Energy Policy

A key plank of Obama’s campaign was a theme that we need to “reduce our dependence on foreign oil.”  This was really more of a populist crowd-puller, and I assumed that it would kind of go away once oil prices came back to Earth.  Instead, this call to action is informing tens of billions of dollars in spending on a variety of renewable energy projects.  

Thing is, this really makes no sense.  Foreign oil is bad because it pulls us into Iraq-like conflicts?  That only tells you that invading Iraq was a bad idea–every other country on Earth manages to survive on imported oil just fine.  In fact, every other nation is also dependent on others for some sort of energy, even Saudi Arabia.  Energy autarky is a dangerously misguided notion.  

But maybe it’s bad because of the whole carbon thing, and we should also get rid of coal energy as we go along.  If that’s the problem, then put in a carbon tax–as Norway did, with amazing results–so we properly price carbon and use less of it.  While some sort of cap-and-trade may be in the works, the dominant tactic for achieving this goal seems to lie in massive subsidies for researching ‘green’ technologies.  

Of course, nuclear energy–one of the cleanest and cheapest technologies around, one that America is perfectly willing to export to the rest of the world–doesn’t count, because the Senate Majority Leader is from Nevada, where the waste would go.  Hydro power doesn’t count either.  Natural gas exists in abundance in this country and can be cheaply imported in liquid form.  Many countries are switching over to gas for their cars and buses because it’s cheaper and pollutes far less.  Yet Obama’s budget punishes natural gas drillers.  For some reason, our technocrats have determined that our economy needs to shift to an entirely different mode of power because, well, windmills look awesome and take away our guilt.  A lesser person than I, one far more cynical, would think that green-boosters are more interested in manufacturing a crisis to meet a pre-existing agenda rather than finding the most cost-effective solution to a well-defined problem.  

The economics aren’t quite there either.  Wind and solar consume massive quantities of land far from major population centers and are terribly unreliable and unprofitable.  Government subsidies may speed the process of discovering cheaper forms of these technologies, but the billions of government dollars spent so far on these technologies have come up with essentially nothing.  Private players are, however, rapidly spending on improving these technologies.  Rather than spend billions in subsidies, pricing carbon would allow utilities to make the best long-term economic decisions on the mix of energy they want to produce.  

And the millions of green jobs these programs are going to generate?  Models suggest that the net job impact of switching to renewable energy would be negative.  The key issue here is that every kilowatt we get from wind means an equivalent loss from some traditional job-generating sector of the economy.  

The last bit to take on is the social nationalism portion of the agenda; the idea that America is “falling behind” other countries in our production and consumption of green goodies.  As far as consumption goes, of course: Make something cheaper, and you get more of it.  That’s no reason for America to adopt a technology before it becomes economically feasible.  And as far as production goes, China remains a major supplier of solar cells, despite the fact that little is installed domestically.  Production will go wherever costs are cheapest; that hasn’t degraded America’s massive comparative advantage in high-skill manufacturing, services, and marketing.  More fundamentally, you should never do something just because everyone else is doing it.  It didn’t work in elementary school, and it shouldn’t be an argument fit for national discourse.  

Mitch Daniels supports technology to turn polluting coal into clean natural gas for power generation.  His plan leverages our large deposits of coal, while keeping pollution to a minimum.  And he doesn’t require a subsidy; his ideas are profitable.

The Neolibs

Suppose you have an ideologically-closed group committed to certain goals.  Once a crisis comes along, they claim that their long-held beliefs are, in fact, the best response to the crisis.  They convince the administration to realize their plans instead of doing what every non-interested expert suggests and deal with the problem.  This is the standard explanation for why we are in Iraq.

Thing is, it’s also what the Democrats are doing right now.  The severity of the financial crisis has been apparent for quite some time, yet we still lack a coordinated federal response.  Geithner’s most recent plan, a public-private partnership to buy toxic assets, is not substantially different from the plan that Paulson delievered to Congress back in November.  The broad outlines offered could have been delivered basically any time going back a year.  

Yet the Administration has been busy this whole time.  But instead of dealing with the financial crisis by coming up with a plan to resolve the credit crunch, they have left the Treasury understaffed while announcing grand plans in the fields of foreign policy, energy, health care, and education.  The last three have been greatly boosted by the fact that the Administration spent its political capital on a massive stimulus bill.  Many of these programs, by design, will likely not be temporary, but rather permanent additions of government.  Capitalizing on this crisis by passing long-held Democratic goals, instead of dealing with the crisis–That’s not change.  

Mitch Daniels has a clear stance on the stimulus.  He’s promoting transparency and accountability in spending his state’s money, which will be spent on investment programs like infrastucture and energy efficiency which will yield lasting gains after this short-term money (hopefully) runs out.  Thankfully, due to Daniels’ fiscal prudence, Indiana has paid down debt, boasts a balanced budget, and has ample reserves to handle a downturn.  If only the same could be said of the country.  Well, soon enough…

Cutting Charitable Spending

Not too long ago, Obama proposed to help pay for far-reaching healthcare reforms by curbing deductions on taxes.  While there’s definitely room for tax reform–Obama’s own appointees can’t seem to figure out how to pay their taxes–this plan would limit tax credit for charitable donations.  

How big of a deal is this?  One estimate suggests that it might cut donations by about five percent.  Martin Feldstein has also come out against this proposal.  While this isn’t a big measure, balancing health care on the backs of America’s charities seems, well, a little wrong.  

Mitch Daniels recognizes the role that private civic institutions have played in building this country.  That’s why he supported extending tax relief for charitable donations to non-itemizing donors.  How about them apples.

The Stimulus Bill

Millions of people are unemployed or in risk of losing their jobs, the banking system is in panic, and the economy is facing its worst crisis since the Great Depression.  Figuring out how to deal with this problem is the key political question right now.

Unfortunately, the Republican response has been wrongheaded on this issue.  Stopping all government spending and extending tax credits to rich people are ideas which reflect the self-lobotomized nature of today’s Republican Party.

That’s not to say a Stimulus Package is the best response either.  You want to help people hurt by the ongoing crisis?  Extend unemployment benefits and food stamps.  Cut the horribly regressive payroll taxes–which would effectively raise the income of every nearly every working American by 18% starting today.  Reform corporate taxes by broadening the base and lowering rates–a proposal progressives can get behind.  Yes, giving people money may not ‘stimulate’ the economy, but it will certainly improve their financial security more quickly and directly than will building bridges somewhere in the country.  The Democrat proposal includes several tax cuts, but these generally work to provide subsidies to various groups, without targeting the people most hurt or eliminating economic inefficiencies by lowering tax rates. 

Instead of a quick, targeted proposal that helps those most in need, we’ve gotten a massive spending increase which would have been considered radically leftist only a few years ago.  It’s based on the premise that our problems come from a problem of demand–which is clearly not true.  We’re going to have problems as long as the banking system is in crisis, but, if history is any guide, fixing the banking system should get us on track regardless of the degree of stimulus we choose–though the more debt we pile on today, the more we have to pay tomorrow.

The administration assumes that additional government spending will lead to recovery at a multiplier rate.  There are little theoretical or empirical reasons to expect their high estimates–1 dollar of government spending leads to 1.5 dollars growth in the economy.  If this was true in general, then the Bush years of deficit spending should have led to durable growth, which it definitely did not.  Sure, there are more idle resources lying around today.  But we’re also facing a credit crunch, and there are a number of reaons to suspect that economic recovery will necessarily be slower without a functioning financial system. 

But even the presence of idle resources doesn’t guarantee that the stimulus will be a success.  The downturn has hurt certain industries much harder than others–house building, finance–and there is no guarantee that these workers can quickly transition to the sectors targeted by the stimulus, such as healthcare or education.  Because of these bottlenecks in the short-run, the stimulus will compete with private industry rather than mobilize only idle resources.  This spending will come online in several months, possibly as the recovery is already beginning.  

On top of that, it’s unlikely that this spending will have a positive impact.  This is, after all, a bill passed in a few days, with little debate, and is tantamount to a Democrat wish-list of legislative priorities.  In education, for instance, we know that increasing spending without reforming the system will deliver minimal results–a fact Obama has repeatedly recognized.  That’s why reform movements–like KIPP program, charter schools, curriculum reform, Michelle Rhee–have demonstrated ability to improve student performance in a way building schools in empty districts can’t.  But in the urge to satisfy the ‘timely’ requirement, we’re throwing billions of dollars at problems that can’t be fixed by money.  

And these government programs are permanent.  We’re headed for an increase in the size of the  government from roughly 20% of GDP to about 23% of GDP–without the financing to pay for it.  We’re about to see trillion dollar deficits yearly become the norm.  This is completely fiscally unsustainable, and it risks a collapsing dollar and inflation the likes of which you haven’t seen since the ’80s.  Fleecing those rich, evil, increasingly less-numerous, one-percenters at the top isn’t going to be enough to cover this.  In a bizarre, reverse-starve-the-beast, Obama is permanently growing the size of government, confident that taxes will follow.    

Mitch Daniels recognizes this.  He’s a proven fiscal conservative who has stood up against fiscal irresponsibility in Washington and has balanced the buget in Indiana without raising taxes.  The country is fed up with partisan, incompetent Republicans and will soon tire of big-spending liberals as well.  We need a principled conservatism that offers limited, competent government–and that’s what Mitch Daniels has delivered.

Shout Out to Jake Garner

Congrats Gov!! I would really really like to see My Man Mitch signs all over this Great Country for the next Presidential Election!! 2012??? Heck yea. Let’s take back over the White House with a man who knows how to do it!!

-Jake Garner