CEI Planet: November – December 2009


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To view this issue of the CEI Planet, please click here to download the PDF file. Below are selected articles from the November-December 2009 issue: 


Failure in Copenhagen

Why the Collapse of the Proposed Climate Treaty is Good for the Planet 


For the last two years, environmentalists have been planning to celebrate the signing of a new climate change mitigation treaty at the 15th Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change, which will take place this December in Copenhagen, Denmark. Thankfully for the world’s poor, they won’t have any treaty to celebrate. The Copenhagen negotiations are almost guaranteed to fail because “doing something” about global warming is very expensive, and the countries of the world cannot agree on how to distribute the costs.

The UN’s top negotiator, Yvo de Boer, of the Netherlands, said that a legally binding agreement is feasible within a year, but that he wouldn’t hold his breath. The International Energy Agency estimates it would cost $45 trillion to halve global carbon emissions from today’s levels by 2050—and there is no precedent for international burden sharing of this magnitude for anything short of a world war. Thus, a diplomatic breakthrough is unthinkable.

I should note that CEI will be witness to the failure in Copenhagen, having arranged to send a delegation to the 15th COP. I will be there, and plan to relish the disappointment in the air—and not just because misguided idealism got mugged by reality, although that is always fun to watch. My greatest satisfaction will come from the fact that the world’s poorest have dodged a bullet. There is ample evidence that the benefits of economic growth unhindered by costly emissions controls surpass any deleterious impacts of global warming—if the world ever starts to warm. Remember, global temperatures stayed flat over the last decade, despite steady increases in global greenhouse gas emissions, the supposed cause of global warming. The alleged “scientific consensus” cannot explain this.

In Copenhagen, environmentalists hope to achieve a global energy rationing regime that would give priority to global warming over the real global crisis—energy insecurity. According to World Bank estimates, nearly 2 billion people in developing countries rely on dung, wood, and charcoal to heat their homes and cook their food. For the poor, a coal-fired power plant giving them access to affordable energy would be a blessing, whatever the effects on the climate. 

So what comes next after failure in Copenhagen? Expect negotiations to shift from the United Nations to the World Trade Organization, where states that regulate greenhouse gas emissions will try to impose trade sanctions on states that do not. Climate change may not be warming the planet, but it just might cause a trade war.

Already, France and Germany are pushing for carbon tariffs on goods and services from countries that are not similarly bound to the European Union’s promise to cut greenhouse gas emissions by 20 percent by 2020. And the cap-and trade  legislation that passed through the U.S. House of Representatives in late June provides for “border adjustments” on imports from countries not subject to commensurate emissions regulations. Last November, Sen. Max Baucus (D-Mont.), chairman of the powerful Finance Committee, endorsed carbon tariffs.

Why carbon tariffs? For starters, they export domestic carbon emission caps by penalizing the greenhouse gas content of goods and services imported from countries that haven’t enacted energy-rationing legislation to fight climate change. The preponderance of future global emissions will originate in developing countries, so a carbon tariff would achieve a degree of multilateral compliance on global warming mitigation.

Theoretically, trade sanctions could level the playing field for countries that act on climate change and those that don’t. In fact, unilateral carbon controls would disadvantage American industries in the global marketplace, by placing them at the mercy of other governments.

Establishing a “fair” carbon tariff is all but impossible. How would a bureaucrat in Brussels or Washington objectively determine the carbon content of a tire imported from China? Not even the Chinese government has that information. It doesn’t exist. Even if it did, how would one differentiate among products so as to reward good practices? In China, some tires are made with wind power, and some are made with coal. Is a customs officer really going to have the time to distinguish between the two?

The inherent imprecision of carbon tariffs invites rent-seeking. Politically connected industries will press lawmakers for protection from production in countries unbound by carbon controls. This could easily get out of hand. After all, carbon emitting fossil fuels power 85 percent of global economic production. Every industry will try to make its case.

Moreover, carbon tariffs are probably illegal. The World Trade Organization has yet to rule definitively, but carbon sanctions on imports seem to fly in the face of the liberalized regime that has defined international trade since the end of World War II.

Retaliatory tariffs would be likely, which could easily escalate into a global trade war. That would be a tragedy.

By allowing developing countries to use their comparative advantage— inexpensive labor—international free trade has proven the fastest route out of poverty for hundreds of millions of people. To avoid giving atmospheric chemistry priority over human welfare, the United States and Europe should weigh the risks of global warming policies as rigorously as they do the risks of global warming itself.

William Yeatman ([email protected]) is an Energy Policy Analyst at CEI.



To Grow the Party, GOP Should Grow the Economy, Shrink the State


Republicans have been getting a lot of advice lately. Democrats have urged them to concede that we need more government, and that, yes, “We can work together!” That advice is now consensus among trendy intellectuals who have long disdained economic liberty.

They’re joined by Washington business lobbyists who define success in terms of limited failure. Their appeasement formula—if you’re not at the table, you’ll be on the menu—has generally resulted in freedom and  business  flexibility being served for dinner.

Republicans will never recover by going that route. If Americans really want socialism, why settle for the weak version?

Republicans must accomplish two tasks. First, develop a message that reaches all Americans—liberals and libertarians as well as conservatives. Second, promote policies that empower individuals, businesses, and private organizations to solve problems. That means reviewing current policies that block such empowerment: excessive regulations, taxes, distorting subsidies, anti-competitive licensing laws, and so on. Grass doesn’t need to be taught to grow; all one needs to do is move the rocks off the seeds.

The world does face real problems: poverty, pollution, disease. These can best be alleviated by making it possible for more people around the world to create wealth and knowledge. The world’s problems are caused by a lack of not only economic freedom, but also of the institutional arrangements that allow individuals to exercise that freedom responsibly.

For too long, Republicans have focused only on “red meat” rhetoric, which is useful in motivating the troops but is also likely to motivate opponents. That can get you only so far. Americans have no love for paternalistic policies, but voters will never care what you know until they know you care.

Republicans need to augment their economic arguments with arguments emphasizing citizens’ freedom to choose. They need to find evocative ways to convey the ability of free enterprise to improve human well-being. (Wal-Mart provides a good example, having done more than FEMA to aid those affected by Hurricane Katrina.)

Americans recognize that wealth and knowledge are prerequisites to solving problems, from poverty and pollution to education and infrastructure. They are already rejecting the “bipartisan” rhetoric that doing something must mean expanding an impersonal bureaucratic state. They recognize that the current health care and global warming initiatives will result in a world that is sicker, darker, and poorer.

Many of the nation’s health care problems stem from distorting exemptions in the tax code that shift the purchase of health insurance coverage onto employers and away from consumers. Eliminating the exemptions would be difficult, but as a second best alternative, Republicans could seek to extend them to all Americans, make them independent of employment, and put patients in control of their own health care costs by expanding vehicles such as health savings accounts.

On climate change, cap-and-tax energy-rationing programs will only impoverish Americans. Raising energy prices will not help the world’s poor; wealth creation made possible by affordable energy policies will. The best insurance against disaster is to create the generalized wealth and knowledge that will allow America and the world to address future risks.

Republicans should work to reform policies that have encouraged people to locate in high-risk areas, such as earthquake zones in California, flood plains along the Gulf of Mexico, and fire prone areas throughout the West. They should join with environmentalists and others to encourage reforms that would allow private insurers to price risks, thus encouraging development outside of hazardous areas.

Rather than pick technology winners via tax subsidies, Republicans could make a principled case for eliminating all capital taxes or (even better) the corporate income tax itself. Few reforms would do more to accelerate the diffusion of affordable, energy-efficient technologies and all the benefits they would bring. 

Republicans must reject the “do something by expanding government” approach. Americans want solutions, not more bureaucracy. They have always had doubts about “big” institutions. Republicans should be critical of subsidized Big Business. However, they should also realize that the biggest institutions are not economic, but political. Republicans should make it clear that “doing something” about the problems we face often means government doing less.

Fred Smith sig



Bureaucrash: International Activism


In October, Crasher-in-Chief Lee Doren was invited to speak in the United Kingdom in front of the Young Britons’ Foundation regarding grassroots and online activism. Some of the well-known speakers at the event were MEP Daniel Hannan and Conservative Party Chairman Eric Pickles. Lee was one of two speakers from the United States.

During the three-day conference, Lee networked with dozens of young liberty activists. Not only were the students interested in Bureaucrash, but many of them signed up to Bureaucrash’s online social network and were eager to obtain Lee’s pro-capitalism contraband. It was an extremely successful event for spreading Bureaucrash’s message internationally.

In early November, Lee addressed the State Policy Network’s conference in North Carolina regarding political activism on YouTube. Lee outlined how the liberty movement could successfully utilize YouTube and was able to network with young liberty activists. In their submitted reflections on the event, attendees rated Lee’s presentation as “excellent” and “very informative.” Consequently, Lee was asked to attend numerous student activism events in the coming months.

Later that week, Lee led a group of crashers to the “Free Kareem!” rally outside the Egyptian embassy’s cultural and educational office in Washington, D.C. Kareem Amer, a 24-year-old reformist blogger from Alexandria, Egypt, was imprisoned in 2007—three years for insulting Islam and inciting sedition, and an additional year for insulting Egyptian President Hosni Mubarak. Since he was detained and imprisoned, Bureaucrash has helped organize protests outside the Egyptian embassy every November 6, the anniversary of his arrest.



The Good, The Bad, and The Ugly


THE GOOD: CEI Gains Broad Support of Its Constitutional Challenge to PCAOB

In October, prominent legal scholars, economists, and former government officials filed amici curiae briefs in support of CEI’s constitutional challenge to Sarbanes-Oxley’s Public Company Accounting Oversight Board (PCAOB). Among them, Roberta Karmel, appointed by President Jimmy Carter in 1977 as the Securities and Exchange Commission’s (SEC) first female commissioner and now a professor at Brooklyn Law School, joins in a brief declaring, “[T]he PCAOB is not subject to constitutionally sufficient control by the President” and its “structure violates the doctrine of separation of powers and the Appointments Clause.” John Berlau, director of CEI’s Center for Investors and Entrepreneurs, said, “These briefs coincide with recent academic research showing that Sarbanes-Oxley adversely affects business investment and research-and development spending and a just-released SEC study showing that Sarbox compliance costs have not decreased for many of the smaller public companies.”


In a report published by automotive information clearinghouse Edmunds.com, analysts estimated that the $3-billion Car Allowance Rebate System (CARS)—better known as “Cash for Clunkers”—ended up costing taxpayers $24,000 per car. Of the nearly 690,000 cars sold under the program, only 125,000 could be credited directly to CARS. The rest of the sales, they said, would have occurred anyway. “As Frederic Bastiat succinctly noted long ago, when determining the effects of a specific action, it is necessary to consider not only ‘what is seen’—the observed effects of that action—but also ‘what is not seen’— opportunities forsaken for the chosen course of action. In public policy, this means that it is necessary to look not only at the alleged benefits of a specific policy after it is enacted, but also at what would have happened if that policy had never been enacted. Viewed in this light, the Cash for Clunkers program is a costly boondoggle that will yield little net benefit,” said CEI Editorial Director Ivan Osorio.


A new research report from J.P. Morgan finds that more than 90 percent of President Obama’s Cabinet level appointees are career politicians and bureaucrats, a greater percentage than any previous administration in the history of the United States. To be clear, the finding was not that 93 percent of appointees come from the public sector, but that 93 percent have only public sector experience.

To put this in perspective: Consider that at least 45 percent of appointees in the administrations of Franklin Delano Roosevelt and Lyndon Johnson—no free-marketers they—had prior private sector experience. Before Obama, the previous record had been set by President Kennedy, with slightly more than 70 percent of Cabinet appointees having no background in business. While perhaps not surprising, it should nonetheless be disturbing that those tasked with controlling more than 20 percent of the American economy have never in their lives had to meet a payroll.




…End Notes


On October 19, financial analysts at Keefe, Bruyette & Woods downgraded common shares of Fannie Mae and Freddie Mac from market perform to underperform, and cut their price targets from $1 to $0. “Fannie Mae and Freddie Mac have been at the heart of the U.S. housing boom, bust and recovery,” KBW analysts wrote in a research note. “As the mortgage market moves away from crisis mode, the future of the GSEs has to be addressed.” They added that even if the government-backed institutions are “recapitalized through investments from the banks that benefit from their role in the secondary market,” it is likely that “both the common and preferred equity of the GSEs should be worthless.” Moreover, the analysts recommended that government involvement in Fannie and Freddie should be wound down, a stance long-held by economists and free market advocates.


Sandra Burt is a British shop assistant who loves the Rolling Stones so much that she can often be heard singing Stones songs in the aisles of the store where she works. Earlier this year, Burt’s employer received notice from the Performing Right Society, the British organization that collects royalties for the music industry, warning that she could be fined if she continued to sing without a performance license. After a public outcry, the PRS apologized and sent Burt a large bouquet of flowers with a note attached reading, “We’re very sorry we made a big mistake. We hear you have a lovely singing voice and we wish you good luck.”


A teenager who spent over 200 hours over several weeks clearing a pedestrian and bicycle path seems like someone who should earn praise from his community. Unless, of course, his city’s government employee union considers his cleaning as work reserved for its members. In Allentown, Pennsylvania, on November 10, the head of the Service Employees International Union (SEIU) local that represents city employees said the union was considering filing a grievance against the city for allowing 17-year-old Kevin Anderson, an Eagle Scout working towards a badge, to clear the path. Local SEIU chief Nick Balzano told the city council, “We’ll be looking into the Cub Scout or Boy Scout who did the trails.” Allentown Mayor Ed Pawlowski praised Anderson for providing “a great service to the community.” Possibly fearing a public relations disaster, Balzano said a few days later, “We are probably going to let this one go.” But it was too late for Balzno, who later resigned.


No Treats for You!

Citing public safety concerns, officials in Dunkard Township, Pennsylvania, and neighboring Bobtown banned trick-or-treating on Halloween. “I think they’re taking all the fun from our kids,” Freda Menear, a Bobtown grandparent, said. Bob Huggins, a Dunkard Township supervisor, that many local residents agreed that it would be better for children to be off the streets on Halloween night. Instead of going door-to-door, families were treated to a four-hour party at a fire station.