Obama’s Economics

OBAMA’S ECONOMICS….In a New York Times Magazine piece running this weekend, David Leonhardt does a good job of describing Barack Obama’s economic worldview, which is dominated by a mindful friendliness toward market solutions for economic problems (Cass Sunstein calls him a “University of Chicago Democrat”). Examples include his proposals on healthcare, housing, education, and 401(k) plans:

The best example of his approach, however, may be his climate policy. By last year, Democrats in Congress essentially agreed that to reduce greenhouse-gas emissions, the government should place a nationwide cap on these emissions and then issue tradable permits giving companies the right to produce them (thus the term “cap and trade”). Most Congressional bills envisioned giving away many of the permits to power companies. Economists, by and large, considered this giveaway to be the worst part of the plan. It would require Congress to decide how many free permits each company should get and would set off a frenzy of corporate lobbying.

The alternative was to auction off the permits — to let the market set their value. “If you don’t auction 100 percent of the permits,” Goolsbee told me, “this could be one of the biggest pieces of corporate welfare ever.” With Congress making the decisions, the power companies with the best political connections might get the permits. With a full auction, the permits would end up with companies willing to make the highest bids. Presumably, these would be the most efficient companies, the ones able to produce the most energy (and profits) for a given amount of greenhouse-gas pollution.

The auctions would have another big advantage too. They would raise billions of dollars for the government, money that could then be returned to taxpayers to offset the higher energy prices created by the emissions cap.

Their respective cap-and-trade plans are a pretty good illustration of the fundamental difference between Obama and McCain on economic issues. First, Obama is serious about a cap-and-trade plan. McCain isn’t. Second, Obama puts in place cap levels that are actually meaningful attempts to reduce greenhouse gases — i.e., to actually address the problem at hand. For McCain, not so much. It’s mostly check-the-box window dressing. Third, Obama wants to auction off emission credits, which is both fairer and more efficient than giving them away. McCain prefers the corporate giveaway approach, which would be worth tens of billions of dollars to existing polluters.

The rest of Leonhardt’s piece is worth reading. It’s a bit mushy overall, but I suspect Leonhardt himself would argue that this is because the last couple of decades have taught us that bright line ideology just isn’t the best approach to deep and difficult economic problems. (“The battle of the Bobs,” he says, referring to the Clinton-era conflict between Bob Rubin and Bob Reich, “may not be completely over, but it has certainly been suspended.”) Obama seems to agree.