It appears that the president’s global celebrity status doesn’t advance the effectiveness of environmental scolding.  The Indian government rejected Secretary of State Hillary Clinton’s calls for legally binding carbon caps, lest such limits “undermine the economic growth that is necessary to lift millions more out of poverty.”

I’m sure some people in low-wage, high-energy jobs (e.g. manufacturing, mining, etc.) in the U.S. share the sentiments of the Indian government.

I’m nearing the end of Alan Greenspan’s The Age of Turbulence and came across his criticism of the Kyoto Protocol, an agreement environmentalists tend to adore, but which will inevitably have undesirable economic consequences for much of the world’s poor.  (My emphasis is added below)

There is no effective way to meaningfully reduce emissions without negatively impacting a large part of the economy. Net, [a capt-and-trade system] is a tax.  If the cap is low enough to make a meaningful inroad into CO₂ emissions, permits will become expensive and large numbers of companies will experience cost increases that make them less competitive.  Jobs will be lost and real incomes of workers constrained.  Can a national parliament vote to impose costs on constituents when the benefits of its actions are spread across the globe, wholly independent of where the CO₂ savings come from?

More generally, can a democratic government stand against an accusation that whatever savings in CO₂ emissions are pressed on its constituents, they are likely to be more than wiped out by increased emissions coming from developing countries that were not included in the agreement reached in Kyoto in 1997?  And can developing countries be asked to forgo creating the carbon emissions associated with economic development?  Should access to “free” pollution permits be shut off only after a large number of countries have become developed?  I doubt very much that a Kyoto-type accord will bring world agreement on some penalty for the emissions of greenhouse gasses.  Spewing CO₂ into the atmosphere is as much a violation of property rights as my dumping refuse into my neighbor’s yard.  But protecting such rights and assessing the costs of an infringement are exceptionally difficult because monitoring the cost is not feasible.  Our recent difficult history with international agreements requiring broad acceptance, whether in the World Trade Organization, the United Nations, or any other world forum, makes me pessimistic.  Cap-and-trade systems or carbon taxes are likely to be popular only until real people lose real jobs as their consequence.

We can summarize Greenspan thusly:

1. The Cost: Reducing emissions by fiat (either by cap-and-trade or by a carbon tax) will cost polluters money.
2. The Benefit: The benefits are a public good, indivisible and non-exclusionary.  Thus, non-participants will benefit no matter what.
3. The Politics: The public is unlikely to bear the costs of a system whose benefits are diffused and even visited upon non-participants.

Both John McCain and Barack Obama support some sort of carbon tax.  Though it is politically popular to show that one is “doing something” about a popular political issue, it will be interesting to see how the candidates respond to the details.  What happens when a carbon tax renders entire American industries unprofitable?  What happens when energy-intensive manufacturing jobs, often staffed by the lower- and lower-middle class, must lay off workers simply to pay for carbon permits?

If lower- and lower-middle class workers must face hardship while high-paid tax accountants and lawyers face minimal costs increases, are we really implementing a just tax system?  These are difficult questions to answer and though I know public opinion favors “doing something” to combat global warming, I suspect much of that support will wilt when it becomes clear that people of modest and meager means will face real hardship.

Americans often believe that cheap gas is a constitutional right. With gas prices as high as they are these days, driving one’s SUV around one’s car-dependent suburb is becoming expensive.

To allay this pain at the pump, both Sen. Clinton and McCain have proposed suspending the Federal gas tax for the summer, a measure expected to draw praise from these motorists. Sen. Obama, however, has rightly described the gas tax suspension as a gimmick that won’t lower gas prices at all. Here are the various reasons why the gas tax suspension is a bad idea:

Ineffective Economic Gimmickry

The problem with this tax suspension, as many notable economists have explained, is that oil refiners and distributors will simply raise prices as the tax drops with hopes that nobody will notice. Furthermore, reduced prices may encourage higher consumption, thus boosting prices back up again.

Today on ABC’s This Week, host George Stephanopoulos asked Clinton “Can you name one economist, one credible economist, who supports this suspension?” (watch the exchange)

Clinton responded,

Well, you know, George, I think we’ve been for the last seven years seeing a tremendous amount of government power and elite opinion behind policies that haven’t work for the middle class and hard-working Americans.

Pressed further to name one supportive economist, Clinton dismissed the need to listen to economists about economic policy:

I’m not going to put my lot in with economists because I know that if we did it right… we would design it in such a way that it would be implemented effectively.

Apparently Sen. Clinton believes she knows better than professional economists about fuel markets. This is another instance where careful, professional economic thought is cast as “elitist” when it doesn’t tell the masses what they want to hear, specifically, that we can have our cake and eat it too.

Failure to Reduce Dependence on Oil

Though Sen. Clinton supports suspending the gas tax, she then goes on to complain about the nation’s dependence on foreign oil. Just how exactly does Sen. Clinton plan to reduce this dependence while opposing drilling in Alaska and making gas cheaper? It is impossible. Though bashing Saudi oil barons has been in vogue for several years, we must recognize that these same barons provide us with what we want: cheap oil. Without increasing domestic production or reducing domestic demand, suspending the gas tax is likely to increase consumption of foreign oil.

Encouraging Environmentally Destructive Behavior

Sen. Clinton cannot support reducing greenhouse gas emissions and support cheap gas. The latter exacerbates the former and in the unlikely event that a gas tax suspension does indeed lower gas prices, such prices will only encourage increased consumption and thus increased greenhouse gas emissions.

Dismissing the “elite opinion” of economists, Sens. Clinton and McCain float this suspension as a populist appeal to middle- and lower-class voters for whom the rise in gas prices has been particularly painful.

Politically, though, these differing positions on the Democratic side highlight a difference in the support base of the two candidates. Clinton’s base, skeptical of the “elite opinion” of economists on issues of free trade and technological innovation, are having trouble affording the drive-everywhere lifestyles to which most suburban Americans are accustomed. Furthermore, despite the green leanings of the Democratic Party, much of Clinton’s base cannot or will not sacrifice to support environmental causes.

Obama’s base, which skews toward the wealthy, has the means to buy hybrids and live in pricey, close-in enclaves where public transport is better and where good jobs are not too far away. Though Obama denies that a tax holiday will lower prices (and he’s likely right on that), it’s far easier for him to say that without alienating his base.

For consumers who actually believe the tax holiday will lower prices, Obama’s refusal to lower the tax smacks of elitism. For those of us educated with some minimal understanding of economics, our “elite opinion” is in Obama’s favor.

All three candidates have promised the impossible: to cut greenhouse gas emissions and to lower the cost of gasoline.

McCain wants a gas tax holiday from Memorial Day to Labor Day. His rationalization is that the slight savings would encourage consumer spending. He also avers that such boosted spending would bring about economic recovery to offset losses to the Treasury. Yeah right.

The Clinton and Obama camps have added an anti-corporate flare to their equally populist proposals, promising gas tax reductions to be compensated by a “windfall profits” tax on “Big Oil,” the Democrats’ favorite bogyman.

But what about the environment? Any gas tax reduction incentivizes consumption of gasoline and thus the production of greenhouse gases. Cheap gas, often mistaken for being listed in the Bill of Rights, is entirely antithetical to curbing greenhouse gas emissions. Like President Bush’s belief that Americans need not sacrifice one bit to pay for war, the Democrats believe Americans need not sacrifice one bit for clean air or to reduce CO2 emissions. They prefer to shift the burden to “Big Oil” and the auto companies, whom they demand to produce more fuel efficient cars. Candidate resort to rhetoric demanding in increase in the CAFE standards, expecting the auto companies to deliver.

Sadly, raising mileage standards is unlikely to reduce emissions anytime soon. Blaming mileage standards does, though, provide politicians with convenient political cover as they shift the burden of environmentalism to car companies. This is unwise for several reasons.

First, raising mileage standards takes years and does nothing to address the emissions of existing vehicles.

Second, the moment a president signs a bill mandating high standards, the auto industry’s lobbyists will shift into top gear, lunching and golfing in full force to dull the bite of any CAFE legislation either by obtaining extensions or all-out waivers.

Third, a high-mileage vehicle, though emitting less CO2 per mile, can still emit an overall large amount if driven frequently.

The simplest and most effective solution is also the least politically popular: increasing the gas tax to act as a carbon tax. This would immediately reduce greenhouse gas emissions since gas consumption would decline as the price rose. However, while the Democrats like to bash the Bush administration for doing precious little to reduce greenhouse gas emissions, they know that the public would not tolerate any intentional increase in gas prices.

Though the president displays a weak commitment to reducing greenhouse gas emissions, his aversion to Kyoto and other initiatives is more honest than the Democrats’ double-talk. He states correctly that the nation is neither willing nor prepared to pay the economic price of reducing emissions. This is true.

Too many Americans believe they are entitled to cheap oil and Democrats and Republicans have long realized that these people vote. Half of Americans live in suburbs, which are notorious for their car-dependency and whose very existence is due largely to cheap gas and free highways. Are the people who drive to the store, to school, to work, to the mailbox—everywhere!— going to appreciate paying $7.00 per gallon? Not likely.

Though one could be mistaken for thinking Monumentality is a Pelosi-bashing outfit, it appears the House majority leader may have the right idea on the housing bills going through the House and Senate.

The New York Times today reports that the Senate version has been compromised by special tax handouts for house builders, airlines, and the automobile industry. Like much of the waste that passes through Congress on its way to the Treasury, lobbyists representing various interests have been able to attach riders to a housing bill whose public support and perceived urgency guarantee its own passage.

The House version lacks these provisions and it is likely Pelosi will try to kill them in the conference committee and rightly so.

The Times describes the Senate bill’s provision for home builders:

In the Senate bill, the nation’s biggest home builders, some now on the verge of bankruptcy, won a provision that would let them claim millions in tax refunds by charging their current losses against the huge profits they made three or four years ago.

Certainly house builders are hurting right now, but so are many other sectors of the economy. House builders are neither entitled nor deserving of special tax treatment: they have reaped bountiful profits the past few years by riding the real estate wave. Prudent builders would have stashed away some profits for years such as this one.

Airlines, though suffering from the high cost of fuel, are the oriental rug stores of corporate America, always claiming to be poised on the brink of bankruptcy. Congress need not intervene for an industry that needs to learn how to run itself profitably, as several carriers do. Furthermore, the solution to higher fuel prices is simple: raise fares and cut service.

The automobile industry faces several challenges. First, the high cost of fuel has driven down demand for SUVs and trucks from the Big Three, whose profitability precariously depends on gas being cheap. When prices rise, their products look less attractive to consumers. The second challenge is falling consumer demand due to decreased consumer confidence. Low confidence is compounded by the fact consumers are finding it harder to obtain credit for such expensive purchases. Additionally, the Big Three face extraordinary pension liabilities resulting from ill-considered benefits promised decades ago. Most of these problems are not new.

With such popular demand for government action in the face of declining housing prices, it is hard for Congressmen to refuse to act. Unfortunately, it’s also hard for lobbyists to refuse to act.