UPDATED: Conor Clarke Is At It Again

Apparently, Gov. Palin's op-ed in the Post got his goat, as he felt the need to respond this morning (including, as per usual, a graph) in an attempt to debunk her arguments and make her look ignorant. As it happens, however, his own argument once again has a few significant problems with it.

First, here's what he defines as "the big problem" with Gov. Palin's argument, taken from this paragraph in her piece:

There is no denying that as the world becomes more industrialized, we need to reform our energy policy and become less dependent on foreign energy sources. But the answer doesn't lie in making energy scarcer and more expensive! Those who understand the issue know we can meet our energy needs and environmental challenges without destroying America's economy.

I don't think cap and trade has many supporters who think it's the best way to become "less dependent on foreign energy sources." (As a sidenote, I'd add that I'm skeptical we should become "less dependent on foreign energy sources" at all, for the same reason I'd be skeptical of becoming less dependent on foreign cars or foreign cucumbers. A "more industrialized" world is an accomplishment of free trade, not a reason to turn against it.) The point of cap and trade is to solve a problem of social cost: As an energy consumer, I am imposing a cost on society (pollution) that I do not take into account when I make the original decision to consume.

Clarke is of course correct that the supporters of the cap-and-tax bill aren't trying to become less dependent on foreign energy sources. He seems to think that Gov. Palin either doesn't realize this (in which case she's ignorant) or that she's being disingenuous here. In truth, however, I think he's the one being disingenuous. Surely he's read and listened to enough politicians to recognize what Gov. Palin is actually doing here, something which is standard political issue: she's linking cap-and-tax to one of her core issues, that of American energy independence, for a political and rhetorical purpose.

Now, is that disingenuous of her? Well, you could make that argument—but I think her op-ed as a whole refutes that, making it clear that in fact she's linked these two issues for a very different reason: she wants to argue that there's a better way forward to improve our environment, one which is closely linked to the goal of energy independence.

Before we come back to that, though—and to the real "big problem" here, which is with Clarke's argument in favor of the cap-and-tax bill—let's consider the rest of his arguments against Gov. Palin. He admits that "there's no denying that a price mechanism will make life more difficult for consumers and energy producers, at least in the medium run," and then goes on to accuse her of dishonesty in addressing this obvious fact.

For example, Palin writes:

Job losses are so certain under this new cap-and-tax plan that it includes a provision accommodating newly unemployed workers from the resulting dried-up energy sector, to the tune of $4.2 billion over eight years. So much for creating jobs.

A quick note about the psychology of large numbers: $4.2 billion over eight years is $525 million a year. (That yearly cost is just above the total cost of, I dunno, building a road that connects Juneau with the rest of Alaska.)

His response here is, quite frankly, not a response; in fact, it's the most nonsensical kind of non sequitur. Gov. Palin points out that even the Democrats have (tacitly) admitted that the cap-and-tax bill will kill jobs (contrary to their public claims that it will create jobs), and what's Clarke's response? "The cost to the government to compensate people for the jobs it's destroying will only be eight times what it would cost to build a road to make it possible to drive to Juneau." Um, huh? What does that have to do with her point? This isn't about "the psychology of large numbers," it's about the fact that cap-and-tax will kill jobs in large numbers: $525 million in jobs lost per year is no small thing. (And that's just the damage the Democratic leadership is willing to admit their bill will cause—which is to say, it's an absolute best-case scenario.)

The problem for Clarke, of course, is that if he addresses this fact head-on, it would become difficult to maintain his contention that the cap-and-tax bill will have positive economic effects.

Palin writes:

The Americans hit hardest will be those already struggling to make ends meet.

This is simply incorrect. Cap and trade creates revenue, which can be used to mitigate the costs for consumers. When the Congressional Budget Office did its analysis of the distribution of the costs and benefits of the House's cap and trade bill, it found that the poorest quintile would actually benefit.

But is that really what the CBO found? Color me dubious. In the first place, if you click the link, you'll find that it goes not to the CBO information, but to another of his own posts—which in turn does not link to the CBO, but rather to posts by Matthew Yglesias and a blogger from Mother Jones. The only CBO link is to a generic page on the distribution of federal tax rates. In the second, from what Clarke says there, this estimate is in regard to tax liabilities resulting from the cap-and-tax bill, which is a far cry from the total cost. And in the third, the assertion that "cap and trade creates revenue" is just that: an assertion, based not on proof from solid evidence but on the assumption that "some portion of the revenue will be used to fund a rebate and tax credit for low income families." Some portion. Uh-huh, right . . . given the history of government on matters financial, and especially tax-related, we know just how far to trust that one, don't we?

More seriously, this is an example of something I've written about before, the tendency of liberals in economic matters to compartmentalize rather than thinking systemically, and to assume that people's behavior doesn't change when you change the incentives. In this case, it's the fact that the cap-and-tax bill won't just have direct effects, but also indirect ones—and it's the indirect ones that will be the killers, as the costs from this bill work their way through our economy, multiplying each other as they go. Here's what the Heritage Foundation had to say about the bill's likely impact if it takes effect in 2010:

For a household of four, energy costs go up $436 that year, and they eventually reach $1,241 in 2035 and average $829 annually over that span. Electricity costs go up 90 percent by 2035, gasoline by 58 percent, and natural gas by 55 percent by 2035. The cumulative higher energy costs for a family of four by then will be nearly $20,000.

But direct energy costs are only part of the consumer impact. Nearly everything goes up, since higher energy costs raise production costs. If you look at the total cost of Waxman-Markey, it works out to an average of $2,979 annually from 2012-2035 for a household of four. By 2035 alone, the total cost is over $4,600.

This isn't just a Republican conclusion, either; even this bill's most prominent supporter, Barack Obama, admitted that cap-and-tax legislation will cause electricity rates to "skyrocket"—his word, no one else's; and those skyrocketing rates will hit the poorest hardest, as Rep. Fred Upton (R-MI) notes:

In 2008, approximately 21 percent of all utility accounts were overdue, with folks carrying past due balances, on average, of $160 on electric bills and $360 for natural gas. In some parts of Michigan, 1 out of 3 households were behind on their utility bills—and the situation has likely worsened as those figures were compiled before last autumn’s financial collapse. Families in coal-dependent states, particularly in the Midwest, could be hit even harder.

That, combined with all the job losses in the energy industry—you know, the ones even the Democrats admit will need to be subsidized to the tune of $525 million per year—make it easy to see why Investor's Business Daily, building off the Heritage Foundation's work, wrote,

An analysis of Waxman-Markey by the Heritage Foundation projects that by 2035 it would reduce aggregate gross domestic product by $7.4 trillion. In an average year, 844,000 jobs would be destroyed, with peak years seeing unemployment rise by almost 2 million (see charts below).

Consumers would pay through the nose as electricity rates would necessarily skyrocket, as President Obama once put it, by 90% adjusted for inflation. Inflation-adjusted gasoline prices would rise 74%, residential natural gas prices by 55% and the average family's annual energy bill by $1,500.

Hit hardest by all this would be the "95% of working families" Obama keeps mentioning as being protected from increased taxation. They are protected, that is, unless they use energy. Then they'll be hit by this draconian energy tax.

That cumulative effect, rather than narrow considerations of direct tax liabilities, is why Warren Buffett predicted that the cap-and-tax bill will be "pretty regressive." And even at that, that's not all the negative effects we'll see if this bill passes. One of the stings in its tail is that it will actually make domestic energy production less competitive with foreign production than it already is. Bloomberg laid this out clearly a while back:

America's biggest oil companies will probably cope with U.S. carbon legislation by closing fuel plants, cutting capital spending and increasing imports. . . .

"It will lead to the opportunity for foreign sources to bring in transportation fuels at a lower cost, which will have an adverse impact to our industry, potential shutdown of refineries and investment and, ultimately, employment," Mulva said in a June 16 interview in Detroit. . . .

The same amount of gasoline that would have $1 in carbon costs imposed if it were domestic would have 10 cents less added if it were imported, according to energy consulting firm Wood Mackenzie in Houston. Contrary to President Barack Obama’s goal of reducing dependence on overseas energy suppliers, the bill would incent U.S. refiners to import more fuel, said Clayton Mahaffey, an analyst at RedChip Cos. in Maitland, Florida.

"They’ll be searching the globe for refined products that don't carry the same level of carbon costs," said Mahaffey, a former Exxon Corp. refinery manager.

Only wishful thinking can deny that the cap-and-tax bill, if passed, will blow a large hole in our economy—which will do the most harm to "those already struggling to make ends meet," just as Gov. Palin says, because those are always the folks who take the brunt of bad economic times—and that's just what Clarke offers. To be specific, he provides a chart showing that the cap-and-tax bill will cause only a very tiny percentage decrease in our GDP between now and 2050. That looks impressive until you realize the source of the numbers: the Environmental Protection Agency. Two problems with that: one, the EPA is not in the business of economic projection (you might as well ask the Defense Department to do it); and two, the EPA has already shown itself willing to suppress the facts for the sake of its political agenda in order to get the cap-and-tax bill passed. In other words, Clarke is relying on a source which is neither competent nor trustworthy to make his case.

Taken all in all, I think Gov. Palin holds the laurels here, because Clarke's sources don't adequately support his attack on her argument. Indeed, for all that he cites the CBO in an effort to prove that cap-and-tax won't hurt the poor, had he paid attention to the CBO's estimate of the bill's overall economic effect, he would have noticed that they reached a very different conclusion than the EPA:

The Congressional Budget Office (CBO) recently determined that rolling back the clock to reach 1910 emissions levels [as mandated by Waxman-Markey] would cost $864 billion, while some estimates put the number closer to $1.5 trillion, and it will be America’s working families left holding the tab.

This isn't a minor point, either; it's not something that can be tinkered away. Indeed, as even Clarke admits, this is the essence of this bill:

The point of cap and trade is to solve a problem of social cost: As an energy consumer, I am imposing a cost on society (pollution) that I do not take into account when I make the original decision to consume.

This happens all the time. My decision to drive creates traffic that imposes a cost on society. A company's decision to fish in the ocean imposes a cost on the world's common stock of fisheries. A banker's decision to take on a huge amount of risk creates danger for the economy as a whole. The problem is that none of these private actors adequately bears the cost of their decisions. So, the usual solution is to increase the price of these decisions—with congestion charges, or private property rights, or taxes—so that private consumers take into account social costs.

As I see it, there are three problems with this approach. In the first place, equating the cap-and-tax bill—which is an artificially-imposed system of costs designed by the government—to private-property rights simply won't hold water, because this isn't a true market mechanism. This is simply government deciding to make modern life more costly, making up all the numbers as it sees fit, with no actual logical relationship to the "social cost" of pollution.

In the second place, the statement that "the usual solution is to increase the price of these decisions" simply isn't correct in the sense in which he means it. When the government starts interjecting itself to arbitrarily "increase the price of these decisions," it only makes matters worse, not better. (See the history of rent control in New York City for one example of this.)

And in the third, it's one thing to talk glibly about "social cost" when one is comfortably well off (such as a self-professed "card-carrying member of the chattering class" like Clarke), and quite something else for the rest of us. It's all well and good to talk about "my decision to drive" when one has the option to do otherwise—but there are an awful lot of us for whom it isn't elective behavior. There are millions upon millions of us who don't have the option of living in a tony NYC or DC neighborhood where we can walk anywhere we need to go 90% of the time and have easy and abundant public transit to take care of the rest; we have to take the best jobs we can find and live where we can afford to buy (or rent) a place, and the drive back and forth from one to the other (and all the stops in between) isn't a luxury but a regretted necessity.

For most of us ordinary barbarians, the world just doesn't look the way it does to the "chattering class," and making life more expensive isn't a matter of trimming a bit of the fat off of life and feeling virtuous about it—it's cutting into muscle and bone. Dorothy Sayers, years ago, had her character Lord Peter Wimsey observe, "Income 20£, expenditures 19£, 19s, 6p: happiness; income 20£, expenditures 20£, 0s, 6p: misery." For a lot of folks in this country, it's pretty much that close, especially with the economy the way it is right now, and the cap-and-tax bill will push them across that line. For Conor Clarke, this discussion is an academic one; for Sarah Palin and those whom she represents, it's anything but. As such, contrary to his assertion that she "does not understand cap and trade," she understands it at a level he has never reached—and probably will never reach. He speaks as one who will not really be hurt by it; she speaks for those who will.

Gov. Palin also speaks as one who understands that this bill won't have the benefit promised for it. Were the benefit great enough, one could justify the cost—but it won't be, and for reasons which are intimately tied in with her evocation of American energy independence. As noted, she understands as well as Clarke that the cap-and-tax bill isn't intended to help reduce American dependence on foreign energy sources; unlike Clarke, she also understands that that's a profoundly bad thing, not only for our economy, but also for the environment. As she writes,

We have an important choice to make. Do we want to control our energy supply and its environmental impact? Or, do we want to outsource it to China, Russia and Saudi Arabia? Make no mistake: President Obama's plan will result in the latter.

This is not only a critical point for our economic health and national security, it's also a critical point for the global ecology. Rep. Upton laid this out well:

Climate change is a global problem that requires global solutions. In late May, the EIA released its forecast predicting that global energy demand is expected to soar 44 percent over the next two decades – with most of the demand coming from developing countries such as China and India. Yet, Waxman’s cap-and-tax legislation fails to take into account the growth of emissions in countries like China and India, where rapidly increasing emissions would negate costly American sacrifices. China is the number one emitter in the world, with annual emissions growth alone equal to the total yearly output of Germany.

Without international participation, jobs and emissions will simply shift overseas to countries that require few, if any, environmental protections, harming the global environment as well as the U.S. economy. The jobs and industries that will bear the greatest costs of cap-and-tax are the industries we must keep in America in order to remain a power on the world stage. Quite simply, cap-and-trade caps our growth and trades our jobs.

From 2000 to 2008, we’ve lost 3.8 million manufacturing jobs—a decline of 22 percent. At the same time, imports were up 29 percent—a direct correlation. Michigan and the Rust Belt has been ground zero for these losses. The manufacturing and energy intensive industrial sectors are highly competitive, and more often than not, the cost of energy is the difference between operating in the United States and shutting the doors to move overseas.

If one truly cares about the planet, why do we want to make steel in China rather than in the United States where our carbon emissions are one-third that of the Chinese per ton of steel produced? One Arkansas refinery recently testified that under a cap-and-tax regime, they would be forced to close their 1,200-employee plant while India builds the largest in the world to ship fuel to the United States with nowhere near the environmental protections we have. We’re not helping the environment by sending industries that operate cleanly and efficiently in the United States to a regulation-free China or India.

This sort of unilateral increase in the cost of working and doing business in the US will only encourage businesses to move jobs to countries where the cost is lower—which is to say, at least in part, where environmental standards are looser. The net result may well be lower carbon emissions here (though then again, given the European Union's experiment with this approach, it may not), but it will be significantly higher emissions, and other forms of pollution, elsewhere around the world.

The bottom line here, I'm convinced (and I'm not the only one), isn't really about the environment at all; I don't think it's any coincidence that the loudest voices for eco-socialism these days were the same ones who were the loudest voices praising the Soviet economy back in the day. The goal now is the same as it was then, for the same reason as then: greater government control of the economy, because (they believe) the government knows better how your life should be run than you do.

To the elites of this country (of both parties), this all makes perfect sense; that's how we ended up with "big-government conservatism," which is a ringingly absurd contradiction in terms if ever I've heard one. Gov. Palin's op-ed was a message to those elites from the rest of the country, trying to help them understand that there's a whole lot of ordinary barbarians out here who don't buy it, and aren't going to submit tamely to it. I hope Conor Clarke, and others of the "chattering class," will learn to listen.

UPDATE: As noted in the comments, Stephen Spruiell over at The Corner did a nice job of taking Clarke to task yesterday; apparently I gave Clarke too much credit. When I agreed that he is "of course correct that the supporters of the cap-and-tax bill aren't trying to become less dependent on foreign energy sources," I was unaware that some of its most prominent supporters are at least claiming that to be one of their motives—something of which Clarke was also ignorant. The fact that Barack Obama, Al Gore, and bill co-sponsor Henry Waxman all claim that (in Rep. Waxman's words) "this bill, when enacted into law this year, will break our dependence on foreign oil" only makes Gov. Palin's op-ed more on point and Clarke's attempted rebuttal even more of a bust. Given that this bill will actually serve to increase our dependence on foreign energy by making domestic production less competitive, it also speaks quite poorly for folks like Rep. Waxman (and, for that matter, Conor Clarke) who support the bill.

I should note, I really like Spruiell's parting shot at Clarke:

It's funny that Clarke works a paean to the virtues of free trade into his attack on Palin. The monstrous legislative vehicle he piously tsks her for opposing is one of the most protectionist bills to emerge from Congress in decades.

SIDE NOTE: I've been meaning to mention this for a while, but there hasn't been a good time: for all our disagreements with Clarke, he's a good sport. You may recall that I've responded to his attacks on Gov. Palin once or twice before, and that I didn't mince words about it; after my second post, I received this e-mail from him:

Dear Rob,

Thanks for your thoughtful posts. (And for getting the spelling of my name right in the second post! That "e" has long been the bane of my existence..)

Anyway, I keep thinking I'll respond to them, but keep procrastinating like crazy. Either way, I thought I'd introduce myself (in a non-vitriolic manner) to say thanks for the attention and please keep it up. If I write about Palin in the future should I just send the post straight to this address?

Hope all is well,

Conor Clarke

ps—this email is entirely serious!

It's always pleasant to find someone willing to take a stiff critique in a good spirit; that's rare enough, and praiseworthy enough, that I thought it was important to take note of it here—not least because, when he put up this latest post, he did in fact promptly e-mail me to let me know about it. I don't think much of his arguments where Gov. Palin is concerned, but I'm happy to give credit where it's due.

SIDE NOTE II: I received an e-mail today from a commenter pointing out that the line I attributed to Dorothy Sayers is in fact original to Charles Dickens. I can only say that, as scandalous as some might find this, I don't care for Dickens' work and have never read David Copperfield; I, at least, picked up the line from Lord Peter, who (with his typical insouciance) failed to cite the source of his quotation.