Cap-and-trade sounds good in theory; if companies are polluting our environment, this presents a cost to society these companies should pay. Robert Murphy, an economist for the Institute for Energy Research makes this argument, saying that “markets are only efficient when firms take all costs of their behavior into account.” And carbon permits can force higher polluters to bear more of the associated polluting cost than lesser polluters. Sounds great so far.

But Murphy points out that the cap part of cap-and-trade reflects the main error made when government intervenes in a market: its inability to accurately price something. Government bureaucrats love to price things arbitrarily, though their reasoning never seems arbitrary: let’s make the minimum wage conform to a level we think is necessary… let’s make rents in this part of town conform to a level we think is prudent… let’s keep access to credit conform to a level we think is fair. All this fair-minded “reasoning” may seem grounded and logical, but to the unbiased market it’s completely arbitrary – not based on any real-world market considerations. And it completely bypasses the price mechanism.

What is the price mechanism? How are prices determined in a real-world market situation? This is how I explain it to 9-year-olds (in my economics book for kids): prices are determined by how much the producer is willing and able to charge, AND by how much the consumer is willing and able to spend. It’s a conversation between two parties that must end in agreement. It’s that agreement that makes the transaction moral, but it’s also the agreement that makes the transaction efficient.

With cap and trade, the government bypasses the price mechanism by arbitrarily determining the price of carbon emissions. They do this by deciding (arbitrary) what the cap should be in the first place, then issuing a fixed supply (arbitrary) of carbon credits. “A carbon tax and tradable carbon credits presuppose that we know the appropriate amount of carbon to be emitted and whether achieving that level is worth the cost. Neither is the case,” writes Terry Anderson, executive director of the Property and Environment Research Center. For this reason, Anderson describes cap-and-trade programs as “market like,” not full-fledged free-market environmentalism.

Then there’s the ripple effect President Obama, himself, predicts: higher energy prices for everyone. Murphy goes on to point out: “[I]f the prices of oil, coal, and other fossil fuels explode because of a cap and trade program, this won’t reflect genuine scarcity. Consumers will be forced to restrict their use not because there is less supply available, but because of a number dreamed up by Washington bureaucrats. This is no more a ‘market price’ than if the government decided to sell people permits giving them permission to sneeze.” Forget trying to determine if emission reductions are worth the cost to polluters; we also need to determine if reductions are worth the cost to consumers… in this current economy.

Understanding your costs and benefits is central to economics, central to efficient incentives, and central to the price mechanism. When you stop to consider that carbon credits have no intrinsic value (they exist as a financial instrument merely because government mandates it so), that their supply is determined arbitrarily, and that consumers in this economy can’t afford higher energy costs, it’s clear that cap-and-trade isn’t a true market based solution. Let the market price emissions and maybe we’ll hug.

I’m seeing it in my own part of the world; none of my friends who tend to make their own are suddenly buying store-made. Just the opposite; my friends who normally buy store-made are asking how they can make their own. They’re ready to try something new. They want to spend less because it’s clear that now is not the time to be borrowing. Now is the time to pay back what you’ve borrowed.

We all know that it’s the failure to pay back debt that started our current economic crisis. When people can’t pay back what they borrow it hurts everyone, even those not facing foreclosure and repossession. But it hurts those in debt the most.

Last summer, David Brooks wrote in the New York Times that our current debt culture was the result of a “loosening of financial inhibition.” There are many institutions to blame for that loosening, but Democrats in Congress top the list. They wanted the poor to have easier access to credit and home ownership, and created both incentives and mandates for lending institutions to ensure that happened. The resulting default crisis didn’t give the poor access to homes… for long. Instead, it’s set them even further back. What the Democrats hoped would help the poor, has ended up hurting them.

How long will Democrats keep encouraging the poorest among us to spend and consume their own wealth? Probably for as long as it seems “wise” to voters on the left. A Democrat friend, defending the stimulus, eagerly pointed out to me the wisdom of the welfare payments (disguised as refundable tax credits) because they’ll be putting money in the pockets of those most likely to spend it – the poor.

Did you get that?

Translation: “We can rely on the poor to sacrifice what they get for the good of the economy.”

My Democrat friends believe that what the economy needs right now is more spending and easier access to debt (I mean, credit), They have no concept that spending and debt is what causes poverty in the first place. They feel no obligation to teach anyone to save. No wonder they distrust capitalism; they have such a distorted view on how best to employ it.

The problem for our country is that the people ready to return to thrift – to make their own and save their money – are not poor. They’re pretty well off because they tend to behave in ways that result in their being pretty well off. And as long as the Left continues to encourage the poor to consume themselves, a greater divide will exist between these two groups. It’s time for the GOP to send a different message to voters on the left – that the poorest among us can build wealth, too. We can invite everyone to join us in thrift. All they have to do is stop draining what they have through consumption and debt just because the Democrats tell them to.

It’s not an arbitrary pairing; Dr. Hansen and my mom went to school together in Denison, Iowa back in the 1950s, and there has always been some dispute as to which of the two was class valedictorian. They’re two reasonable people who disagree on global warming (and yes, a layperson can disagree with a NASA scientist simply by citing reputable, conflicting research). What they don’t disagree on, though, is the need to be good stewards of our natural environment. Green issues are valid; there’s nothing ignoble, fascist, or even anti-capitalist in the basic conservation of natural resources.

Unfortunately, many of my conservative friends are squandering opportunities green popularity provides. Instead, they’re hung up on Hansen’s financial connections to Soros, Gore’s faulty data, the eco-terrorism of Earth First. But while conservatives frown at these, the mainstream environmental movement has caught fire around the globe. And because we let them, Democrats have hijacked the term “eco.” They’ve taken advantage of a pretty captive audience of mostly reasonable greenies, without interruption.

I know lots of reasonable greenies because I’m one of them. We’re interested in the basic and the homespun: things like non-toxic cleaners, sustainable agriculture, voluntary simplicity, with a complete disdain for consumerism. We’d rather make it than buy it. My handy husband, for example, has made a lot of our furniture, and I make our laundry soap, mill our flour, and bake our bread. We love vinegar and baking soda. We don’t want green behaviors mandated, but we do like to promote our views and share tips. And people like us are primed and ready to hear how Obama’s preferred system of economics – Keynesian tax and spend measures – will be responsible for an increase in our culture’s consumerism and consumption levels.

You may already know that Keynesian economics tinkers with the demand side of the economy, stimulating demand and consumption (spending). Keynes actually blamed a lack of shopping for the Great Depression: “Therefore, O patriotic housewives, sally out tomorrow early into the streets and go to the wonderful sales which are everywhere advertised. You will do yourselves good… and have the added joy that you are increasing employment, adding to the wealth of the country…” [John Maynard Keynes, from a 1936 radio address] Keynes believed that saving causes unemployment: this belief is the antithesis of sustainability, and the foundation of consumerism.

President Obama and the Democrats in Congress are only too happy to oblige this thinking. The $787 billion stimulus bill was put together under the mistaken assumption that spending creates jobs. Spending here just diverts from spending that would have happened there – it doesn’t grow anything. And if you’re borrowing to spend, you’re depleting wealth. To create jobs we should be saving and investing to stimulate innovation and more efficient production – something that slows the rate of consumption (destruction), and actually grows an economy.

So it really doesn’t matter if Dr. Hansen’s climate data is accurate or not; the country’s desire to go green transcends even Al Gore, and gives us an enormous opportunity to criticize Obama’s Keynesian spending. And the cool part? The Left can’t argue back; in fact, they continue to defend Keynesian policies. Reasonable environmentalists aren’t yet aware that Democrats defend Keynes and consumerism; only boring Republicans reading The Wall Street Journal are aware of that.

Let’s make reasonable people more aware.

Oh, and that debate surrounding events back in Denison, Iowa in 1959? At their 25th class reunion, Dr. Hansen told my mom he was pretty sure she was the valedictorian.