Reihan Salam, the leading young conservative intellectual, argues that although Obama isn’t doing badly, the sheen has already come off his presidency
After nearly three months in office, the Obama presidency is no longer a heartening spectacle. It is instead a reminder that though America might be too big to fail, the problems it faces might be too big to be solved by even the cleverest, most charismatic president. Having run a well-oiled campaign machine, Obama and his team have been accused, within weeks of his inauguration on 20 January, of incompetence, not least for its consistent mishandling of high-level appointments. You will recall that ‘incompetence’ was the central charge against the very different Bush White House as well. The pervasive contempt for President Bush in the liberal intelligentsia convinced many that all the country needed was an anti-Bush: curious where Bush was close-minded, and eager to dive into the picayune details of policy debates. Thus far at least, one gets the impression that Obama really is the anti-Bush. Yet one also gets the impression that Obama’s cerebral nature makes almost no difference at all.
Let’s consider one of Obama’s very clever ideas, praised by serious policy thinkers across the political spectrum: a pricing mechanism for carbon emissions. At the end of February, when President Obama released his draft budget, he factored in a large revenue stream — $650 billion — tied to a national cap-and-trade system for carbon emissions. But Congress’s budget blueprint makes no mention of these revenues, a clear indication that cap-and-trade is dead, or at least comatose. Predictably, this two-step has been characterised as an ignoble surrender by Senate Democrats to powerful oil and gas interests, and anti-tax reactionaries who are at best indifferent to the environment. But it is worth examining President Obama’s own premises concerning cap-and-trade, for it reveals a great deal, I think, about Obama’s way of thinking.
If a cap-and-trade system did indeed raise revenue while reducing harmful emissions, it would be hard to argue against it, even if it did cause some reduction in economic efficiency. A number of economists, including the right-of-centre Gregory Mankiw of Harvard, who chaired Bush’s Council of Economic Advisors, have praised such taxes that account for the social costs of market activity, arguing that the revenue they generate can be used to effect a ‘green tax shift’ — a favourite Cameronism — that would shift the tax burden from work to waste. The trouble is that, as the brilliant Northwestern University sociologist Monica Prasad has argued, ‘green tax shifts’ don’t work. For all the talk of how Barack Obama wants to Europeanise the United States — and as Irwin Stelzer argues on page 4 of this special supplement, there is definitely something to this — the White House seems strangely, obtusely ignorant of the fact that many of its ‘new’ ideas have been tried in Europe and have been found wanting. For example, the ‘cap’ in cap-and-trade systems is totally notional; when it gets too strenuous, business lobbies almost invariably succeed in easing it.
To President Obama’s credit, he has pressed for an auction-based cap-and-trade system rather than one that simply gives away emissions allowances. In this regard, his system closely resembles a carbon tax. And yet even in their purest, most market-friendly form, carbon taxes that yield serious revenue have proven counterproductive. In Norway, for example, carbon emissions spiked more than 40 per cent between 1990 and 2005 on a per capita basis despite a carbon tax. The tax has become a cash cow, and that in turn has a not-so-subtle effect on incentives. Consider that if Obama’s original cap-and-trade system succeeded, it would create an enormous revenue stream only to see it fade away, as the costs of his healthcare system and his smart energy grid balloon.
The revenue Obama is banking on to make his expansion of the state look fiscally responsible is in fact a mirage. If it is not, then this would imply that the point isn’t so much to reduce carbon emissions as to raise revenue — and you’d think that a US version of VAT would be a rather more straightforward, less economically damaging way of doing that.
Unlike Norway, Denmark has seen a sharp reduction in per capita carbon emissions since it introduced a carbon tax. This is principally because the Danes dedicated carbon tax revenues to alternative technologies, like wind power. Also, the Danes exempted firms from the carbon tax when they took steps to reduce their emissions. And so the carbon tax never became a cash machine for the Danish welfare state.
All this is to say that Obama’s marriage of environmentalism and fiscal sobriety looks illusory. To be sure, Obama’s fiscal hypocrisy is in many important respects less offensive than that of his predecessor, not least because Bush, as a man of the Right, was at least notionally committed to fiscal discipline. Yet Bush’s deficits look hilariously modest in comparison to the deficits to come, deficits that bring to mind a country heading for a currency crisis. But that’s not my observation. Rather, I’ve cribbed it from Columbia economist Jeffrey Sachs, a darling of Bono and the celebrity Left who spends most of his time railing against the iniquities of global capitalism.
On foreign policy, Obama came to office with another clever idea, which was strikingly similar to one of Bush’s pre-presidential mantras: he would bring humility back. One of his first gambits was a reorientation of American priorities in Afghanistan and Pakistan — a ‘lowering of sights’, a step away from serious state-building efforts in favour of a minimalist focus on destroying al-Qa’eda. As Steve Coll, author of Ghost Wars and The Bin Ladens, has argued, this rather abstract notion ran into a straightforward problem, namely that a stable Afghanistan and a stable Pakistan are essential to achieving even the most minimal objectives in the region. As President Bush discovered, and as President Clinton discovered before him, state-building was not in fact optional. Fortunately, the White House seems to have realised this quickly, and Obama’s foreign policy performance has been fairly encouraging. But it is only encouraging insofar as it represents a sensible continuation of President Bush’s post-surge shift in approach to the war on terrorism, a term that has, of course, been abandoned in favour of something more palatable.
Two months in, the Obama presidency looks like a marriage of President Clinton’s domestic policy gimmickry with President Bush’s foreign policy, wrapped together with a rhetorical flourish. This is hardly the worst imaginable outcome. Indeed, it might well be better than the available alternatives. But somehow Obama’s America doesn’t feel like a New Jerusalem.
Reihan Salam is the co-author of Grand New Party: How Republicans Can Win the Working Class and Save the American Dream.