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Hassett: Don’t Subsidize Green Tech, Tax Carbon

January 10th, 2011 at 5:09 pm | 4 Comments |

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Kevin Hassett, director of economic policy at AEI writes:

To listen to Democrats, they have new Republican House Speaker John Boehner right where they want him.

“The reality of governing is different than the reality of campaigning, and it’s easier to throw out a number than it is to support it,” David Axelrod, President Barack Obama’s outgoing senior strategist, said last week.

The number, of course, is the $100 billion in cuts to federal spending that House Republicans have been discussing since they unveiled their 2010 campaign platform last September. Republicans in the House barely had time to adjust to their majority status before facing questions and skepticism about whether and how they can pull that off.

Boehner is going to win this one. Government spending has surged so much in the past two years that cutting $100 billion is a piece of cake.

First, let’s understand exactly what Boehner and his team promised.

In their “Pledge to America,” congressional Republicans wrote:

“With common-sense exceptions for seniors, veterans, and our troops, we will roll back government spending to pre- stimulus, pre-bailout levels, saving us at least $100 billion in the first year alone and putting us on a path to balance the budget and pay down the debt.”

Note the operative phrase, “the first year.” Those now predicting defeat for Boehner–dare I say, rooting for it–make his task tougher by implying that the word “fiscal” precedes “year.” …

No Tears

The Heritage Foundation’s Brian Riedl came up with an ambitious plan for cutting $343 billion in spending. I’ll shoot for one-third of that target, with the added goal of avoiding some of his proposals–such as reducing Pell Grants and eliminating homeland-security funding to states–that would be most likely to lead to wailing in the echoing halls of the Capitol complex.

Here’s how to do it.

First, it’s finally time to take on farm subsidies, which topped $15.4 billion in 2009, according to the Washington-based Environmental Working Group.

Farm-state lawmakers in both parties, using the Agriculture Committee as their base, have long beaten back efforts to slash direct payments to growers. So why might now be different? Because of the unprecedented power that Boehner is investing in Ryan and the Budget Committee.

This doesn’t mean America’s farmers have to be left to fend for themselves.

Farmer Savings

Canada has experimented with a program that provides government matching funds for farmers’ deposits into savings accounts that help them buffer their incomes against the ups and downs of farm prices. Such a program in the U.S. could achieve the objective of helping family farmers survive while enabling policy makers to withdraw billions of subsidies to big agriculture.

These changes, plus closing the U.S. Agriculture Department’s Foreign Agricultural Service, would save about $19.5 billion. Not a bad start.

Next, target energy subsidies, which might make us feel good but make little economic sense. As I’ve written before, if Congress wants to encourage innovation in energy, it should tax carbon, not subsidize politically favored approaches such as ethanol. Riedl says cutting energy subsidies would save about $6.5 billion. (We could go after the tax-credit subsidies too, which technically aren’t spending.)

Justice Department block grants–annual sums given to state and local governments, which largely get to decide how to spend them to achieve a certain goal–have also been targeted for cuts, and then saved, again and again. Here, too, it’s high time to strike a blow for federalism: local law enforcement is, by definition, a local concern. That’s $7.3 billion in savings.

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4 Comments so far ↓

  • Elvis Elvisberg

    Kevin Hassett… Keven Hassett… where has that name popped up before?

    Oh, right. http://en.wikipedia.org/wiki/Dow_36,000 Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market is a book by James K. Glassman and Kevin A. Hassett. It was published in 1999, shortly before the dot-com bubble burst, and predicted that the Dow Jones Industrial Average would rise to 36,000 within a few years. Parts of the book were also published in The Atlantic Monthly.[1]
    In the introduction to the book, Glassman and Hassett wrote that the book “will convince you of the single most important fact about stocks at the dawn of the twenty-first century: They are cheap….If you are worried about missing the market’s big move upward, you will discover that it is not too late. Stocks are now in the midst of a one-time-only rise to much higher ground–to the neighborhood of 36,000 on the Dow Jones industrial average.”[2]
    The Industrial Average reached a record high of 11,750.28 in January 2000, but after the bursting of the dot-com bubble, and the September 11 attacks of 2001, it steadily fell, reaching a low of 7,286.27 in October 2002. Although the Average recovered to a new record high of 14,164.53 in October 2007, it crashed back to the vicinity of 6,500 by the early months of 2009, amidst a global recession.
    In the January 2000 issue of The Atlantic Monthly, Glassman and Hassett replied to a critic of their theory that “if the Dow is closer to 10,000 than to 36,000 ten years from now, we will each give $1,000 to the charity of your choice.”[3] For the Dow to be closer to 10,000 than to 36,000, it would have to be below 23,000. As things turned out, the index was not even at half that figure ten years after Glassman and Hassett’s prediction (the Dow’s highest close in January 2010 was 10,725, reached on January 19).This guy’s career is what a satirist would make up in an effort to portray the government/right-wing-think-tank complex & the efficient market hypothesis in the most negative light possible. Except he still has a job, so I guess the joke’s on us.

  • Carney

    Hassett is also a vocal enemy of ethanol, who cites as his main authority for doing so one David Pimentel.

    Pimentel is an insect ecologist, not a credentialed expert on agriculture or energy, but, like Noam Chomsky, is best known for extreme views outside his field. Pimentel makes cracked claims like 40% of all world deaths being caused by pollution, opposes not only all beef production but all modern agriculture (including the Green Revolution that has saved billions from starvation), wants to slash world population by two-thirds via “democratic” population control methods, wants to slash the US standard of living by half, even rails against dogs and cats.

    Pimintel and his collaborator (former oil executive) Patzek are the ONLY voices in the peer-reviewed literature claiming a negative energy balance for ethanol, and do so only because of glaring errors that are swiftly pointed out by the rest of the scientific community, like assuming that ethanol corn is irrigated, using decades-outdated or Third World statistics, ignoring ethanol corn byproducts’ use as animal feed, etc. The most comprehensive paper on the topic, published in “Science” in 2006 and surveying ALL published peer-reviewed literature, proved that for each gallon of petroleum used to make it, one gets at least 10 and even 20 gallons of ethanol.

    The fact that a think tank would continue to uncritically spam out Pimentel’s long ago discredited claims is a devastating indictment of its integrity, particularly given that Pimentel is a Malthusian, eco-extremist, anti-human quack, and AEI is casts itself as being pro free market.

  • Carney

    Also, by far the most urgent energy problem is dealing with gasoline. Our Mideast enemies have some natural gas, but do not and cannot control that market as they do petroleum. And they have very little coal.

    So, all three fossil fuels add a greenhouse gas to the atmosphere. But only one of the three is controlled by a foreign cartel, only one has crashed our economy three times (1973, 1979, 2008), and only one funds terrorism, related extremism, and WMD programs in at least three past or present enemy states (Iran, Iraq, Libya).

    Global warming is at worst a relatively mild and long term problem. Terrorism and economic catastrophe are immediate problems.

    As Dr. Robert Zubrin has pointed out, if you’re scuba diving and your tank fails, you’d best focus on the problem at hand rather than musing on your portfolio and its implications for your retirement, as important as that latter problem is.

    So going on and on about “carbon” rather than focusing on petroleum is a misallocation of priorities.

    Furthermore, no carbon tax could be more severe than the 1,400% price increase in oil imposed by OPEC between 1999 and 2008. And yet despite some progress we had not gotten off petroleum in that time (and much did the economy suffer for it).

    If a 1,400% “tax” imposed by foreign governments that are unaccountable to their own people let alone ours cannot do the job, what carbon tax that is remotely possible from a popularly elected government can?

    The problem isn’t that gas is too cheap. It’s that our cars can’t use anything else. Raising the price of gas just imposes suffering on a helpless captive market unable to choose alternatives.

    So make the cars alternative fuel compatible so people can at least choose to use something else. It’s likely they will flock to methanol since it is so much cheaper even after mileage is factored in. If not, THEN, and ONLY then, should we look at taxing petroleum.

  • frichtmann

    Not only do we need investment in new areas — like green tech — to give us products to export, but this is also a very dangerous time to be making budget cuts when we’ve got low GDP growth: http://thoughtstate.blogspot.com/2011/01/cost-of-cuts.html