From the June 26, 2009 Weekly Standard Online
June 26, 2009
by Irwin Stelzer
Death by a thousand cuts. Or in the case of the efficiency of the U.S. economy, by at least four: energy policy, health care policy, trade union resurgence, and fiscal madness.
Start with energy. The world is awash in it. The wind blows and the sun shines, at least some times and somewhere. Oil and gas wells gush, and substantial oil- and gas-rich areas have never even been explored. Coal abounds. Nuclear power can be had at a cost. So why has Barack Obama made energy policy one of his three top priorities -- education and health care are the other two -- in a country in which inexpensive energy has produced the world's most productive agriculture, a population capable of navigating America's huge spaces in air-conditioned comfort, and permitted the substitution of energy-plus-brain-power for back-breaking labor?
One problem is that oil is largely in the hands of very bad actors. Still another is that almost all sources of energy have significant impacts on the environment: solar panels consume acres of space; wind machines are considered eye sores by those who can spot them; oil, natural gas and coal emit CO2, responsible for claims that the globe is warming; nuclear power generates long-lived and dangerous waste.
Some of these problems are soluble, although not without cost. Domestic producers of natural gas tout their product as a substitute for petrol in trucks, busses and other vehicles. Progress is apparently being made in developing cars and trucks that run on at least partly on batteries. The efficiency of vehicles is being increased, albeit in response to inefficient government edicts rather than to more efficient price signals. Never mind that the infrastructure for these various gasoline substitutes has not been developed, and that the cost of these technologies exceeds that of the gasoline-fuelled internal combustion engine by a good margin. They must be listed in the possible column. That's the good news.
The bad news is that even if these technologies do develop, we will still need lots of oil and gasoline to fuel the existing capital stock, and that oil is in the hands of the bad guys. The Saudis and their OPEC allies control the bulk of the world's oil reserves, and use the proceeds of their cartel-based oil sales to fund the spread of radical Islam and jihadism. Hugo Chávez uses the (dwindling) receipts from his increasingly clapped-out oil industry to fund his takeover of Venezuela's private sector and his anti-American activities. Iran's mullahs survive their disastrous economic policies only because they have oil revenues with which to bribe the masses, pay for their nuclear-arms program, and fund international terrorism.
The problem of the unfortunate location of oil reserves can't be solved by research into alternatives to oil, or by conservation; as far ahead as we can see, we will need the bad guys' oil, and Europe will need natural gas from an increasingly bellicose Russia. Both problems can be ameliorated by diversifying sources of supply. Investment in the oil industries of Canada and Mexico certainly seems worthwhile for the United States, as does investment in natural gas pipelines that by-pass Russia for the EU. And maintenance of a military strong enough to guard supply routes and protect the Saudi fields from falling into even worse hands seems essential.
It is the environmental issues that seem intractable. At one time a united environmental movement was of one mind on important issues. No longer. President Obama and greens favor the development of solar and wind power, but other environmentalists oppose dedicating substantial swathes of desert land to solar panels, and Senator Ted Kennedy is leading the charge against building windmills in sight of his family compound on Cape Cod. Some environmentalists see pollution-free nuclear power as an important part of future energy supply, others oppose new plants because there is no political agreement on the disposal of nuclear waste. If environmentalists in America agree on anything it is that coal presents the greatest threat to the environment, and that the courts can be used to drag out the permitting process until most projects are abandoned.
All of this means that the electrical energy needed to power battery-driven vehicles won't come cheap, if indeed it is available. Industry sources fear that with coal and nuclear more or less off the table, at least for now, we will end up rationing electricity.
Energy is not the only sector that is likely to be less efficient than in the past. It is no coincidence that America's superior productivity performance has coincided with the decline of trade unions. We have seen how union compensation scales and work rules contributed to the bankruptcy of General Motors and Chrysler -- a fate the non-union car manufacturers have avoided. Yet Congress and the president are preparing to spur union growth by eliminating the secret ballot in union-recognition elections and, rumor has it, by writing advantages for union members into the tax laws, perhaps by exempting them from taxes on their employer-sponsored health-care benefits while imposing such taxes on non-union employees.
There is worse. The president is about to engineer the takeover of the health care sector. Unless Congress refuses to go along with the establishment of a government insurer -- voter enthusiasm for this "reform" is minimal -- competition from an entity that has no need to make a profit and can count on taxpayer funding if premiums prove inadequate will surely doom private insurers. Estimated cost over ten years: $1.3-$1.6 trillion, adding to the upward pressure on taxes, especially on wealth-creating entrepreneurs, created by the administration's runaway deficits.
The administration simply has no credible plan to reduce those deficits, and instead talks vaguely of cutting entitlements or the savings from universal health care coverage -- never mind that more coverage means higher costs, and the proclaimed goal of prolonging live, however admirable, will drive costs up, not down. Obama's huge deficits already have purchasers of Treasury IOUs worried that they will be repaid in devalued dollars, which will eventually force wary investors to price the risk of inflation into the price they are prepared to pay for government IOUs. Interest rates rise, economic growth slows.
Two thoughts pierce the gloom. The first is that the American economy might be large enough, and resilient enough, to remain competitive even bearing the weight of the new inefficiencies. The second is that voters will demand a change of course before Obamanomics is permanently embedded in our system. Voters worry that they are leaving their children a mountain of debt. Already Obama's approval rating among independent voters, whom Wall Street Journal analyst Gerald Seib calls "the canaries in the coal mine of American politics", has fallen from 60 percent to 45 percent. Even if the president doesn't get the message, Congress, faced with an election next year, just might.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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