Why People Who Write Op-Eds Don’t Rule The World

October 18th, 2009 by Al Lewis (alewis)

We interrupt our health care pontificating for some breaking news.

A couple of well-intentioned do-gooders from Hyannis (www.CleanPowerNow.Org) wrote an impassioned op-ed essay in today’s Boston Globe (http:/a_carbon_tax_not_a_cap_and_trade/) explaining why the proposed cap-and-trade legislation for emissions won’t work.  They say, with plenty of evidence, that cap-and-trade amounts to nothing more than a windfall for industry, as it did in Europe.

Let us assume that they have their economic facts in order, and let’s focus on their solution.  Their solution is to tax carbon dioxide emissions.  So far, so good, assuming that CO2 emissions are a pollutant and therefore the cost of the pollution should be borne by those who pollute.  

Next, let us examine their proposed political solution.    They assume that because this CO2 tax would be “offset” by “reducing payroll taxes, increasing Social Security benefits, and funding renewable energy efforts that create new jobs and new industries particularly in the wind and solar sectors,” the public would accept it.

Well, maybe on their planet.  

Here on earth there is such a thing as reality.  And the reality is that a very visible increase in one tax – in this case, on power generation – cannot, politically speaking, be offset with a flurry of virtually invisible or poorly targeted tax reductions and job creation programs elsewhere.  People won’t see the “offsets” and the CleanPowerNow tax proposal, as elegant as it sounds in the Globe, is politically dead on arrival.

So what happens instead?  The two other alternatives are (1) to hide the carbon tax in a complicated set of cap-and-trade transactions as current legislation proposes, and (2) to run out and buy OOBonomics.  Or at least pre-order it since it isn’t available until January.

Why do we favor the latter other than to pay our kids’ college tuitions?  Because OOBonomics proposes that when carbon (or gasoline) taxes are raised, the taxes are offset with a “prebate” – a rebate of the taxes paid in advance to the American people, in the form of a check.    The size of the prebate is a political decision. Probably, you’d want to make it large enough so that 80% of people would be better off if they did not reduce power consumption, but of course people will reduce consumption of anything if the price rises.   (If you’re wondering whether “prebate” is a word, you can look it up in www.UrbanDictionary.com.  I put it there myself.  However, it will not attain real-world status until it shows up in the mother of all lexicons, the Official Scrabble Players Dictionary. )

Yes, it is true that the distribution of the prebate would inevitably be inequitable.   For instance, do you send a check based on the family size, counting children the same as adults?  People who live in apartments generally speaking use much less power than people who live in houses, and thus might get a windfall, so do you send them less money?  And so on.  But the existing fossil fuel subsidy today (if one believes that CO2 is a pollutant, coal-fired fuel is heavily subsidized) is also highly inequitable.  People like me who use power responsibly don’t benefit remotely as much from artificially low power prices as people who leave the A/C on when they aren’t home.  In any event, the tax offsets proposed by CleanPowerNow, mostly involving social security payments, would be even less targeted than almost any prebate formula. 

Still, the CleanPowerNow solution is an improvement over cap-and-trade, which violates the most basic tenet of OOBonomics — that pricing has to be “transparent.”    Cap-and-trade is anything but, and as a result is easily influenced by lobbyists.  To gain the cooperation of legislators from coal-producing states, the terms of cap-and-trade no doubt became far more industry-friendly than they should be in a perfect world.   

So there are three options:

(1)   Transparent, highly visible tax, transparent highly visible offset – the OOBonomics philosphy

(2)   Transparent, highly visible tax, murky offsets – the CleanPowerNow proposal, and of course…

(3)   Murky tax, murky offsets – the current cap-and-trade legislative offering.

The last is, of course, the most likely to pass the Senate.  But if it doesn’t accomplish anything other than increasing the stock prices of certain utilities, you heard it here first.

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