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  • Son of Waxman-Markey: Why More Politics Makes for a More Costly Cap and Trade Bill

    After making changes to draft legislation of the Waxman-Markey cap and trade climate legislation, the economic impact of the new draft (the Son of Waxman-Markey) varies from that of the original draft in several major ways:

    • Compared to no cap and trade, real GDP losses increase an additional $2 trillion, from $7.4 trillion under the original draft to $9.4 trillion under the new draft;             
    • Compared to no cap and trade, average unemployment increases to 1,145,000 lost jobs under the new draft; and                                                                                                                
    • Peak-year unemployment losses rise by 500,000 jobs, from 2 million under the original draft to 2.5 million under the new draft.

    Here’s why:

    • Our original economic analysis had the government auctioning off the allowances (rights to emit) carbon dioxide. The auction revenue, the equivalent of tax revenue, went into the hands of the government, which in turn created more government jobs. In the second version of the bill, the government distributed allowances to various businesses in an attempt to mitigate the near-term economic damage done by the bill. As a result, jobs in the private sector fell less than the original but the government jobs decreased more because the government did not receive the allowance revenue from the auction. Overall employment fell.

    • Think of the allowances given away as subsidies to businesses. When these subsidies stop and allowances begin to be auctioned off, the economy is again “shocked” with higher indirect taxes and businesses must make costly adjustments to this new economic condition.

    • Real GDP losses increase an additional $2 trillion from the bill because investment for businesses is worse under the new bill. Again, the government is not auctioning off the rights for businesses to emit carbon dioxide; they are giving them away in the near-term. These giveaways add to the national debt, crowd out private sector investment and drive up interest rates. Increased interest rates further drive up the debt. This creates a vicious cycle in which businesses significantly reduce their investment. The lack of investment (that drives the overall economy) produces higher real GDP losses and lowers the potential of the overall economy.

    The attempt to reduce costs on businesses and thereby trickle-down to consumers does ease some of the near term pain. The decrease in personal consumption expenditure (what people spend on goods and services), for example, is not large in the Son of Waxman-Markey as it is in the original. Unfortunately the slight benefits of the short-term easing of pain is swamped by the real economic costs of the targeted mandates. In an attempt to mitigate the near-term economic pain inflicted by a cap and trade bill, the government is simply pushing the burden on future generations by blowing a hole in the long-term economy.

    Karen Campbell, Policy Analyst in Macroecomomics for the Center for Data Analysis, co-authored this post.

    Posted in Energy [slideshow_deploy]

    6 Responses to Son of Waxman-Markey: Why More Politics Makes for a More Costly Cap and Trade Bill

    1. Metalchemist says:

      Their spending lots of money to try and get you to call your Congressman and tell the to support the bill.

      N.F.W.

      Waxman is not to be trusted, another lifetime politician that MUST be put OUT TO PASTURE.

    2. Wayne, Albuquerque says:

      Cap and trade is not a plan to reduce carbon emissions, which it doesn't, but a plan to raise money for the government in power to redistribute to it's favored constituents. Since global climate change is a given (it does it every day in cycles which no man can change) politicians will continue to use it for their own agenda, which is gaining more control over you and I.

    3. Monica says:

      I know that energy is a complex issue, but coal is critical not only in securing affordable, reliable and domestic energy, but also in creating steady jobs across the country.

      My team went to the Harriman Dispatching Center in Omaha, Neb., where 800 employees work around the clock to ensure the smooth operation of Union Pacific’s entire rail operation—which helps move coal to produce nearly half of the country’s electricity.

      They went behind the scenes of this operation for the 2009 Factuality Tour—take a look to see photos, videos and interviews from our stop in Omaha. I hope it will enlighten you about what it takes to produce America's power.

      Factuality Tour

    4. Spiritof76, New Hamp says:

      Belief that Congressman like Waxman is interested in the welfare of our country and its people in a land of personal freedom and private property rights is rooted in fantasy. They are socialists and are empowered by Americans voting for them.

      The only way this run away train hurtling to a national catastrophe can be stopped is when people lose their standard of living significantly with brown outs and black outs.

    5. dennis florida says:

      i recall a small town in northern u.s. they had a windmill turbine for their community.they could get about 80% electricty from it. on a windy day,100%.they wanted to erect two more right off shore,just off their beach. they wanted to sell the extra juice to the surrounding areas.the enviormentalist said no. they said it would hurt the fishing industry, and it would be an eyesour.this whole global warming thing is the biggest con job i have ever seen.i dont know any one that thinks it is real. does anyone remember the afor mentioned story?

    6. Pingback: » Financial News Update - 05/20/09 NoisyRoom.net: “Extremism in the defense of liberty is no vice. Moderation in the face of tyranny is no virtue.” Barry Goldwater

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