The Public Policy

Obama’s Assault on the Middle Class

By From the May 2009 issue

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In a rare, candid moment during last year’s campaign, Barack Obama said, We can’t drive our SUVs, and eat whatever we want, and keep our homes at 72 all the time, whether we live in the desert or the tundra, and keep consuming 25% of the world’s resources with just 4% of the world’s population, and expect the rest of the world to say you just go ahead. We’ll be fine. That’s not leadership. That’s not going to happen.

This extremism is alive and well today as the foundation for Obama’s global warming policies. The theory of global warming is that use of fossil fuels such as oil, gasoline, coal, and natural gas (the foundation of the Industrial Revolution) is increasing atmospheric concentrations of carbon dioxide (CO2). This increased CO2 is allegedly trapping heat in the atmosphere through a greenhouse effect, which will allegedly cause the earth’s temperatures to rise to catastrophic levels. In the Spectator’s March issue, I showed that as a matter of science this theory is not valid, drawing on proven data and arguments from top scientists around the world. Nevertheless, governments and the UN fiercely cling to global warming theory because it justifies massively increased power for them, including potentially world government powers for the UN. This is why global warming theory has become a religion for the worldwide left, including environmental extremists, who see in it the potential for achieving their dream of repealing the Industrial Revolution. In other words, global warming is about politics and power, not science.

Cap and Tax

WE CAN SEE THIS IN THE Obama administration, which is using global warming to justify a massive “cap and trade” tax on the American economy. Under this policy, every business involving CO2 emissions will have to buy permits from the government for the amount of such emissions, which will be sold in open auctions, where the permit price will be bid up. But the government will limit the number of these permits, and consequently the maximum amount of CO2 emissions allowed. Indeed, over time the government will clamp down on the amount of CO2 emissions allowed by the permits, with the emissions to be reduced by 80 percent by 2050.

As the emissions allowed are phased down in the face of a growing economy, the price of the permits will soar. Consumers, of course, will bear these extra costs. Indeed, that is how cap and trade is supposed to work. The expectation is that consumers, when faced with higher costs for products whose production or use involves CO2 emissions, will shift to other products involving little or no emissions.

The Obama administration itself estimates that cap and trade will involve increased costs from 2012 to 2019 alone of $645 billion, and admits in its own budget that the actual costs could be much higher than that, depending on permit prices over those years. Indeed, other estimates put the costs three times higher. So the increased burden on each Ameri can over this period alone would be $2,100 to $6,300. For a family with two children, that would be $8,400 to $25,200, with much more to come after 2019.

These increased costs are effectively a new tax on the American people, even though Obama promised in his campaign that there would be no tax increase for the bottom 95 percent of income earners. As former House Speaker Newt Gingrich said in his CPAC speech earlier this year:

[L]et me get this straight, we are not going to raise taxes on anyone making less than $250,000 per year, unless you use electricity. And we are not going to raise taxes on anyone under $250,000 per year, unless you buy gasoline…[or] unless you buy heating oil…[or] unless you use natural gas….And I thought to myself how dumb do they think we are that they can pretend that an energy tax is not an energy tax and…that every retired American who uses electricity is not going to pay it, and every person in New Hampshire who uses heating oil is not going to pay it, and every person who drives a car isn’t going to pay it. I just want to report to Attorney General Holder and President Obama that this is a nation of people courageous enough…to insist that we not be governed by people who won’t tell us the truth.

Slapping Down the Middle Class

BUT EVEN WHEN THE CRITICS HAVE FAILED to appreciate that the problem with cap and trade involves more than increased costs. In addition to these costs, consumers will have to suffer decreased consumption of products involving CO2 emissions, such as gasoline, electricity, home heating oil, natural gas, automobiles (particularly upscale vehicles), even farm products such as meat. The increased costs are supposed to cause this decreased consumption. This decreased consumption amounts to a decline in the standard of living of the middle class.

For example, I expect cap and trade and other already adopted Obama policies to push the price of gas above $5 a gallon by the end of his current term of office. In addition to the increased costs, this will force a decline in driving, which in itself is a reduction in the American standard of living. It will also force Americans out of the big, powerful, luxurious vehicles they drive now, with lots of space for kids, their friends, and cargo, into small, weak, death traps. (We can’t just keep driving our SUVs, as Obama said above). Another decline in the standard of living.

Electric cars will not help here either, as I’ll explain. The Obama administration has made no secret that it expects electricity costs to rise sharply under cap and trade, since most electricity is produced by coal, oil, and natural gas. This means you are expected to cut back on your consumption of electricity.

Indeed, prices will rise until you do. This means less use of computers, flat screen TVs, cell phones, iPods, dishwashers, microwaves, ovens, ranges, microwaves, refrigerators, washers and dryers, everything powered by electricity. This includes air conditioning and heat (with home heating oil and natural prices soaring as well until consumption is reduced). As Obama warned us above, we just can’t keep our homes set at 72 all the time. This all translates into another major decline in the standard of living. Cap and trade even affects the food supply.

Modern farming equipment uses lots of energy, as does refrigeration and transportation. The production and use of fertilizer also allegedly contributes to global warming. Meat is a special problem, because cows, chickens, lambs, etc. must eat other produced food (feeding grains) that takes energy to produce, and cow flatulence (methane) is another greenhouse gas more powerful than CO2 (seriously). So expect food prices to rise until consumption is reduced, especially for meat, as well as other food that requires refrigeration, such as milk, cheese, eggs, ice cream, yogurt (dairy products have the same problem as meat, because they come from animals that must be fed, involving two bites of energy use, besides the third bite of refrigeration).

As Obama warned us last fall, we just can’t keep eating whatever we want. So the result is another major decline in the standard of living. They can’t even leave our hamburger and shake alone. Even your barbecue grill (charcoal burning) and lawn (mowing, fertilizer) are targets.

Also, You Lose Your Job

IN ADDITION TO HIGHER PRICES for traditional energy and the lower standard of living are the negative effects on the general economy. The higher costs on the economy due to cap and trade result in fewer jobs and slower economic growth. Higher costs for energy in the U.S. will, in particular, drive even more manufacturing overseas. Lower GDP means the loss of products and consumption beyond those involving CO2.

A thorough study on the effects of cap and trade conducted by a leading economics firm, Science Applications International Corporation (SAIC), concluded that cap and trade would result in job losses of between 1.2 million and 1.8 million by 2020, and 3 to 4 million by 2030. This is roughly the amount of jobs Obama claims will be produced by his economic stimulus package. Slower growth results in a loss of GDP for the American people of nearly $700 billion per year by 2030, which translates into lost household income of $4,000 to $6,750 per year by then.

It Could Be Worse

THE INCREASED COSTS, decreased consumption, and negative overall economic effects resulting from cap and trade will be more severe to the extent that now-hoped-for alternative energy sources, which are built into the cost estimates, do not develop. During the campaign, Obama said repeatedly that he was not opposed to nuclear energy, which involves no CO2 emissions, as long as the nuclear waste issue could be addressed. But already, the Obama administration has shut down the Yucca Mountain nuclear waste disposal facility, which was the way the federal government was addressing the nuclear waste issue. Nuclear power in any event is not acceptable under the liberal/left environmentalist catechism, so don’t expect any further nuclear development while Obama or congressional Democrats are in power.

Biofuels require removing vast stretches of arable land from food production to make a dent in traditional energy use. Scandalously, this is already sharply raising world food prices, resulting in hunger and even starvation in poor countries, along with food riots. Yet recent scientific studies suggest that growing and using biofuels actually produces more greenhouse gases than burning fossil fuels, increasing global warming. Removing even greater empires of land from food production for biofuels is not a promising alternative for future energy production. There is much talk of “clean coal technology” that will enable America to use its vast coal reserves without contributing to supposed global warming. But as recent environmentalist ads have claimed quite rightly, such technology does not yet exist. More likely, as Obama suggested in a little-noted San Francisco Chronicle interview during the campaign, his cap and trade policy will just drive the coal industry out of business.

Sun and wind currently account for less than 1 per cent of our energy. They also require vast amounts of land, and because wind and sunlight come and go, they can’t maintain the constant flow energy grids require. There seems to be no prospect that they could become the dominant energy source for our economy.

Finally, let’s pretend that any of these alternative energy sources could become technologically feasible. To the extent they are more costly, including subsidies, than traditional energy sources such as oil, coal, and natural gas, they will only further add to the problem, leaving the American economy suffering permanently with the crippling disadvantage of relying on high-cost energy.

In other words, Obama’s cap and trade plan commits us as a nation to phasing out over the next 40 years the energy sources that have powered the Industrial Revolution, with no alternative technology in sight at this time that can seriously take up the slack. Under Obama’s policies, therefore, we are headed to an economy powered by the same energy sources as in George Washington’s day.

Worst of all, this sacrifice and suffering is not going to accomplish anything, even if human-caused global warming were real (which it is not). China, India, and Japan have all indicated that they are not going to commit national suicide for this false god. Russia only stands to benefit, and no one in Africa or Latin America has the interest or the means to do anything serious either. Even Europe, which talks a good game, granted so many exemptions to its cap and trade plan over the past decade that it too has accomplished nothing. Trashing only the American economy will produce no meaningful results, even according to the environmental extremists themselves, unless that was the goal all along.  

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About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.