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Tilting at Windmills

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February 27, 2008
By: Kevin Drum

OBAMA THE PRAGMATIST?....I have to agree with Ezra about Noam Scheiber's recent TNR piece that tries to make the case that Barack Obama has surrounded himself with unusually pragmatic and independent thinking economists. The problem is that Scheiber's examples just don't back up his claim. Take this, for example:

Just because the Obamanauts are intellectually modest and relatively free of ideology, that doesn't mean their policy goals lack ambition. In many cases, the opposite is true. Obama's plan to reduce global warming involves an ambitious cap-and-trade arrangement that would lower carbon emissions 80 percent below 1990 levels by 2050. But cap-and-trade — in which the government limits the overall level of emissions and allows companies to buy and sell pollution permits — is itself a market-oriented approach. The companies most efficient at cutting emissions will sell permits to less efficient companies, achieving the desired reductions with minimal drag on the economy.

But this is precisely the same policy proposed by both Hillary Clinton and John Edwards. So why does this tell us anything about how pragmatic and grounded Team Obama is?

It's probably worth adding something to this, too: the reason that all the Dems favor cap-and-trade almost certainly isn't because of any special devotion to market-oriented approaches. More likely, it's because it accomplishes much the same thing as a carbon tax but isn't actually a carbon tax. In other words, they're doing it because they don't want to take the risk of supporting a major new tax and getting attacked for it. That is pragmatic, but it's political pragmatism, not economic pragmatism. There's a difference.

Kevin Drum 12:32 AM Permalink | Trackbacks | Comments (22)

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Comments

Over-reaching got us the Harry and Louise system of dysfunctional health care. Attainable also means politically reasonable. Increments!

You are right on the money, Kev.

Posted by: Sparko on February 27, 2008 at 12:35 AM | PERMALINK

By the time this is posted someone else may have said this but.... the auction vs. cap-and-trade debate is a legitimate policy issue (although hillary seems to have endorsed auctions now as well...). The cap-and-trade approach isn't quite like a tax in that most of the defined value would go to the polluting firms. In that sense Auctioning credits is somewhat closer to a tax.

My view is closer to that of Mark Kleiman on Obama's positioning. The 'new' aspect Obama brings to the table is a pragmatic political strategy for packaging progressive ideas convincing the public. (Ok, the alliteration in that sentence was unintentional but I am too lazy to change it at this hour...)

http://www.samefacts.com/archives/barack_obama_/2008/02/obama_as_the_democrats_reagan.php

Posted by: sven on February 27, 2008 at 12:47 AM | PERMALINK

That is pragmatic, but it's political pragmatism, not economic pragmatism. There's a difference.

It's the political economy, stupid.

(No disrespect to Mr. Drum intended.)

They are interdependent.

Posted by: lone wolf on February 27, 2008 at 12:51 AM | PERMALINK

A carbon tax wouldn't hurt them if they had the political sense to propose using it to replace the SS payroll tax.

Working people are skeptical of a carbon tax because we spend a large portion of our income on gas to get to work or on heating our homes. But I think a principled strategy of shifting taxes from human labor to resource consumption would be popular. So would eliminating all corporate subsidies and using the savings to raise the personal income tax deduction to $30,000. In fact, this alone would probably lock the Democrats into the White House for 20 years.

We need someone with actual coherent ideas for tax policy. Right now, we've got the GOP (wedded to the idea of "across the board" cuts that go mainly to the super-rich), and the Dems (who love targeted credits for social engineering purposes). Simply cutting taxes from the bottom up (on the poor first), and welfare from the top down (i.e. starting with corporate welfare), would be immensely popular.

The overall effect of increasing working people's purchasing power and creating incentives for green investment would created the longest sustained boom since the early postwar period.

Posted by: Kevin Carson on February 27, 2008 at 1:10 AM | PERMALINK

In the comments to the previous Clinton/Obama thread, this Scheiber piece was touted as containing proof of major policy differences between the two candidates...

http://www.washingtonmonthly.com/archives/individual/2008_02/013195.php

I read the piece looking for exactly that, but damned if I could find any such policy differences.

Please, I'm beggin' ya, someone help out this progressive voter and run down the substantive policy differences between Clinton and Obama.

Patrick Meighan
Culver City, CA

Posted by: Patrick Meighan on February 27, 2008 at 1:22 AM | PERMALINK

Once again though it's the framing. And it's one that a lot of people under 30 that I've talked to seem to do. Sure you can think of yourself as liberal or conservative, and many do, but above all you like to think that you're open-minded and savvy enough to be able to do what works best regardless of whether it's a left or right idea.

Is it our fault that Reality has a well-known liberal bias?

Posted by: MNPundit on February 27, 2008 at 3:03 AM | PERMALINK

If he is surrounding himself with economists, then it's over for us if he is elected.

Economists have no way of lab testing their grandest loony theories and so must rely on destructive testing of our economy from which to cherry pick data that is in accordance with their political bias.

Posted by: Luther on February 27, 2008 at 3:13 AM | PERMALINK

Cap-and-trade amounts to something like a tax for those who are forced to cap-and-trade. But it provides no incentive for ordinary citizens to reduce greenhouse emissions. We need carbon taxes on items in the same way we have sales taxes on them. This will provide incentive to buy locally-produced goods, to buy more fuel-efficient cars, (and probably less meat).

We need a universal carbon tax, indexed to income (broadly-construed) so that it is not too regressive (and is progressive enough to provide incentives for richer people to do things like avoid Hummers).

Non sequitur: I'm watching the debate right now and my God is Tim Russert a tool.

Posted by: MattD on February 27, 2008 at 3:30 AM | PERMALINK

At Matt D

It's no more dificult including including gas retail in a cap and trade system than in a Carbon Tax....

Posted by: tadhgin on February 27, 2008 at 3:42 AM | PERMALINK

With all due respect, ONLY Obama has been labeled unrealistic, a dreamer, etc. which is why the article you link addresses his pragmatism. Now, maybe he's not MORE pragmatic than HRC or Edwards, but I think the article does make a case that he's at least AS pragmatic. And given the attacks of the HRC campaign, I don't see why there is anything wrong with that.

Posted by: Nobcentral on February 27, 2008 at 7:44 AM | PERMALINK

an ambitious cap-and-trade arrangement that would lower carbon emissions 80 percent below 1990 levels by 2050.

If one wanted to be really pragmatic we could reduce our oil consumption along some sort of curve that largely matched our increase in petroleum use over the last 50 years. Maybe a logistic curve or something.

Several policy suggestions here:
http://www.theoildrum.com/files/PU200701_Fig1.png

Posted by: assdf on February 27, 2008 at 8:49 AM | PERMALINK

In this case, Kevin, I think the political and the economic cases are indistinguishable from one another.

Posted by: digitusmedius on February 27, 2008 at 9:54 AM | PERMALINK

http://www.economics.harvard.edu/faculty/weitzman/papers_weitzman

OK Weitzman showed in 1974 (see his CV) that there are differences between cap-and-trade and effluent taxes.

Basically you should prefer the former if:

- you need certainty as to the amount of effluent emitted (CO2)

- the price elasticity of emission is low: a big price increase via taxes won't necessarily lead to a fall in emissions (think gasoline)

- there is a political constraint eg you can't rely on a legislature to 'fine tune' CO2 taxes having enacted the legislation

- you want to protect existing emitters, or at least smooth the transition, by giving pollution rights to existing emitters

Cap-and-trade is largely preferred amongst the policy making community now because the public will not see it as a 'tax' per se, and because there won't be the same distributional questions about what to do with the revenue (depending on how the permits are auctioned).

A carbon tax in the US is, in any case, a political non-starter.

Posted by: Valuethinker on February 27, 2008 at 10:08 AM | PERMALINK

BTW. What is "80% below"? It can't be "20% of", can it? I'm guessing it's the level at which an 80% increase will get you back up to the starting point. If so why don't they just say 55% of? For that matter why don't they say 1970 level (55% of) or depression era levels (20% of) or just give a numerical value in gigatons.

OK, I understand why one wouldn't say "depression era levels".

Just to explain my previous snark at 8:49: consensus projections for world petroleum production projections put it about 80% below 1990 levels in 2050. This doesn't include coal of course but matching the baseline logistic curve doesn't sound like a very impressive goal for oil.

Posted by: B on February 27, 2008 at 10:09 AM | PERMALINK

Cap versus tax. Economics wise the tax is better. First the tax raises revenue, which the government can spend or use to offset other taxes. Second business planning is facilitated by predictable costs. With cap and trade an industrial planner doesn't know the future price of carbon, and so a large degree of uncertainty must go into planning.
A carbon tax could (and should) be phased in slowly over a number of years, and the size of the tax should be well known years ahead of time.

Posted by: bigTom on February 27, 2008 at 10:20 AM | PERMALINK

But this is precisely the same policy proposed by both Hillary Clinton and John Edwards. So why does this tell us anything about how pragmatic and grounded Team Obama is?

Pay no attention to the man behind the curtain, Kevin.

God willin' and the cleek don't rise, we'll have yet another corrupt-media-influenced election in this country, part of our proud American tradition.

Posted by: Swan on February 27, 2008 at 10:27 AM | PERMALINK

I won't rehash things I've written here before about why cap-and-trade and a carbon tax (or higher taxes of any kind on energy use) are decidedly not the same thing.

Instead, let me point out that cap-and-trade represents a very specific kind of market, in that to establish this market the government must establish limits on multiple pollutants (which it has not limited before); require hundreds of thousands of sources of those pollutants to calculate how much of each they are emitting now and need to emit to stay in business (which they have not done before); and force each of these sources to consult first the market for available credits before making any decision on expanding or moving their business (which they have not had to do before either). In addition to which, each source will have to reckon with the penalties for emitting more than they are permitted for, while the government will have to reckon with the costs of litigating claims that such penalties are being enforced in error. These costs are likely to be substantial.

So, is cap-and-trade a market? Technically, yes. The thing to remember is that it is a market established as one element of a very extensive and -- for most of the entities that would have to be subject to it -- unprecedented scheme of government regulation.

Posted by: Zathras on February 27, 2008 at 10:56 AM | PERMALINK

Cap-and-trade can either be very effective or pure bullshit, depending on the details.

Grandfathering in existing polluters by giving them credits according to how much they currently emit, as has been done in Europe, is garbage (as demonstrated by Europe's results). OTOH, making everybody bid for permits is just another way of imposing a tax. For speeches the lack of a three letter word makes it go over easily, but people (and more importantly lobbyists) will figure it out real fast if anyone tries to put it into practice.

BTW, I don't think I've ever seen a more over-the-top, gushing, fawning, etc., etc., etc. piece of tripe than the TNR article. What's next, Obama the Messiah?

Posted by: alex on February 27, 2008 at 1:52 PM | PERMALINK

Zathras,

Wouldn't most of the point sources for CO2 also be point sources for other pollutants? Surely at least the big ones would. Any factory or power plant that burns coal, oil, or biomass fuels, for instance, emits Clean Air Act pollutants that already are regulated by a cap-and-trade system. So I doubt the startup costs of a cap-and-trade system for carbon would be as high as you seem to suggest. Those businesses already know how a cap-and-trade system works, and they've already got infrastructure in place to operate within it. They'd just be adding another pollutant to the program. Wouldn't they?

Posted by: The Fabulous Mr. Toad on February 27, 2008 at 3:22 PM | PERMALINK

They'd be adding half a dozen additional pollutants, most of which have not hitherto been regulated at all (which matters because you need a reason to collect data on pollutant materials or compounds, and regulation is a really good reason).

Moreover "they" -- the point sources regulated for SO2 under the 1990 Clean Air Act Amendments and participating in the trading scheme established pursuant to that legislation -- number a couple of hundred entities. They are large point sources, discharging regulated pollutants out of pipes. A cap-and-trade system for carbon equivalents would include these sources, but also hundreds of thousands -- literally -- of others, many of which do not discharge regulated pollutants in such an easily monitored way.

Let me be clear -- I'm a believer in the utility of market-based instruments to address environmental problems. I know what's required to make them work. In a nutshell, what's required is enough information to bridge the gap between theory and practice; the more things being traded, the greater the number and diversity of the entities trading them, the more information is needed.

We're not even close to having the information necessary for a cap-and-trade system to operate and reduce carbon-equivalent emissions in the United States (we don't know either whether any such reduction would alter the course of climate change in our lifetimes, but that's another subject). Cap-and-trade is being promoted because the theory is plausible, but mostly because the people who think climate change is the defining moral challenge of our time are desperate for ways to address it that won't be violently unpopular with voters. They aren't wrong that increased taxes on energy would be unpopular, but it's not written anywhere that difficult problems can only be solved by doing things that won't upset anyone.

Posted by: Zathras on February 27, 2008 at 4:38 PM | PERMALINK

In other words, they're doing it because they don't want to take the risk of supporting a major new tax and getting attacked for it. That is pragmatic, but it's political pragmatism, not economic pragmatism. There's a difference.

Er, what is the difference again? I thought that a pragmatic economist is one willing to tweak sound policy for political considerations.

Hm. Maybe a pragmatic economist would be someone who is willing to, say, bail out Mexico in the mid-1990s, moral hazard be damned. Or form a public bank to buy back mortgages at risk of foreclosure, as was done in the 1930s (and as Blinder advocates now - see Sunday's NYT piece).

I can't work out the significance of this distinction though.

Posted by: Measure for Measure on February 27, 2008 at 7:45 PM | PERMALINK

If one wanted to be really pragmatic we could reduce our oil consumption...

Yes. The only thing I think will work is to focus almost exclusively on transportation fuel RATIONING and more stringent CAFE requirements. Coal is bad yes, BUT we are a net exporter of coal. Consider a ban on all coal *exports* that can be used only for power generation outside the country. Require that every NEW coal-burning plant that is built is carbon sequestering and that one OLD coal burning plant is *retired* in exchange. Figure out how much $$$ we need to reduce oil *imports* to favorably effect our economy, balance of trade, discretionary income, whatever. Then divvy up the transportation fuel that is available amongst the population. Let people that drive little or none at all trade transportation fuel units (tax free!)with the folks that drive too much for their excess units. Let those drivers pay the difference. This is government diktat, but it is coming people-if you want jobs and discretionary income...

Posted by: Doc at the Radar Station on February 27, 2008 at 9:28 PM | PERMALINK




 

 

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