Wednesday, June 25, 2008

How Energy will win McCain the election...

...and I'm not talking about the energy the crowd brings to a room when Obama is on stage.  I'm talking about the backbone of our economy.  From oil, to natural gas, to electricity, it all seems to be a mess that isn't leaving us anytime soon, and by any measure should be the foremost issue come this November.  So what do the candidates propose to do about it?

See Senator Obama's energy plan here.
See Senator McCain's energy plan here.

To his credit, Senator Obama has put forward a some-what detailed PDF listing his objectives. These seem to consist of three general ideas: a cap and trade policy, increased government spending on general research projects, increased government spending on farm subsidies for ethanol purposes.

Senator Obama likens his projects to Apollo and the Eisenhower Highway system.  The later analogy seems  a bit ironic as the American highway system enabled suburban sprawl, increased reliance on individual automobiles, and a decline on the use of mass transit.  However, I'm sure Obama doesn't want you associating his energy plan with the very problems that caused excessive consumption of fuel.

The additional irony is that the cap-and-trade system advocated in Obama's energy plan is essentially the same as the one previously proposed in McCain-Liberman, especially in determining energy policy in the next 20 years. (BTW - recognize any name from that bill?)  This is noted here. While a cap-and-trade system isn't the newest idea on the block, it is important to note that McCain was the sponsor in the Senate as opposed to a certain younger Senator from Illinois (with that extensive legislative background and all).  Both candidates support it and, to me at least, it seems to be an appropriate (Coase like) solution.

Moving on, the remaining 9 pages of Senator Obama's energy plan detail what he'll spend taxpayer monies on (though he makes no assertions as to where the funding will come from).  Actually, to say that Obama "details" the expenditures is a bit far-fetched.  The plan states what he'll spend money towards, that is the goals he'd like to achieve.  However, increase the subsidies to projects doesn't make much sense.  Why would renewable energy providers need more subsidies in a time when the price of energy is skyrocketing?  If the problem is indeed one of scarcity, then plentiful, renewable energy should be naturally cheaper and therefore more friendly to investment by business.  If producers need to be paid by government in order to produce, then they shouldn't be producing. (In the alternative, if you want to spur on development and production, then you lower the cost of doing business across the entire economy through tax cuts - but these are nowhere mentioned in Obama's plan).

This leads us to the final Obama proposal, a stupendous tax on "windfall profits".  This is a bad idea for several reasons.  One, as noted by the link, the last time the windfall profits tax was enacted is resulted in far less revenue than anticipated and futhermore,  it reduced the amount of domestic oil production.  Simple economics would suggest that reducing the production of oil to barely increase federal revenues and pay for a program to educate inner-city youth is simply a bad idea in the midst of an energy crunch.  I'm all about educating inner-city youth, but let's please do this with a tax that won't increase the price of the most essential good in our economy.  Taxing a necessary good simply doesn't make sense, especially with the price so high. 

Finally, while much of this blog has been spent criticizing Obama's approach, I would be remiss if I didn't mention the better alternatives that McCain has offered.  For every subsidy and misdirected federal expenditure that Obama has recommended, McCain has offered a specific financial incentive, tax credit, or decrease in regulation.  Where Obama has simply said what the goals are but not how to get there, McCain has shown an appropriate reliance upon the market and market incentives in this area.  His government sponsored prize for a substantially improved battery suggests both invention and innovation that can be practically obtained.  Additionally, while Obama continues endless subsidies for industries that no longer need them (see the recent price of corn), McCain has called for an end to subsidies which increase market prices and has proposed ending regulations on oil exploration, allowing American entrepreneurs and businesses the flexbility to ease some of our supply troubles (even though offshore drilling could only be a drop in the barrel).

All in all, it seems that McCain has a more realistic and practicable plan to meet our energy needs, mostly because it appropriately depends on the market and removes market barriers to energy supply, while still recognizing a need for conservation.

Now, if he could only follow up his energy plan with an advanced purchase of  a Chevy Volt, he may just win Michigan.

Next Post: Character and the Presidency


B.T. said...

Also, please note this article discussing McCain's response to an anti-nuclear advocate. He raises great points about the viability and safety of American Nuclear Power:

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