Wednesday, March 18, 2009

Cap and Trade is a big deal

Obama's Energy Secretary Steven Chu won a Nobel Prize in physics, but that doesn't make him an expert in economics or international trade. According to this article in today's WSJ, he makes his lack of understanding painfully clear. If the U.S. raises the price of carbon-based fuels with a cap and trade scheme, it will put all the U.S. economy at a decided disadvantage relative to countries which don't impose a higher price on these same fuels. This much he realizes, since he says that "If other countries don't impose a cost on carbon, then we will be at a disadvantage." But then he goes on to say that "we would look at considering perhaps duties that would offset that cost." That is nothing but a prescription for trade wars, and those have never done anything but harm. Trade wars might result in a meaningful reduction in carbon-fuel usage globally, but only at the expense of a severe global depression. No one, not even Al Gore, can claim with enough certainty that a global depression is the price we need to pay to save the planet, especially when there are other and far cheaper alternatives such as simply adapting to a warmer climate.

The basic problem is that those who believe in man-made global warming seem ready to do just about anything, even if it makes no economic sense, in order to "save the planet." Sorry, but that just doesn't make any sense at all. If the Obama administration doesn't soon come down from its Ivory Tower to the realities of how things work, the world is going to be facing problems that are much bigger than global warming.

UPDATE: Read Pete DuPont's editorial in today's WSJ ("California or Delaware?") for a more detailed explantion of why the Obama folks are headed in the wrong direction on energy and tax policy.

And you must read Phil Kerpen's short article noting that Obama's Jason Furman now admits that the effective tax imposed on the economy by a cap and trade scheme could be in the trillions of dollars.

Obama & Co. are making so many grievous mistakes in so short a period that it is simply wonderful. Wonderful, because the mistakes are so egregious that they are increasingly likely to be reversed. And that is very good news for a market that was priced to the end of the world as we know it.

UPDATE #2: I've been reading and hearing about a lot of the crazy things that the Kirchner administration is doing in Argentina. (For example, yesterday they nationalized the former Lockheed aircraft facility in Cordoba, but it was already just a shadow of its former self. And the teacher's union is upset that the administration agreed to raise their salaries by only 15%.) But nothing going on here in Argentina is as crazy as the things coming out of Washington D.C. these days.


Donny Baseball said...

I have been saying since the disastrous Geithner debut that a cabal of Democratic grey-hairs (think Rohatyn, George Mitchell) will be moving in to rescue Obama in short order. So far we've gotten Rattner parachuted into Treasury, and we are likely to see another high profile babysitter come in. Now apparently Kissinger, James Baker, William Perry, Nunn adn George Schultz are all involved in a diplomatic full court press aimed at Russia. I think this is indicative of severe panic among the power elite and they are coming to the rescue.

Scott Grannis said...

I must say I agree with you. The anti-Obama sentiment is piling up fast and furious. I would venture to say that never have so many major mistakes been made in such a short period of time by an incoming administration. What's bad news for Obama is becoming good news for the economy and the markets.