away party.
On top of the arbitrary (but for political influence) permit handouts, the whole scheme is going to be run by a plethora of new government agencies -- an Offsets Integrity Advisory Board, International Reserve Allowance Program, Carbon Market Oversight Interagency Working Group, etc. etc. -- and every single one will have obscure operations, be subject to political patronage and influence, and to regulatory capture by the regulated, most certainly. (Some would say we're already there on that score!)
To call that the equivalent of a relatively simple, transparent and direct tax, and to expect the same result as from a tax, is absurd.
BTW, does anyone else suspect that the reason why the carbon tax was a nonstarter with Congress as it shot directly to cap-and-trade might be because the latter gives the Congressional committees so much new political power via handing out permits and in directing all these new regulatory agencies, while a tax wouldn't? Or am I being cynical again? ;-)
And what happened to the Obama-Democrat promise that all bills would be posted on the Internet before being voted upon? From what I read this bill didn't even exist in written form when voted upon (so even Congress couldn't read it). Is this be legal?
The issue is who gets the revenue. And the answer is simple--If you actually want emissions limited, then you have to defuse the opposition ... So we can spend 10+ years wearing them down, while greenhouse gas emissions continue; or we can buy them off with some free permits...
Hey, those permits ain't free!
... Buying them off is cheaper in the long run, since it limits carbon faster ... even if it's less theoretically pure.
We could have "bought them off" at the exact same revenue cost via tax rebates for those who showed hardship and need -- for instance with investment credits to buy CO2 scrubbers for coal plants, subsidies phased out over say five years for firms that need to adjust, and so on.
The big difference is that such policy would be transparent (to voters, taxpayers, competing businesses) and clearly temporary -- exactly what Congress and the permit grabbers don't want.
Imagining this permit porkfest coupled with all the new admistrative beauracracy to be more effective and thus "cheaper" than a tax defies logic, experience (the Europeans put in a system like this and their emissions increased), and projections (EPA and others project this bill won't cut emissions until 2020 or later).
Please, someone show me some examples of powerful interest groups that got put on the govt dole for entitlements as large as these, and then got weaned off when their "merit" was gone? Agricultuiral subsidies? NYC rent control? I was going to link to Margolis on this, but Patrick beat me to it.
Face it, Obama was right when he said this model "doesn't work", and Orszag was right when he called it "the greatest act of corporate welfare in history" -- but then they threw away what they knew to be right for the simple political expediency of getting a fast vote with some cushion. Without making even a whimper of an objection.
I mean, I could at least understand it if Obama had been forced to fight for what he himself said was right and what he wanted, against the Democratic/corporate political machine, and had been backed up to this position to get something passed. But he didn't lift a finger to even try to defend what he knew was right when he could get an easier vote the other way. Is this good?
I'm not a big fan of David Brooks, but his column today on how Obama has been operating through all this is on the money.
And, the winner is...
Steve Margolis explains the economics of what's happening:
http://newmarksdoor.typepad.com/mainblog/2009/06/capandtrade-and-the-tra...
---------quote---------
Congress is about to ring a bell that will be hard to unring. We are about to be caught in something economists call the transitional gains trap.
The trap arises when a government restricts some activity, often for the specific purpose of increasing prices or otherwise aiding targeted beneficiaries. The limited rights to engage in these activities become valuable as the constraints bind more severely. Owners of these rights become an effective political force for preserving the status quo. Think taxicab medallions, tobacco quotas, land use restrictions and the U.S. sugar program.
....In transitional gains traps, there are initial gains to those who are granted participation rights. Latecomers have to pay a price of entry that captures the scarcity rent. Owners of valuable rights lobby to preserve these programs, so restrictions last long beyond their original purposes.
The proposed carbon cap-and-trade system limits economic activity by creating marketable rights to use carbon. ....
...we are operating in an area of considerable uncertainty. While some of those concerned about global warming shun any discussion of the issue, much of the support for action comes from those who acknowledge some uncertainty but favor taking precautions. One needn’t be a global warming skeptic to entertain the possibility that either our circumstances or our understanding might change over time. And many who accept the forecasts of global warming models nevertheless note that the costs-benefit relationship of CO2 reduction is unclear. And if other countries do not adopt carbon restrictions, ours may constitute a considerable economic handicap.
----------endquote---------