Affording Everything

This morning Glenn Reynolds linked with apparent approval to an editorial in the Investors Business Daily in opposition to the cap-and-trade bill, Waxman-Markey, making its way through the Congress:

The House of Representatives is preparing to vote on an anti-stimulus package that in the name of saving the earth will destroy the American economy. Smoot-Hawley will seem like a speed bump.

Not since a misguided piece of legislation imposed tariffs that turned a recession into a depression has there been a piece of legislation as bad as Waxman-Markey.

The 1,000-plus-page American Clean Energy and Security Act (H.R. 2454) is being rushed to a vote by House Speaker Nancy Pelosi before anyone can seriously object to this economic suicide pact.

The editorial continues lumbering along in a similar vein for another fourteen paragraphs with a message that could have been said better in a single sentence: cap and trade will be expensive and, based on the European experience, has little prospect of achieving much in terms of slowing or reversing global warming.

Although I think the editorial is babbling I’m largely in agreement with my one sentence version. Don’t mistakenly conclude that I believe that nothing should be done. I don’t. I’ve believed that we should have been slowly introducing Pigouvian taxes to deal with the negative externalities of fossil fuel use for the last several decades and I’ve mentioned it from time to time here at The Glittering Eye. I still believe that.

In a larger sense my concern about Waxman-Markey ties in nicely with a longish post I’ve been working on for some time but I may as well just blurt out now in a form without supportive evidence, graphs, or statistics, something I’m generally reluctant to do.

I’m concerned about the scale of all of the spending all at once. In the name of doing something about the recession that’s already upon us, the Congress has already passed a gargantuan stimulus package, most of which won’t actually be spent until 2010 (coincidentally, an election year). I would characterize its scope as “beyond the dreams of avarice” if such a thing were possible which, clearly, it isn’t.

At any reasonably imagineable future economic growth rate we’ll be paying off that stimulus package for the foreseeable future and it will be slowing that future growth rate for every second of that time. The Congress is also contemplating a healthcare reform package which will cost upwards of $100 billion per year without accomplishing nearly as much as its advocates had hoped and, referenced above, the Waxman-Markey “energy bill” which will have a similar price tag. Unlike the stimulus package which presumably is a one-time shot in the arm for the economy, these other two measures will be with us forever. That means we’ll be increasing the percentage of our economy devoted to government by something upwards of 10%, moving us higher into the 30% territory than we’ve been in decades.

There are no appreciable reductions in government spending elsewhere that could compensate for this increase. Don’t look to military spending. There’s just not enough fat in the areas in which reductions are being proposed to compensate for the spending spree. Moreover, President Obama is committing us to increasing our forces in Afghanistan theoretically as we decrease our forces in Iraq.

There are two things that I haven’t seen mentioned about this. The first is that the decreases in our expenditures in Iraq are hypothetical while the increases in Afghanistan are real. The decreases may or may not actually take place. The uptick in violence in Iraq over the last several weeks will make it a lot harder to justify reducing our footprint there. The increases in Afghanistan will take place regardless.

The second thing is that each soldier in Afghanistan costs us three times what a soldier costs us in Iraq (I’ve posted the citation on this before). That means that if we reduce our forces in Iraq to zero (which I think is highly unlikely) and increase our forces in Afghanistan by 50,000 we’ll be paying more for the single war than we are for two wars right now. So, as I say, don’t expect any peace dividend any time soon.

I interpret that to mean that we’re going to have higher taxes and/or higher interest rates in our future and for the foreseeable future. That will inevitably slow whatever recovery might happen whenever it might happen.

There’s something me auld mither used to say “We can afford anything we want but we can’t afford everything we want”. I think that’s the fix we’re in and I don’t think we’re being as prudent or cautious in thinking about what we really need and how to get it as we should be.

8 comments… add one
  • I would argue that the long-term economic costs of global climate change as well as ocean acidification far exceed the cost of mitigation, and most of what I’ve read on the subject seems to bear this out.

    Waxman-Markey isn’t perfect, but it’s better than nothing, and once it’s in place, it’s easier to make the cap and trade system more effective than it is to get it up and running in the first place. It’s worth the cost. Even if climate change is hooey, it’s worth the cost because increased CO2 emissions is, WITHOUT A DOUBT, making the oceans more acidic, which could have severe impacts (see my article on this: on not just the economy, but worldwide ecosystems.

    I, too, prefer higher energy taxes as a climate change solution but that seems to be politically impossible. I also favor a mandate that buildings above a certain square footage in urban areas paint their roofs white (which would, believe it or not, make a decent dent in average rising temperatures–though it would do nothing for the acidification problem.) But I don’t consider that politically feasible either.

  • What if the measure has no measurable effect on CO2 emissions, Alex? The results in Europe have been negligible. My gripe about cap and trade is that the costs are well-defined but the benefits are speculative.

  • Dave,

    I haven’t taken a detailed look at the latest version of the bill, but my understanding is that it’s closer to the U.S.’s cap and trade of SO2 (which has been very succesful) than it is to the European version.

    However, another important key to the success of Waxman-Markey is the dominance of federal institutions, which is something that Europe lacks. There’s every incentive to cheat in Europe because it’s more of a treaty structure. The U.S. lacks that. Also, in the U.S., it’s generally easier to improve institutions once they’re created than they are in Europe. In the U.S., the inertia moves against establishing the controls, but refining them moves quickly. In Europe it’s the opposite. So even if it isn’t perfect now, it’s easier for the Federal government to make it more effective once it’s in place than it is for all of the countries of Europe to negotiate and ratfiy changes to their treaty.

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