Wednesday, December 12, 2007

The Fed Is Not The Issue

Every day, I get spam that promises to make my life so much happier and fulfilling, if only I would get larger breasts. It's the same with the Fed: pumping up debt through cheap money is now as beneficial to the economy as giving D cups to the entire male population. Brassiere sales would jump, but the benefit would not last.

The main concern today is fiduciary adequacy and not liquidity. We have already borrowed so much (total debt is near 350% of GDP) that our ability to service existing debt is more relevant than access to additional debt. The importance of the Fed to the economy is thus limited, and our fixation with what it does, or does not do, is a distraction from dealing with the real issues.

Data: FRB
What are the issues?
  1. Forget the Fed; there can be no monetary solutions to fiduciary problems.
  2. Re-establish the relevance of fiscal policy as more than just discussion about tax cuts.
  3. Raise earned income, instead of relying on capital gains and portfolio income; create permanent high value-added jobs, targeted to exports.
  4. De-leverage.
  5. Emphasize industry over finance and production over consumption.
As a trained engineer with 25 years of finance experience, I believe the way to achieve the above - at least partially - is to move with all possible urgency towards a new energy regime. Jimmy Carter was absolutely correct about at least one thing: we must engage in energy independence as in the moral equivalent of war. If nothing else, consider this: Alan Greenspan admitted that the Iraq war was about oil.

I do not pay attention to the loud, but ignorant Cassandras of doom and gloom - switching to other energy sources can be done and, what's most important, must be done. We humans are already choking on our own effluent, and that's with 2.5 billion Chinese and Indians consuming energy at a fraction of Western levels.

Data: IEA

The real obstacle to change is not technology, but powerful fossil-fuel vested interests: oil, gas and coal companies, "authoritarian" oil regimes (polite term for friendly dictators) and the military industry. Just like tobacco companies, they are cash-cow giants who fight very hard to retain the status quo. At current prices, the crude oil business alone is worth $2.5 trillion per year. So it's a very big and very profitable status quo.

The lineup fighting change is completed with the Russians who, from Peter the Great onward (1672-1725), never lost their desire for geopolitical domination. As the world's largest oil and gas exporters, they once again have the financial and strategic capital to send Navy carrier groups into the Mediterranean and bomber planes over the Atlantic.

Fossil fuel dependence transfers vast wealth from billions of consumers to a few potentates, destroys our habitat and requires huge military expense. Crucially, it also wastes our "seed corn" concentrated energy, which we should instead be sowing to harvest sustainable energy in the future. The benefits accruing to us from our oil-based dollar hegemony are increasingly being overtaken by the costs, and to keep the scheme going is bordering on criminal neglect.

How do we accomplish change? The moral equivalent of war requires that we forfeit some comfort today for the certainty of a better tomorrow. If done properly and urgently (always a challenge to do both), the "discomfort" period could be quite short - certainly less than a generation.

Here are some concrete proposals:
  1. Impose a tax for all carbon-based fuels (yes, corn ethanol too) at the equivalent of $1/gal, increasing by 10c every three months.
  2. Recycle the tax money into the economy as: engineering and science scholarships, R&D projects and direct subsidies to alternate energy projects.
  3. Promote distributed energy systems over central power stations, e.g. solar/wind/geothermal mini-stations for the production of hydrogen through electrolysis. The model is the Internet Web vs. the large computer centers of the past.
The carbon tax would immediately raise approx. $500 billion per year, or 3.8% of GDP. While certainly not small, this sum is well within the ability of the US economy to absorb and recycle efficiently. Our foreign oil dependence is so high, that our oil import bill now runs nearly a trillion dollars per year, or 6.5% of GDP - approaching the percentage during the "bad old days" of 1980.

Data: British Petroleum

Some will say that this is nothing but a grand "tax and spend" scheme. Well, yes - that's exactly what it is. Real wars cannot be fought and won based solely on voluntary donations. Likewise, fundamental paradigm shifts require the enlistment of the entire society, not just that portion which is affected on the margin of supply and demand.

In closing, I would also like to point out that there will likely be significant social benefits from switching to a looser, more distributed energy regime. This could be the topic of an entire book, let alone some notes at the end of a blog, but the main thrust is that distributed energy empowers and necessitates locally participative democracy, instead of the centrally passive democracy we have now.


  1. The problem with the way energy is consumed in the US is vast and, like other financial and economic problems, "structural". Significantly reducing the amount of gasoline (and therefore CO2 and other pollutants) used just getting Americans to/from work would do a lot. But as the US grew it suburbanized more than urbanized, and in many places you have a large population spread out over a large geographic area ("sprawl"), with only the most unattractive mass transit option (if that): buses. It is remarkable, and in a way quite sad, to see these large new housing developments in California (for example), which eat up huge tracts of former agricultural land and open space, and have absolutely no transit infrastructure other than roads (sometimes with bus stops). Nothing.

    One plus for your proposal is that its scale seems (at least and at last) proportional to the scale of the problem.

  2. Great idea, but it's not going to happen. Not in this country. We're too busy consuming. I want it NOW, the future be damned.
    Other countries like Germany, Sweden, France and even China are looking into alternate energy technologies. I am sure they'll sell us whatever we want...on credit of course.

  3. This is a political solution, and $2.5T a year buys a lot of politicians.

    Jason B

  4. "I am sure they'll sell us whatever we want...on credit of course."

    No they won't.

    If the country continues on this course, the dollar will buy less and less and we will have to sell the family silver to obtain what we need from abroad. Or go to war.

    AKA exactly what is starting to happen already...

  5. No they won't.

    No doubt concern about the reaction of foreign holders and consumers of dollar assets is what caused the Fed to cut 25bp rather than 50bp. Because it is clear that to lure significantly more buyers back to the housing market -- in order to try (probably in vain) to check asset deflation there -- a 50bp cut would have been more useful.

  6. A revolution would be appropriate at this time but could not be one of half measures like increasing the mpg standards or adding a little extra insulation to your home. Something on the order of a Maoist revolution or Stalinist purge will be necessary. Much of our infrastructure and lifestyle is engineered for cheap energy and cannot be mitigated or served by diffuse energy collection devices. We are already locked into considerable pain and loss of specific inefficient investments and even whole geographic areas will undergo a gangrenous rot as they are starved for metabolic necessities. In the meantime, Huckabee, a denier of evolution, gains in the polls as evangelicals seek their salvation from celestial powers and wolves in sheep’s clothing (Pat Robertson) beat the drum for war with Iran or assassination of Hugo Chavez.

    Most people cannot understand science or economics or evolution or energy. Their minds, shaped by evolution, usually dwell on social relationships within the tribe (Britney Spears) and competition amongst different tribes (warfare and football games). Instead of an internal warfare of societal change, I think it is more likely we will see an external warfare of tribal conquest and pillage. Isn’t this what we are seeing already? If it gets out of hand (WWIII) we will likely destroy much of our existing infrastructure, contaminate much of our arable land (for decades at least) and ruin our chances for conversion.

    Doom and gloom happens. It happened to the Jews in Europe, the intellectuals in China, the political opponents in the Soviet Union, the Tutsis in Rwanda, the survivors in New Orleans, just about anyone in Cambodia and so on. Perhaps we are all destined for a Blackwaterboard sometime in the near future. Somewhere, all of the Cassandras will be gathered together and they will just shake their heads in disgust.

  7. I oppose new taxes. Why? It doesn't matter what they are. Congress will just spend the additional money.

  8. Regarding reduction of oil consumption, any thoughts on these 4 ideas?

    1) Mandated hybrid vehicles
    2) Cellulosic ethanol
    3) Solar energy
    4) Nuclear energy

  9. re:Oil reduction alternatives

    We must immediately leap-frog to the most advanced but credible technology/ regime available. In the end, all energy is either solar or nuclear. Both are fine as far as I am concerned.

    For vehicles, I think hydrogen cells with highly distributed (i.e. even individual) solar-powered water electrolysis is the answer. Honda is already customer testing a production-ready fuel cell car in the US. Leases for $600/mo.


  10. Well, trust me as a grad student in Electrical Eng (power major), that the taxes are not neccesary at this time after we implement the 4 following simple strategies:

    1) Enforce every vehicle to use Hybrid, and limit every new vehicle to a minimal mileage by the engine size. The Lexus LS hybrid is a waste because they use the oil savings to power some additional stupid luxury that there is no actual savings even with hybrid. Also, limit the use of hydrid to save energy instead of using hybrid to add additional power.

    2) Give bigger tax incentive solar panels on every house, just like what you propose -- Distributed system. This also saves the transmission losses in the Central system model, and lower global warming. Especially these days the solar energy conversion is with much higher efficiency

    3) Give bigger tax incentive to use geo-thermal power to cool/heat the house, though I have not studied how much energy savings can be obtained from this new trend.

    4) Giver bigger tax incentives to have each household to conduct energy efficiency test to identify leakage, and give them incentive to rectify those.

    Trust me, just by enhancing these strategies, we will save a lot of energy Than-You-Can-Imagine. Don't need to ask for too much about tax increment, penalty, overspend R&D, etc.

  11. Think how much energy these strategies will save you?

    1) Hybrid car saves easly 20% of fuel.

    2) Solar energy easily saves ... say 20% of electricity? I am assuming this on mid-west region. If you are on sunny South or West, you save much more. Also, in mid-west the household energy consumption is highest during summer for air-conditioning, and this solar thing can save more during sunny days.

    3) Geo-Thermal .. save the winter heating bill of natural gas, plus can save some cooling cost during summer. say .. save 20% Natural gas in winter, and help 5% cooling?

    4) Energy efficiency test and savings (including using double-pane windows). This will easily save 15% overall (given some household already have better efficiency, but still can be improved).

    The other issue is the industrial consumption. Maybe enforcing use of LED lighting plus solar panels will help save some energy in a typical working office.

  12. Dear shawn,

    "Tax incentives" as you propose cost lots and lots of money, which has to come from somewhere, thus the tax hikes on fossil/carbon fuels are necessary.

    Behavior modification basic rule: punish bad behavior (tax carbon) - reward good behavior (tax incentive to alternatives).


  13. Nice post. Its obvious we have been paying our bills by simply adding more credit to pay our previous bills. My friends are all under thirty and all of them have a home or multiple homes. We've borrowed forward at least a decades worth of home ownership. Although, I think homeownership is not the right term when you have no equity

  14. Great post and interesting replies.

    Sex sells, but it generates contention not cooperation.

  15. Hellasious,

    < "Tax incentives" as you propose cost lots and lots of money ... >

    Well, that money would be spread out in many years to come.

    As an engineer yourself, you should know Social behavior could not be changed abruptly. We engineered solutions to cope with reality difficulty and it would takes years to improve the consumer behavior.

    The proposal of $1/gallon surcharge or whatever high penalties will not get approved, even I myself would vote against it. I am pretty sure you would see instant demonstration throughout the nation.

    Key here is, law that foster good behavior would get approved by people and politicians much easier. For example, few would oppose the hybrid install on every car.

  16. Hellasious,

    I like your idea of carbon taxes, but the idea that government will use this money wisely, and that there would be meaningful and wise investments made in alternaive energy technologies with the money collected is fantasy. Government will simply absorb the money. Best case, the money will just be spent elsewhere. Worst case, well-connected lobbies and special interest groups will simply direct the money into their own pockets (as in ethanol "investments"), leaving us all poorer: the politics of plunder.

    The only sensible approach is to put in an automatic legislative solution whereby carbon taxes are imposed in sequentially larger amounts, while SIMULTANEOUSLY cutting income and other taxes elsewhere to "offset" the tax increases.

    With higher carbon-based fuel prices, conservation will be encouraged. More importantly, though, the market will respond by increasing investment in alternative fuel and methods of energy production. Reduction of taxes elsewhere in the economy would lessen the impact on overall growth, and perhaps make the carbon taxes more politically acceptable.

    All that being said, I do not have much hope for my plan. First, it would be difficult to legislatively "bind" the congress to continue to cut taxes as carbon taxes are raised. Second, well entrenched lobbies and special interest group will scream that the tax cuts "benefit the rich" and that the gas taxes are "regressive" and fall disproportionately on the poor. All true, of course. I suspect the best way to proceed is just to go hands off, forget about government investing in alternative fuels, and wait for the crisis.

  17. Stop making sense! Seriously though, most people don't want to deal with this stuff. When you try and talk about it you can almost see them go "la la la" inside. They just want to watch Survivor and pretend it will be alright. Until the lights go out or they get hungry they won't listen. I even think this is partly the reason for all the dumb loans, people just blanked it all out as "too complicated" but figured it will work out somehow. Kind of like the Barbie Doll that says "math is hard" and then giggles.

  18. "Every day, I get spam that promises to make my life so much happier and fulfilling, if only I would get larger breasts."

    I'm getting larger breasts, but it doesn't seem to help....then again, I'm a guy. Guess I need more low fat alternatives!

  19. Want to accomplish the same thing in a less dramatic way:
    1. Build more nuclear plants to support a larger base of non-petroleum using vehicles. If the French can do it, well, come on, they think Jerry Lewis is a genius.
    2. Develop coal to oil industry.
    3. Drill the hell out of ANWR.
    4. Drill off the coasts.
    5. Let the middle east drink their oil.

  20. We need much higher levels of taxation on a lot of things, not just carbon. We would not have failed CEOs making 400x average worker salaries if they were taxed at Scandinavian rates on anything above, say, a million dollars.

    I have little hope of solutions being promoted until there is significant pain as well. See the documnetary, "Who Killed the Electric Car?" for a good overview of how a filthy, entrenched, inefficient industry resists the future. We've had the technology for an affordable mass market 0 emission vehicle to serve the needs of 90% of the population for over a decade already.

    And all this talk about how the government can't possibly be trusted to spend the money from a tax increase on the area that it's supposed to is balderdash from people who think that government cannot work and is a problem, ie Republicans. This is why they tend to be disasters when in power, they need massive government failures to fulfill their ideological assumptions. If they actually governed, they would discredit themselves.

    And as far as nuclear power goes, I saw a news item not long ago that said engineering students have started to flock to the few remaining nuc programs. The kids aren't stupid.

    The paradigm must shift from growth to sustainability. Unlimited growth is called cancer.

  21. Hellasious, I believe that your suggestions to promote energy independence might work. However, I believe that existing impediments from govt should be removed first.
    1. Nuclear power plants should be permitted to be built. Cheaper electricity would promote electric power over oil consumption.
    2. The government should allow vehicle conversion to vegetable oil. Currently, they require a $50,000 permit per engine class to convert deisel engines from OEM specs. The Ford F150 has about a dozen just by itself. This regulation is not law, but a pure product of regulatory agencies. I know this because a friend of mine was planning to start a conversion business and ship in truckloads of canola oil. On top of this, earlier this year, the government started requiring the tracking of vegetable oil shipments this year. They also put in place regulations that prevented the unauthorized transportation of vegetable oil, supposedly in the name of safety. Bullshit!
    3. Natural gas vehicles: we have 100's of years supply of natural gas, and on top of that, the only emission is CO2. No sulfur, NOx, etc. pollution.

    etc., etc., etc., etc.

    The removal of these impediments to free competition in our economy will provide efficiency without inciting the populace to riot. It will also eliminate much of the "untruth" in current prices.

  22. one more thing: didn't T. Boone Pickens try to start Nat Gas distribution nationwide a few years ago? He was going to put above-ground tanks for cars until the government said that it wasn't safe. Again, they protect monopoly power by the force of law. If we saw this in another country, we would call it bribery and corruption!

  23. Eva Peron said, "The paradigm must shift from growth to sustainability. Unlimited growth is called cancer." Excellent comment!!

    To the people suggesting that we drill domestically or shift to natural gas, I think you are missing the point. All domestic drilling will produce is dependence on domestic oil; it will not curb voracious American energy appetites. Second, of course natural gas is cleaner than oil, but it still is a non-renewable resource.

    I see no reason, besides sheer social inertia, not to move to solar, wind, geothermal, nuclear, etc. forms of power. And as far as that goes, social inertia (the unwillingness of the populace to change their habits) is no reason to suggest that things won't/can't change. Sometimes change needs to be thrust upon people because the common wisdom suggests the status quo is better or because of fear of something new. An example: busing of public schools during the 1960s.

  24. re: All domestic drilling will produce is dependence on domestic oil; it will not curb voracious American energy appetites.

    Sorry, Ignorance, we will always be dependent on something.

    re: Sometimes change needs to be thrust upon people because the common wisdom suggests the status quo is better or because of fear of something new. An example: busing of public schools during the 1960s.

    Please don't equate the moral imperative of the 60's civil rights movement with forcing alternative energy on people. This is a hypocritical, self contradictory position. The only disagreement you have with the status quo is WHAT to force on people.

  25. EVOLUTION! bwahahaha

    Moai, r u frigging kidding me? Their minds r shaped by the MEDIA. Why do u think most people have the attention span of a gnat?

    In the old days we laid in wait for HOURS after the sabre-tooth left the kill b4 we dared approach.

    The sheeple today wouldn't last five minutes.

    Quite simply, humans are too frigging STUPID to have 'evolved'. If we had 'evolved' we would be living in UTOPIA. Instead we live in the squalor of out own making. We DESERVE TO DIE.


  26. Anon @ 12:13

    Hon, please read your Darwin. Descent with Modification is a random process, not a forward-looking process. It is totally amoral.

    See Also, "Agenda Setting Theory"

  27. To The Obfuscation Oracle:

    First, just to clarify, I am not trying to pick a fight with you. I just want to clarify what I said and perhaps have you explain your comments.

    Anyway, I should have made it clearer in my original comment, but I was not trying to imply that we will not be dependent on something. I only think that it is very unwise to develop dependence on a product that is limited in amount and controlled by very few players.

    Lastly, I do not understand why my comparison is hypocritical, but I do not think it is a stretch to compare the need to switch to a new energy source to the moral imperative of desegregation. This is because I believe that it is a moral imperative to get off a product that so obviously deteriorates the planet (not to say that alternative energy is harmless).

    I only argue that there should be movement away from oil and that new energy sources that are less harmful should researched and implemented. I do not wish to force a particular protocol on everyone.

  28. Europeans realized long ago that high taxes on hydrocarbons are to their advantage. The revenues go towards real improvements in energy efficiency and public transportation.

    We prefer to send our dollars to oil exporters so that they can buy our collapsing banks and skyscrapers, fund jihadis etc.

    Nominally, there is less tax for oil consumers here. The real hit is the stealth tax which of course vanishes into the ether as far as any discussions on taxes are concerned. Moreover, it is always the lowest income households that are hit, and hit disproprtionately.

    One of Hel's recommendations was Michael Klare's "Resource Wars". I read that 2 years ago and also liked it. For anyone interested in the history of oil, I strongly recommend Daniel Yergin's "The Prize", which covers 150 years of the history of petroleum. It's fascinating to learn about the role of oil in changing the outcomes of both WWI and WWII.

    Matt Simmons' book "Twilight in the Desert" is also a great read. I think scientists and engineers will find it especially interesting because it explains a lot about the enormous difficulties in raising the RRR (reserves replacement ratio) which is running at about 30% for the whole world.

  29. Anonymous said: “Their minds r shaped by the MEDIA. Why do you think most people have the attention span of a gnat?”

    Sure enough, they are shaped with Bernaysian marketing techniques. Governments, religions, corporations……..any dissipative structure that wants to ensure the flow of energy and material into their particular bailiwick will use deceptive and persuasive communication to guarantee the inputs for steady growth.

    Anonymous said: “If we had “evolved” we would be living in UTOPIA. Instead we live in the squalor of our own making. We DESERVE TO DIE.”

    We did evolve and UTOPIA or heaven on earth is a figment of your imagination. Life is competitive and always has been. It is also often brutal and bereft of any trace of morality. Human life is a mosaic of selfishness, a trait necessary to some extent by all dissipative structures, and selflessness, a trait that has contributed to our social cohesion and survival as a cooperating tribe. It should be no surprise that evolution would create wolves for such a corpulent and slow witted flock of sheep, wolves that lie, cheat and steal to gain an advantage within their groups.

    Many people do live in squalor. These are usually good people that don’t have the means to repatriate some of the capital from the big shots.


    Living conditions are much better for many humans. Other species aren't faring so well at the moment but we don’t exist to make things better for other species. We exist to make ourselves better off. Not a single species would “lend you a dime” in times of trouble, except a couple of social animals like dogs and porpoises. Most would rip you from head to toe and eat the pieces. However, they must be protected because they comprise a web of energy and nutrient flows that ultimately give us food, oxygen, recycle waste, provide some amusement and they’re interesting to study and compare to ourselves.

    I really think that we are like Skinner rats. We have techno-society induced depression and we spend to alleviate it. It feels good to consume. Everyone on TV is so happy with those products. We go into debt so we can hit the pleasure button again and it feels good but now we have to repay the money which feels really bad. So we hit the pleasure button again with more credit and it feels good for a short while, but now we are in even deeper debt. We spiral downward in a manic cycle. The credit peddlers give us the means to the consumer fix.It's a lot like gambling - the lights and action are addicting and the house (lender)always wins.

  30. See the book 'Apollo's Fire: Igniting America's Clean Energy Economy' (2007) by Congressman Jay Inslee.

  31. To all the malcontents, misanthropes, and cynics:

    Ever experience what a good leader can do for an organization?

    Whether or not you like their vision or the manifestations, you have to admit that Lincoln, FDR, and JFK lead the country through massive legal, sociological, and technological changes.

    Not saying this is likely in today's Parliament of Whores atmosphere but it is possible and a necessary component.

  32. great post. I am a nuclear engineer, and I can already see the the nuclear industry is gearing up to meet the challenge. This is the area that the US dominates and we are already working on increasing our advantage here. Couple this with the hydrogen economy or electrification of automobiles and we have a winner. There is Hope.

  33. I don't get it. If we made all the changes you suggest how can the insiders get their's?

  34. Let's address a few issues:

    1) I already work one day per pay period to afford gas on my $11 an hour job. There is no mass transit for me to ride in this area. I drive a fuel efficient car but it is old and I can't afford a replacement. Explain to me why I am being forced to accept what is an enormous tax to me to be able to get to work. Multiply this by hundreds of thousands in the same boat.

    2) Most companies now expect you to work ridiculous shifts that do not lend themselves to car pools. So that's out. And taking mass transit usually involves adding a considerable amount of time to your commute in most areas. How exactly are you going to convince folks they want to do this?

    3) Back to the tax thing. I live off grid and use a generator for the minimal amount of electricity again. Why aren't you taxing folks for their electricity use? Don't you understand that it still uses energy to generate the stuff? We've become a society that has to make every single gadget we have use electricity somehow. It's high time we wean ourselves away from that. And I second the use of nukes. If they have a good record in other countries, there's no reason they wouldn't here. We easily accept the hazards of storing nuclear waste generated by the medical industry.

  35. Teri makes the point which had been missing in all the 'lets tax this to subsidize that' yada yada. Taxing 'this' is also substantially greater - to unaffordable - tax on millions of who's, which is to say a transfer from working class to capital via state mediation.

    But guess what... that's just the process we've been in now since at least the 1981 Tax Act, and if anyone bothers with facts they will easily find that the decades since have not been exctly spunky but very much slower than 1950s and 1960s. Trickle-up to capital has proven to be a failure. So, lets do more of it, right.

    Same time lets pretend away that, last instance, the investment being called for is dependent not on green ideologies and desires but, so long as we remain within the capital system, a durably higher than average rate of economic profit within the environmental sector, better called what it was decades ago as it rose out of the aerospace industry, the social-industrial complex.

    Well, that ran into a few problems but of course not now when, in economic terms, the U.S. is relatively very much weaker, and weaker as well in terms of hegemony.

    Which is not 'ant-environment' but factual and something which seems so easily never learned or ignored. Would that the students in Paris during the 1968 rebellion had been correct when they chanted and wrote: 'Everything is possible'.

    Long story short, what's presently desired and required is impossible within and by the same system of social relations, capitalism, which so greatly assisted the creation of that to be corrected. These relations are the constraints to be overcome which, it seems, most greens are fully unable to comprehend, a failure with more than reactionary overtones.

  36. an outright carbon tax is a bad idea. the shock to industry and trade would cause the (global) economy to contract and/or seize. not good, not practical.

    think 'cap-and-trade'. allow market mechanics to lower total emissions (to zero?) gradually over a period of decades. markets provide the flexibility and revenue (and regulatory interface) necessary for macro/societal/economic transitions.

    reducing emissions globally isn't going to happen without industry/corporate cooperation. these guys want/need cap-and-trade, not a direct tax. them's the facts...

  37. mpower, why do you assume contracting the economy is not a good thing?

    The evidence shows that GDP growth makes us less happy, reduces our quality of life and destroys our environment. Application of the neoclassical theory of economic growth is in fact the root cause of the current crisis.

  38. fred,

    economic contraction is commonly referred to as a depression. so you are advocating policy that all but guarantees a worldwide depression. this is neither practical nor politically viable.

    i fully agree that our brand of economics (or what it has become in the past 50 years) is a root cause of the trouble this country faces on many fronts - social stability, foreign policy, etc. my point should not be taken as a defense for american capitalism, but rather a to present a better mechanism for meeting the challenge of climate change and preserving a healthy environment.

    i believe an outright tax would would bring such negative consequences that the very objective (lower emissions) would be crushed by the backlash. a cap-and-trade system achieves the same results without the drama and negative economic shock.

    again, i'm not defending wall st. here. i am simply suggesting that policy prescribing depression and unemployment is bad policy (and naive and impractical), and that a market-based solution will be more efficient in every way.

    this is not a 'neoclassical' v. ??? sort of issue. my perspective here is driven by pragmatism and the likelihood of implementing a regulated carbon environment that 1) lowers emissions, 2) is sustainable, and 3) pays for itself. a direct carbon tax may achieve 1) but not 2) or 3). cap-and-trade is the better system/solution, imho.

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