The Big Lie

I try to never use "lie" or "liar" when discussing politics.  They have become perhaps the most abused and overused words in political discourse, and seldom do they add much to a discussion.

But I simply have no other way to reconcile Obama's promise that he is not raising taxes on 98% of Americans with his imposition of a cap-and-trade system for CO2.

For years, Al Gore supported a carbon tax on fuels as a way to fight CO2.  As I have written a number of times, if one really feels the need to reduce CO2 emissions (which I don't), then a carbon tax is far, far more efficient, fair, and effective than a cap-and-trade system.  There are only two advantages to a cap-and-trade system over a carbon tax, and neither has anything to do with Co2 mitigation or program effectiveness:

  1. The tax is hidden, so politicians can pretend the did not really impose a tax.  The author of California's AB32 cap-and-trade system admitted as much to me in a face-to-face debate we had last year
  2. There are numerous opportunities for politically favored companies to create dubious offset and measurement systems under cap-and-trade which don't exist under a more straight-forward carbon tax.  Which may explain why Al Gore, who sits on the board of over $2 billion in investments in such companies peddling various offset quackery, now supports cap-and-trade over the carbon tax

Here is the basic economics, a topic on which it is rapidly becoming clear that Obama is completely ignorant**.   First, we have to assume that whatever cap-and-trade system that is implemented is actually effective at reducing CO2 emissions.   This is far from an absolute given, as it can be argued that the European system has done all of about nothing to reduce Co2 emissions (they will claim that it has been effective, but the majority of European CO2 emissions have come from a) British coal-replacement strategy, initiated for reasons other than Co2; b) fall of the inefficient Soviet economies and the shut down of their worst polluting industries; and c) unification of Germany.

But, assuming that cap-and-trade actually reduces CO2, then it HAS to increase costs for consumers.  There is no way around it.  It will do one or both of the following:

  1. Raise prices due to increased producer costs.  An example is electricity generated from any sort of fossil fuel will simply have to be more expensive
  2. Raise prices due to increased scarcity.  In industries where the supply and demand dynamics do not allow cost increases to be passed to consumers, then reduced production and scarcity will result.  In the electrical industry, older coal plants that can't afford to pay for the Co2 permits may need to shut down.

Recognize that this HAS to occur, especially #2, or the cap-and-trade system won't be working.  Another way to put it is 1 and 2 above are what designers of the system want and expect to occur.

So how is this not a tax?  Well, this is an old, old strategy.  Rather than tax consumers directly, the government taxes business.  When companies inevitably pass the cost on, it is not the government at fault, it is the business for being greedy and raising prices.  Politicians insulate themselves from criticism.

Further, Obama and the environmental crowd have been laying the groundwork over this for years by arguing that such "green" initiatives actually help the economy and improve efficiency.  They have no proof of this, but they repeat it A LOT.  Repeat something enough, and some people believe it.  This despite the fact that there is no way in the world that obsoleting perfectly good production capacity and requiring its replacement (e.g. coal plants) is a net positive for the economy.  (It can be a net positive for human well-being, but to say it is net positive for the economy is to fall into the broken windows fallacy).

So expect that when power companies inevitably raise prices due to cap-and-trade, politicians will respond by saying that the companies are being greedy and simple minded, and if they were really smart, the cap-and-trade system would not have cost them anything.  It would have made them more efficient.  it would have been a net positive.  And that this failure of theirs to see this probably will drive calls on the left for more government oversight and regulation of these industries.

Don't believe me?  Think this last paragraph is exaggerated?  Well, here are two things to think about.  The first is from our former Arizona governor, arguing that she got a bunch of government employees into a bull session in a conference room for an hour or so, and they all decided that cap-and-trade would be a net benefit to the power industry:

Napolitano brushed aside questions of what effect the plan will have on utility rates.

"First of all, that it may increase electric bills doesn't mean it will increase them now," Napolitano said...

Napolitano said there is "lots of data" to suggest that utilities eventually will be able to save money "by moving to a system of "˜green' energy.""¦

on a long-term basis, there may be cost savings.

So if utilities raise their rates, its obviously because they are greedy profiteers, because all of us here in government think it's obvious that paying for carbon allowances should result in cost savings.  If it doesn't, well, maybe we are smarter than they are, and have to provide more government leadership of the industry.

They would never go that far, you say?  So why has Obama created a government commission to restructure the auto industry on the implicit assumption that a couple of smart government guys in a room can do what the industry itself has not been able to do for 30 years?

** This is not to say that Obama does not have highly educated economic ad visors.  But the President's own knowledge, assumptions, comfort-level and outlook on a subject are critical, no matter what the quality of his advisers.  For example, even if I were crazy enough to want the job, I would never run for President because I know, by outlook and knowledge, I am not qualified to manage foreign policy or be commander-in-chief of the military.  Sure, I could surround myself with advisers, but there are proven limits to the "rely on advisers" approach.  I might argue that Bush's foreign policy is an example of such limits.


  1. Link:

    We need to bring back George Orwell to write "Animal Farm 2 ... The Tax Code Years."

    As a first step, Obama-Axelrod are opening the door to new approaches to taxation. Ballooning future deficits will then be the rationale to move the brackets and raise the rates. Thus, expect to see $100,000 become the new $250,000, etc.

    The cap-and-trade tax only makes sense when seen as a 1) a sop for Obama's green supporters, and 2) a means to create a stealth redistributive tax.

    I'd have some respect for Obama if he were a true Robin Hood, instead of a hustling "playa." He took a Rezko bribe to buy a mansion, took a pay-off through Michelle's salary ... I'd bet there was more. You'd think that after funnelling millions of state money to Rezko for his failed slums, Obama would have shame ... or at least have learned a lesson about the limited effectiveness of government spending. Instead ... he wants to piss away hundreds of billions.

    His energy plans will only make us marginally greener, at great cost. Obama won't say the word nuclear -- which means it isn't in his thinking, Instead, what Obama is pushing for is a joke. On energy, we should either commit to nukes or do nothing. What Obama's about to detail is worse than Carter's projects to nowhere on energy.

  2. EvilRedScandi:

    I generally don't use the word "lie" or "liar" when discussing politicians because it clutters my prose with redundancy. Seriously, it's the one occupation open to people who are too slimy to sell used cars.

  3. Gil:

    I think avoiding the words lie and liar are still good policies.

    You're completely correct that these policies will cost everyone, and it's the equivalent of a tax on them. But, I think Obama was talking about individual income taxes, specifically; so while he certainly intended to mislead people into thinking his policies would leave them better off financially, I'm not sure that he technically lied.

  4. HoosierHawk:

    I've always looked at the Carbon emission control issue from two sides 1) Those like Al Gore who see a chance to profit, Al has always had a fantasy about a green economy (that he would get rich on), even before he hit on the global warming lever 2) Those who are socialists as the Chech president Mr. Klaus pointed out. All the rest are the useful idiots.

    Many fit the first catagory, Enron was a big supporter as is Exxon. "Deniers" are always accused of being in the pocket of "Big oil" (what is "small oil"?), but big oil doesn't have a problem with the carbon schemes, A)the cost can be passed through B) If you make a % of sales (about 8% for oil companies) anything that raises the price has the potential to increase profits. When the price of oil went way up, so did oil companies' profits, did anyone hear BP complain about the high cost of oil?

    The socialists love the whole idea of carbon reductions. Socialism is the Marxist stage where the Government controls the means of production. Carbon restrictions aren't quite "control of the means of production", but it is like having the means of production by the balls, which effectively gives a high level of control, as with humans. As the Greenpeace founder lamented, environmental groups have been taken over by communists and/or socialists, after the fall of the USSR and Soviet block countries, they didn't have anywhere to go but environmental groups offered the opportunity to oppose capitalists with the added advantages of sleath and the aura of good intentions. They got keen on green, 'cause big red was dead.

    I have to wonder how carbon taxes, in whatever form, will play out for utilities. In Indiana where I live, the electric companies are regulated by a utility board. Utilites are guaranteed a certain amount of profit on their investments, but it's not up to them what facilities they build, they have to get permission from the utility regulators, and show either that the capacity is absolutely required or will result in a cost decrease to the consumers. The mandate to the regulators is to ensure that consumers and industry have the lowest possible price. Any facilities that are approved are included in the "rate base" which is the utilities' "fixed costs", regulators are very careful about approving new capacity because that is the one way that utilites can increase their profits. Given the regulators' legal mandate, how can they approve wind or solar, it is their job to make sure that utilities don't build facilities that will jack up the rate base.

  5. Mesa Econoguy:

    All politicians are born liars.

    Obama is a particularly good liar. Cap & Trade, in addition to being pseudo-market nonsense/mythology, is a tax.

  6. gofer:

    Lisa Jackson of the EPA wants cap and trade as opposed to a carbon tax, because she said as a "tax", it would be dead on arrival. This is the slight-of-hand being used. It's pretty low. Obama's pretty much done with being President. In 4 weeks, he has already gotten all his leftist, socialist programs off the ground and now he just has to sit back and let the his peons put them in effect. There's nothing left to do. Quite amazing for an amateur. /sarc

  7. bob prangnell:

    Man am I glad I don't live in the USA

  8. anon:

    It's a lie we enable by claiming that Obama is going to give tax cuts to "nontaxpayers" when even the non-income tax brackets pay payroll taxes.

    We need to reframe the debate in terms of total tax burden. When we make it a well-off "us" versus a poor "them", we're enabling class-war rhetoric that is used so effectively against us. The poor need to be made aware of total tax burden - they sure as hell know they pay taxes - and be treated as real parties in interest with all this tax and spend crap. We need to make the poor (particularly, ESPECIALLY) the working poor part of our constituency. In addition to it being the right thing to do, we need their damn votes.

  9. Brandon Berg:

    "For example, even if I were crazy enough to want the job, I would never run for President because I know, by outlook and knowledge, I am not qualified to manage foreign policy or be commander-in-chief of the military."

    Who was the last president who was qualified to do every aspect of the job? You, at least, have the intelligence to choose good advisors and make sense of their advice. The truth is that no one's qualified to be president, but if everyone wise enough to know that refrains from running, that leaves only fools.

  10. Michael Miller:

    Or the megalomaniacs.

    "So why has Obama created a government commission to restructure the auto industry on the implicit assumption that a couple of smart government guys in a room can do what the industry itself has not been able to do for 30 years?"

    Because he needs to insulate himself from potential voter backlash at the midterms and in 2012.
    Michigan will be a key state for him in '12.

    Note too that his new energy tax proposal will not kick in much new revenue until after the 2012 elections. It will be nearly painless until the polls close. Then...

    For sure, Obama is one slick dude. He learned a lot from watching the Chicago pols operate.

  11. tomw:

    Doesn't anyone remember ENRON's goal: Cap and Trade
    That was their next project after sewing up the energy trading market.
    It is going to be a bureaucracy that has winners and losers, and a swell bunch of guys in the middle taking a taste on each transaction for their 'accounting' of these 'credits'. I am more disgusted every day with the conduct of the Algore. Just another "One" who knows what is best for us.
    Heaven help us.


  12. Billy Ruff'n:

    If (and it's a very big "if") we need to reduce CO2, a straight forward tax per unit of carbon is obviously simpler to design and administer, and vastly more efficient in terms of producing the desired result. Part of the resistance in Congress to a carbon tax is because it's a "tax". But I suspect any popular resistance to such a tax could be reduced or eliminated by making the carbon tax revenue neutral (e.g. by reducing income taxes by a comparable amount).

    IMHO, the real resistance to a simple carbon tax and the attraction of a cap and trade scheme is the economic incentive it offers politicians -- C & T will raise large sums of money for them to spend on things they believe will get them re-elected (we see this already in Obama's first budget). But, more importantly, C & T presents Congress with a unique opportunity to reward people who contribute to their campaign funds and PACs.

    Imagine the "pay to play" opportunities that arise in writing the rules (and ammending them as time goes on)-- rules that allocate carbon credit requirements to various industries and/or individual companies, rules for how new credits are created in the future, rules for how the carbon market is structured and operated, etc. In terms of potential for regulatory complexity it's probably second only to the current tax code.

    Where there's regulatory complexity you find lobbists, and where you find lobbists you find money. Money is the life blood of politics. So much for "change" in DC.