Green Ideas From Our Benevolent, Creative, and Infallible Government

We have all felt the media heat from global warming over the last few years. This controversial issue gas spurred a lot of research, with evidence both supporting and and opposing the assertion that this phenomenon was caused by the human race. To help cool us off, President Obama has allocated about 61 billion dollars in stimulus money to "greening" our energy. My question is - what exactly are we stimulating here?

Cap-and-trade, theoretically, is supposed to work as such: The government chooses how much carbon dioxide they want to emit. They then auction off "energy credits" to companies willing to pay the most. These credits grant purchasing firms the rights to emit (x) tons of CO2. The credits can also be traded between firms in a secondary market. These credits punish the evil polluters and stimulate investment in clean energy. Doesn't this sound great!?

Those who support this bill claim that making our environment green will create new jobs. We will need construction workers to build the factory, computer programmers to create the software needed to run the new power plants, and of course a staff to run the plant itself. However, as any economist will tell you, there is no free lunch. Although this bill will create quite a few jobs in the "green energy" sector, it will destroy jobs elsewhere. The mining, oiling, and manufacturing industries (a large sector of employment) will suffer a huge decline - resulting in the net effect of this bill being a decline, not an increase, in employment.

Proponents of this bill believe that it will tax greedy polluters and encourage them to invest in alternative energy sources. However, the legislation currently circulation provides 85 percent or more of these energy credits to polluters for free.

The supply shock that will come from this program will cause the price of fuel to rise. This higher price that firms have to pay will inevitably be passed down the supply chain, ending with none other than (you guessed it) the consumer - you and me. According to the Congressional Budget Office:

"Under a cap-and-trade program, consumers would ultimately bear most of the

costs of emission reductions. Firms that used emission allowances for CO2 would

generally pass along to consumers the cost of using those allowances in the form of

higher prices for their products—regardless of whether the government sold emission

allowances or gave them away."

So who is suffering now? Who is winning?

• Losers: Well, since energy companies have started charging higher rates for their product, innocent consumers are paying the full price of the cap-and-trade program. Since the polluting firms themselves aren't suffering losses, they have no incentive to invest in alternative forms of energy. Consumers still need electricity, so they will be forced to pay exorbitant energy prices with no alternatives, since everyone needs electricity in their home (could you live without internet, phone, or light?).

• Winners: Could this be another sub-prime scheme fiasco? This may sound like a conspiracy theory, but it is Wall Street that stands to benefit the most from this deal. There is good money to be made in trading these credits on a secondary market - which means traders only stand to gain from the institution of this bill.

There are two good reasons why we should not impulsively obliterate our economy.

1. There is still a lot of uncertainty about the Global Warming issue all together. A lot of evidence supports that global warming is a phenomenon caused mostly by human activity, however, there is just as much evidence supporting the claim that humans play a minor role in warming our planet. It would be very unfortunate to postpone passing some kind of legislation to find out that we will pay more fixing our environment than we would have taking preventative action. However, it would also be unfortunate to pass this bill only to find out that we destroyed jobs and GDP growth for nothing.
   
2. Given that polluters aren't really paying more, it is still undetermined whether or not this bill will actually lower emissions, as our European friends can tell us with their experience with the Kyoto Protocol (the EU's cap-n-trade bill). Instead of acting in panic, we need to compile a more educated, thought-out bill. If we don't do at least this, we will suffer in vein as we watch our economy and environment continue to deteriorate.
   

The Automobile Industry: Driving Our Economy Into the Ground

These are scary times. The economic climate is a harsh one. Even the big-wigs at the Federal Reserve don't know what the problem with our economy is, let alone know how to fix it. The Fed is scrambling to assist, developing new facilities almost every other week it seems. And as Americans watch their efforts fail, we cannot help help but panic. We are so terrified, we are willing to go to any measures to fix the problem, regardless of what the consequences may be.
I am speaking, of course, of the current "bailouts", specifically the one involving the auto industry. The $700 billion dollar bailout of our financial system is hard to stomach, but I find myself wanting to stick a finger down my throat in order to be rid of the auto-industry bailout altogether. Before I even begin to explain why this bailout is a miserable idea, I want to point out some key differences between a bank and the auto industry. First of all, a bank creates money. One person deposits ten dollars, and the bank loans that money to someone else and, voila: now two people have ten dollars. Ten dollars just became twenty. Now take this concept and apply it to the entire U.S. economy. What do we suppose would happen if the institutions that facilitated these transactions ceased to exist? Well, a lot of people would be wondering where the hell their ten dollars went.
If these firms were allowed to fail, money would literally disappear from the economy.
For this reason, I am willing to "bite the bullet", so to speak, and bail out these financial firms, regardless of the fact that they were the culprits behind this mess. By punishing these firms, we would be punishing the rest of America - even those who had no stake in these firms. Not helping is simply not an option.
Here is where the auto industry comes in. These industries do not carry out the same functions as a lending institution, so their fate is not a determinant of the money supply. It is true, stakeholders in these firms would suffer huge losses: shareholders would lose the value of their stock and thousands would lose their jobs. It only seems natural for the government to step in and prevent these negative consequences, right?
Absolutely not, for the same reason that our non-socialist government doesn't bail out any firm that might go under. For one, we already have a fairly large deficit, and these programs are extremely expensive. More importantly, what kind of message would the government be sending if it bailed out these firms? The government is essentially releasing a statement saying, "It doesn't really matter how dumb the decisions you make are. If you are big enough, we will save you."
Recklessness and a lack of corporate responsibility is exactly what got us into this mess, and is exactly what we do NOT need right now. With the advent of an auto-industry bailout, we can expect to see a wave of mergers in all industries as firms scramble to receive government assistance. Unfortunately, these mergers will take place even when they are not in the best interest for stakeholders. This is problematic because the government cannot afford to bail out everyone, leaving us with a lot of large, but deeply troubled firms. In the long run, this type of behavior will be far more costly to the economy than pulling the plug on a single firm.
The American automobile firms are failing because they offer an inferior product. Clearly, the fact that Dodge can no longer move their V8 monster trucks off the lot is not solely due to our financial crisis. As a result of recent high gas prices and growing environmental concerns (among other reasons), consumers are no longer demanding these vehicles. Through allocation of dollars, consumers are telling the market that they no longer want the kind of vehicles that American auto makers are producing. The auto industries are not failing just because of the recession, they are failing because they are not listening to the market. Why should the government invest tax-payer dollars in keeping products around that nobody wants? The simple concept of supply and demand tells us: they shouldn't. It has never been the government's job to pick winners or losers - that would be socialist, and history has already shown us how well socialism works (i.e. Soviet Union). Either I am living in a nightmare where the rational people of the United States have all gone loopy, or we are going down a very scary, very real path.
Please, don't anyone pinch me..