Obama: Super Cereal on Climate Change

Yesterday, the President elect and Vice President elect met with Al Gore to discuss climate change policy. According to the San Francisco Chronicle:

President-elect Barack Obama…declared “the time for denial is over” on global warming and pledged to retool the U.S. energy grid using new technologies…

“We have the opportunity now to create jobs all across this country in all 50 states to repower America,” Obama said at a news conference after the meeting. “To redesign how we use energy and think about how we are increasing efficiency to make our economy stronger, make us more safe, reduce our dependence on foreign oil.”

…Obama said his “aggressive” efforts to slash greenhouse gas emissions, invest in clean energy alternatives and boost green-collar jobs will include a wide range of stakeholders, from Gore and Washington Republicans to consumers and industry.

Energy and climate policy issues are a real tight rope, and if the government gets them wrong, the social and economic costs could be staggering and long lasting. It could take generations to recover from a large enough misdirection of capital. And it’s also disconcerting to see leaders ready to shepherd us onto that tight rope without any apparent skepticism towards the perceived problems, causes, solutions, and tradeoffs. Tradeoffs are especially important in our view — there doesn’t appear to be any regard whatsoever for the opportunity costs such measures will impose, and the media rarely ever questions claims of ‘creating green collar jobs’. We’re not saying that the global warming crowd will inevitably be proven wrong down the road. We’re just pointing to the fact that they don’t seem to entertain any such possibility. That’s almost always dangerous, especially when making decisions that will affect billions of people.

Obama is still displaying astute leadership ability when he speaks of stakeholders, which provides a modicum of assurance.

Another issue that should be part of the public discourse, but is too often swept under the rug by policymakers and media, is that significant policy measures create vast profit incentives. Most people are conditioned to think of that as ‘capitalism at work’, but that’s just plain wrong. An analogue is the rise of the defense industry in the wake of WWII as a result of the Cold War. Arguments can be made that many of those expenditures were warranted. However, the existence of opportunity costs is undeniable. The threat of conflict with the USSR imposed restrictions on private capital flows. Were those restrictions optimal, or was there enough waste involved to infer that those public-private mandates imposed serious costs on society? For the classical analogy, see Fredric Bastiat’s broken window fallacy.

A similar dynamic is brewing in the climate change / green technology domain:

Business leaders, especially those who hope to play a key role in the rise of solar, wind, biofuel and other new energy systems, hope Obama, Gore and others spur a new kind of technology revolution…

On a nationwide level, Obama supports putting 1 million plug-in hybrid cars on U.S. roads in the next seven years, cutting emissions 80 percent by 2050 and setting up a cap-and-trade system. Such programs aim to make burning fossil fuels pricey and reward investment in renewable energy. In general, the system sets limits on carbon dioxide emissions and allows companies to trade carbon credits based on the amount of production.

Cap and trade systems are especially prone to abuse, not to mention inefficiency (few like to talk about the government’s appointment of Enron as mandarin of a sulfur dioxide emissions exchange). If carbon emissions are indeed a significant externality (econo-speak for a cost that is not borne by the responsible party), then a majority of economists would admit that a direct carbon tax works best. Of course, there’s still plenty of agency risk involved in having bureaucrats set the right tax rate. The best way to manage this it to have competing expert opinions produced, and then allow direct referendum to set the ‘right’ level for the tax. Instead, with cap and trade schemes garnering political support, the mandarin hopefuls have been lining up at the door for a couple of years. Unfortunately,

A recent report by the federal National Intelligence Council threw some doubt on the prospects for alternatives, saying, “All current technologies are inadequate for replacing the traditional energy architecture on the scale needed, and new energy technologies probably will not be commercially viable and widespread by 2025.”

Does that worry anyone? Nah…

Cathy Zoi, chief executive of the Alliance for Climate Protection in Palo Alto, which seeks to persuade Americans of the urgent need to slow the use of fossil fuels…..hopes Gore’s Palo Alto group will prompt the administration to make inroads as quickly as possible.

“Early action on all fronts is essential,” she said. “The message to Obama and others is: We need to do this because the scientific imperatives are getting more and more urgent. But we also need this to stimulate the economy at the same time.”

Again, it’s being sold as ‘economic stimulus’, but whether these plans would have a positive or negative net impact is far from certain (and the case for a negative net impact is far easier to make). If they are not well thought out and properly designed, these plans could cause plenty of economic damage. And again, every bit of damage now costs resources in the future. To combine two old adages, time heals, but time is money.

We want to reiterate our belief that the climate change folks could well be right, and if so, that remedial measures are certainly appropriate. But the scope of the issue just seems too wide, and the allocation of resources too significant, to treat this as a partisan issue or to leave it in the hands of (relatively) small cadres of politicians, policymakers, bureaucrats, and lobbyists. Think of it as a ‘highly leveraged’ political initiative.

If you’ve made it this far, you might be wondering about the title of this blog post — it’s taken from an episode of the brilliantly skeptical (and disturbingly irreverent) South Park, in which they parodied Al Gore’s global warming quest. You can read about the episode here:

Man Bear Pig episode – http://en.wikipedia.org/wiki/ManBearPig

And you can watch excerpts here if time allows (we’ve named each video segment for the part of our argument that it most closely relates to):

The Overview – Mr. Gore alerts a school assembly to the urgent Man Bear Pig crisis, and predicts that one day, after he has defeated Man Bear Pig, he will be seen as super awesome. In real life, the Nobel committee did not even wait that long, giving him its super awesome Peace Prize only a year after the episode aired. (http://www.southparkstudios.com/clips/155237)

Agency Risks – Mr. Gore offers to excuse the boys from school to go hunt down Man Bear Pig. Like the organizations now lining up for the privilege of operating a carbon exchange or to obtain public funding, it’s a powerful offer they can’t refuse. (h
ttp://www.southparkstudios.com/clips/155239/?tab=related)

Opportunity Costs – Just as the prospect of climate change produces such a high level of anxiety and discomfort in some people that they are willing to ignore the damage their desires would impose on others, Mr. Gore implores emergency response teams to fill the cavern with hot molten lead in order to ensure Man Bear Pig’s demise…even though rescuers are still searching for survivors. In Mr. Gore’s eyes, they’re already dead. Yikes. (http://www.southparkstudios.com/clips/155242/)

URLs:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/12/10/MN2H14L3QN.DTL

http://en.wikipedia.org/wiki/Parable_of_the_broken_window

http://en.wikipedia.org/wiki/ManBearPig

http://www.southparkstudios.com/clips/155237

http://www.southparkstudios.com/clips/155239/?tab=related

http://www.southparkstudios.com/clips/155242/?tab=related