So Much for Fiscal Responsibility
The $787 billion economic stimulus bill, the $2 trillion fiscal stability package to keep banks solvent, and the $275 billion housing stability package to rescue the housing sector were just a start.
On Tuesday night, in an address to a joint session of Congress, President Obama called for still more spending, for energy, health care, and education. To pay for these, he called for increases in some individual, business and environmental taxes. As Congress pores over the budget outline—details to come later—that Mr. Obama is sending to Capitol Hill today, the big question remains: Is this fiscal responsibility?
President Obama obviously thinks that it is, because he regards new spending as an investment in the future and his new taxes as inconsequential. “We have known for decades that our survival depends on finding new sources of energy. Yet we import more oil today than ever before.”
With regard to taxes, he said that “If your family earns less than $250,000 a year, you will not see your taxes increased a single dime. I repeat: not one single dime.”
But one reason that stock markets fell over the past month to levels not seen for a decade is that higher spending and taxes erode a country’s competitiveness by replacing efficient private investment with inefficient public projects. Investors know this, and flee.
It’s impossible to discuss all the president’s proposals, but let’s just look at energy. Mr. Obama wants more spending on alternative energy projects to achieve independence. Yet he wants to raise fees on carbon emissions that would fall most heavily on coal, our most important domestic source of energy for electricity generation.
We import more oil than ever before, but we have a larger economy and use less energy for each dollar of economic activity than we have in the past. We’ve made vast improvements since the 1970s when President Nixon first hoisted his “energy independence” banner.
Since then, all other presidents except President Reagan have endorsed the same goal, and we are still dependent on foreign oil. President Carter called energy independence “the moral equivalent of war” and set up the Department of Energy, which didn’t fix the problem. No one believed President George W. Bush when he said the United States could reduce gasoline use by 20% in ten years: consumption declined because of high oil prices and the recession.
At a time when oil prices in real terms have fallen to their lowest prices in over 10 years, and with the global economy in a recession, President Obama proposes to impose enormous costs on the American economy. Reducing imported oil and “harnessing the power of clean, renewable energy,” as the president put it, sounds simple. Why buy from abroad what we can make ourselves?
But such a transformation of technology is practically impossible and would be enormously expensive, which is why other presidents have failed. We would either need to produce vast quantities of alternative fuels for our cars, or move to electric vehicles. Both options result in higher costs and different forms of pollution.
As for electricity generation, wind and solar power, along with other renewables such as biomass and geothermal, account for 3% of our total power output and are unlikely to increase significantly.
We cannot expand our use of clean nuclear power beyond the current level of 19% for fear of accidents, controversy about where to dispose of spent fuel, delays in winning government licenses for new plants, and fear of litigation. It’s been over 30 years since the Nuclear Regulatory Commission has licensed a new nuclear power plant.
In the area of taxes, President Obama wants to put a “market-based cap on carbon pollution”—in other words, create a complex system of emissions allowances that companies could buy and sell, known as "cap-and-trade." This would essentially mean that energy-intensive companies would have to pay the government to emit carbon above a certain limit. Coal (a domestic energy source) and automobiles (the recipient of government largess) would be particularly hard-hit.
This tax would be passed on to consumers, even those earning under $250,000 per year, who use the companies’ products. Those companies that could switch from carbon-based energy to new forms would face higher prices for the new technology, prices that would also be passed on to consumers.
It makes no sense for America to regulate carbon and other greenhouse gases unless emerging industrial giants such as China and India do also because carbon emissions are a global problem. Without international cooperation, America would be raising costs on consumers in the middle of a recession—all for nothing.
With Americans losing confidence in the $3 trillion plus dollars in new government projects already announced, more spending and more taxes don’t add up to fiscal responsibility. They add up to a deeper recession.