The Cost of Obamanomics

Longer-term, there is little doubt that we will be paying more for energy. On Wednesday Democrats in the House agreed on a cap-and-trade system that will put a price on CO2 emissions, a cost that will be passed on to consumers in the prices of electricity and other energy sources. Agreement was reached when the bill’s enthusiasts bribed recalcitrant congressmen with free pollution permits for important constituents in the utility, oil and other industries. Which is too bad: cap-and-trade is a woefully inefficient way of imposing emissions costs on polluters. Experience in Europe shows that the price of permits fluctuates so wildly that potential producers of renewable energy aren’t given a target against which to compete. A solar or wind installation that might make economic sense when users of coal have to pay $40 per ton for a permit, is uncompetitive when the price drops to $10, as it has done. 

Energy costs will also be driven up indirectly, in a way concealed from consumers. We will pay higher taxes to cover the costs of the subsidies being lavished on solar, wind, ethanol and other parts of the energy economy by environmentalists. Or, in the case of ethanol, by politicians who equate ethanol with corn, corn with Iowa, and Iowa with the first presidential primary in 2012. Throw in the costs of a “smart grid” and all of us, especially those who have been stockpiling incandescent electric bulbs so as not to be dependent on the dangerous, malfunctioning and costly energy-saving fluorescents when the US outlaws incandescent bulbs in 2014, will pay more. 

We will also end up paying more to borrow than we would have paid before the government decided that contracts are made to be broken. The Obama administration demonstrated in the Chrysler bankruptcy that it has no regard for the contracts that have in the past protected lenders who made their money available on the assumption that they would have a preferential claim on the borrowers’ assets. Nor does it believe that contractual compensation arrangements should withstand a raised eyebrow in the White House or a raised voiced in congress. This weakening of the sanctity of contracts increases lenders’ risk, and higher risk means a demand for an offsetting higher interest rate. George Will, writing in the Washington Post, notes, “The Obama administration is careless regarding constitutional values and is acquiring a tincture of lawlessness . [It] thinks contracts are written on water.”