Fire burn, and caldron bubble

Double, double toil and trouble;
Fire burn, and caldron bubble.

For some reason, the news that the Waxman-Markey cap-and-trade bill passed the House last night has made me feel very sad and very defeated. The bill is so huge - both page-wise and impact-wise - how can anyone possibly know what they’re voting for, much less what the impact will be? I find the size of the bill particularly distressing since I do not believe that human beings pumping CO2 into the air is going to result in apocalypse within a hundred years. Thus to me Waxman-Markey is a huge, expensive, unpredictable Rube Goldberg machine created to fix a problem that would be better addressed through case by case amelioration than through universal prevention. Passing this bill, creating this monstrous structure, is exactly like using an elephant gun to kill a mosquito - without knowing exactly who the elephant gun is pointed at.

You can read Maxed Out Mama and the links she provides for thoughts on what I guess we can call the first-order dangers of Waxman-Markey. I’m equally concerned about another kind of danger: a bubble. I first worried about this back in November. In discussing how the (in my opinion necessary) long, slow economic recovery could be cut short, I wrote:

The other possible interruption of the economic doldrums period is a new economic bubble. I’m not sure how possible this is since a bubble apparently requires the ability to take on lots and lots of debt. However, the government has pumped a lot of money into financial institutions and that money may be ripe for bubbling. One excellent candidate for a bubble is carbon trading.

It’s pretty clear that the Obama administration wants to address Apocalyptic Anthropogenic Global Warming. Leaving aside what I think of the basic idea of AAGW (not much), we have to decide how to address it. If the country is stupid enough to go with a cap-and-trade system rather than a simple carbon tax, the bubble won’t even need the money already pumped into the financial system: it can form itself solely from all the new government “money” handed out in the form of carbon allowances. (I find it hard to believe the government is going to auction those off given the sad financial state of most corporations; it’s more likely they’ll be given away.) The markets can go crazy bidding them up - heck, someone will probably even create derivatives - and we’ll have another bubble.

Like massive Federal handouts, though, a bubble is a bad idea in the long run. By definition, a bubble creates imaginary profits and fake productivity. That means there’s always a day of reckoning. Do we really want to concentrate our hopes and our efforts on pushing that day off on our children and grandchildren? We created this mess. I think we should take the hit involved in cleaning it up.

A bubble of any kind would be great for Obama and the Democrats, provided they could get it cranked up quickly enough and maintain it long enough. If they time cap-and-trade just right, the economy can begin to heat up prior to the November 2010 mid-term elections. Obama and the Democrats can take credit for the “recovery” and the Democrats can retain their control of Congress. If the CO2 bubble continues to grow through the end of 2012, the economy will look good for Obama’s re-election and the Congressional races and that should keep the Democrats in power. If the bubble can manage to stay intact through 2014, the mid-term elections could go to the Democrats yet again. That’s four years for the carbon trading bubble which seems a decent run so it could then pop and leave Obama’s successor with a mess that will have us all yearning for the economy of January 20, 2009.

There could, of course, be problems. If Waxman-Markey turns out to be more expensive than the $175 currently promised, people might get restless. Inflation might rear its ugly head. People might come to believe that AAGW is not really a threat. Still, an overheating economy can make increased energy costs and inflation look less serious than they are and if Waxman-Markey starts making the economy look good I imagine few people will even remember that the cap-and-trade boom was originally supposed to address global warming - and fewer still will care. Yes, I’d say Waxman-Markey looks like a winner for Obama and the Democrats.

Still, this is just one piece of legislation so it took me a while to figure out why I felt so sad about it. It’s because this bill, more than any other passed or contemplated, makes me think that before too long - 25 years, 50, maybe 100 - the United States is going to look exactly like a Western European nation. Don’t get me wrong: many of them are nice places. But they seem awfully tame, awfully limited and I suspect the reason for that is their financial constraints. The Western European nations have built good lives for their citizens within the terms of their current circumstances but I don’t sense in them a vein of daring, a sense of limitless opportunity, a belief that more is always obtainable - all the faith in ambition that has always been the hallmark of the United States.

With Waxman-Markey, this country is putting its economic engine in Park and - if things don’t go perfectly - in Reverse. There will never be more; the best has already been. What could be sadder?