The week of July 24, 2023: Net Zero in (political) focus, industrial policy, electric vehicles, inflation, and much, much more.
The week of July 24, 2023: Net Zero in (political) focus, industrial policy, electric vehicles, inflation, and much, much more.
A couple of Capital Letters ago, I wrote about the dubious assumptions underlying net zero, an exercise in central planning which promises to be as painful as it is pointless, as some voters are beginning to notice. And as net zero starts to bite more deeply, they will start to bite back.
[W]hile there is general public support for net zero targets and other green measures, that support rapidly dies away when people are asked about the trade offs currently proposed. Plans to phase out gas boilers are unpopular, as are low traffic neighbourhoods – when, that is, the implications to them are made clear in the question. In Germany, the government nearly fell apart over plans to ban new gas boilers; in the Netherlands, an upstart party formed to oppose plans to close down farms to reach nitrogen reduction targets now stands on the brink of power.
Meanwhile, Xi Jinping, someone who doesn’t have to worry about voters, has not been playing his part in the net zero narrative, according to which China will reach net zero greenhouse gas (GHG) emissions by 2060. China emits more GHG than any other country, about one-third of the global total. Under the circumstances, those promoting net zero in the West have taken pains to reassure their voters that China will do its best to hit that target. Because if China doesn’t play along, this will make a nonsense of a scheme that was never too closely aligned with reality in the first place. This is why the Biden administration likes to stress its determination to negotiate (constructively) with China over climate.
Treasury of the Secretary Yellen, July 8:
[The climate crisis] is not a bilateral issue between China and the United States. It is about responsible global leadership. The world deserves and expects its two largest economies to work together on these global problems and help find solutions.
And so this was awkward.
President Xi Jinping said China will decide on its own path to reduce carbon emissions instead of following other nations.
China’s resolve to achieve the dual-carbon goal, a twin initiative in reaching a carbon peak by 2030 and carbon neutrality by 2060, is unwavering, CCTV reported on Tuesday citing Xi as saying at a national conference on environmental protection. “But the path, method, pace and intensity to achieve this goal should and must be determined by ourselves, and will never be influenced by others,” he said.
Xi’s language was crafted carefully. Unlike his counterparts in the West, Xi has made clear that his country’s interest will not be subordinated to the demands of climate policy-makers. However, he still needs to pay lip service to the current climate agenda. Net zero underpins demands for Chinese goods ranging from solar panels to (even more so) electric vehicles (EVs), the latter, in particular, a promising business that may also deliver strong geopolitical advantages. For the West to weaken itself, and in certain key business sectors make itself dependent on Beijing, is a strategic prize not to be thrown away. And so Xi needs to keep playing the climate game. Undertakings can always be dispensed with if they become inconvenient.
Writing in Capital Matters, Diana Furchtgott-Roth looked more closely at the significance of Xi’s comments. She notes they were made just after a visit by John Kerry, and just ahead of one by Anthony Blinken, and concludes they were a “deliberate slap in the face to America.”
As indeed they were. They were designed to signal, not just to the U.S., but also to the rest of the world, that China put China first, that China (which presumably has a few competent scientists of its own) attaches less relative importance to climate change than the U.S., and that if the U.S. wanted China to play a greater part in fighting climate change, there would be a price to pay. As Furchtgott-Roth reminds us, Xi’s stance was hardly a surprise (he has been saying this sort of thing for a while).
That Xi chose to reassert this position right now, was, I suspect, to prove that he had, in the Seinfeldian sense, ‘hand.’ Doubtless the Beijing regime will see just how much it can get the U.S. pay in exchange for promises that it will have no intention of keeping, even as the West keeps, uh, ‘racing’ down its road to net zero by 2050, a journey that might be compared to a peculiarly painful penitential pilgrimage, with benefits, such as they are, confined to the spiritual.
A less predictable intervention on the topic of net zero came from former British prime minister Tony Blair. I have almost never been an admirer of Blair, but it would be foolish to deny his formidable political skills, and so it was interesting to read this in the Daily Telegraph:
Sir Tony Blair has warned against asking the [British] public to do a “huge amount” to tackle climate change, saying Britain’s net zero efforts cannot solve global warming alone.
Britain accounts for about one percent of global GHG emissions.
Back to the Daily Telegraph:
The former Labour prime minister stressed that climate change was the “single biggest global challenge” and said “Britain should play its part” in tackling it.
However, he pointed out that what the UK could achieve would be dwarfed by the impact of actions by countries such as China.
In an interview with the New Statesman magazine on July 18, two days before the Uxbridge by-election, Sir Tony said: “Don’t ask us to do a huge amount when frankly whatever we do in Britain is not really going to impact climate change.
“The number one issue today – and this is where Britain could play a part – is how do you finance the energy transition?
“Because, basically, the developed world’s emissions are going down, but the developing world’s are going up. These countries have got to grow, so how do you finance the transition? Secondly, how do you accelerate the technology?”
A figure close to Sir Tony clarified that his “huge amount” comment was an echo of the arguments of others, although he deployed it to support his central point.
The former prime minister accepted that noting China’s sizeable emissions should not be a reason for doing nothing at all on climate change. He continues to support Britain’s 2050 net zero emissions target.
“Well, it’s the single biggest global challenge, right, and Britain should play its part in that,” he said. “But its part frankly is going to be less to do with Britain’s emissions. I mean, one year’s rise in China’s emissions would outscore the whole of Britain’s emissions for a year.”
China has emitted more carbon dioxide over the past eight years than the UK has since the start of the Industrial Revolution, according to figures published last year.
Sir Tony’s focus on the limits of what the UK can achieve alone in the battle against climate change comes amid debate about how radical to make green policies.
Blair’s comments are worth noting. The best guess is that he expects that net zero could mean political trouble ahead, and that he feels strongly enough about it to speak out, despite his Labour party affiliation and his membership of (at the risk of sounding a bit/very conspiracist here) of the ‘transnational elite,’ as, so far as the latter is concerned, visiting the website of the Tony Blair Institute for Global Change — the name, the name — quickly reveals. From windy platitudes to pictures of wind turbines it’s all there, including ’83 insights on climate and energy’, among them an article from July 2022 by Daniel Newport. Here’s an extract:
Net zero is… [a] route to security, affordability and yes, also a habitable climate. Net zero is global and it is inevitable, and putting our commitment to it in doubt will only delay the benefits and increase the costs.
Christina Palmou, writing in November 2021, offers up a reminder that the war against cars won’t end with driving internal combustion engine cars off the road:
Even if we succeed in rapidly adopting EVs, this could exacerbate some wider social costs from driving. Estimated at roughly 70bn a year or 17p per kilometre driven, congestion comprises 78% of the cost society endures because of cars. With electricity taxed at low rates and significantly cheaper than fuel, the marginal cost of driving collapses for EV drivers, encouraging many more to get on the road. That could mean 32 hours a year stuck in traffic for the average driver, and far higher than that for those in cities. As we decarbonise transport, some reduction in driving will be needed.
Some.
Under the circumstances Blair’s warning, however hedged by his continuing commitment to net zero, about how much of a burden Britain should accept in the name of net zero is striking. It also comes as a welcome contrast to Boris Johnson’s post-imperial bombast. Here he is, writing in The Sydney Morning Herald in 2021, while he was still prime minister:
Climate change is realpolitik. It’s a diplomacy issue, a security issue, a trade issue. And in the years to come, the only great powers will be green powers.
Xi must have laughed at that.
On other occasions, Johnson seemed to suggest that the U.K.’s climate policies could serve as an example to the rest of the world, a lunatic notion that he was (and is) not alone in promoting.
Indeed they could, but as a warning.
Blair was writing before Britain’s Conservatives eked out a small majority in a previously solid Tory constituency thanks to voters’ opposition to the expansion of London’s ULEZ (ultra-low emission zone) by London’s Labour mayor.
Up until now, net zero has been fairly popular in Britain, but, to echo the point made in the Spectator and quoted above, it’s one thing to support net zero in virtuous theory, and quite another in uncomfortable, power-poor, cash-short, car-constrained practice.
Not unrelatedly, here’s Noah Rothman, writing in National Review:
By itself, an electric range, a heat pump, an ugly LED bulb, or a paper straw is a minor irritation. In a mandated aggregate, they look like a society-wide assault on the dignity of personal choice. Activists, like-minded bureaucrats, and their allies in elected office are, in the name of climate change, waging war against products and conventions that make everyday life work. For the targets of their hostility, they would substitute alternatives that either perform less effectively or demand more of your time and money. And you’re expected to bear this burden indefinitely. Or at least until you communicate your displeasure in no uncertain terms at the ballot box.
Add being compelled to switch to an EV to that list, or, in many cases, to abandon any kind of car, electric or otherwise.
“As we decarbonize transport, some reduction in driving will be needed.”
Or pan out a bit and envisage the broader economic costs that the transition to net zero seems almost certain to involve, from lost jobs in the auto sector to competition from Chinese EVs to deindustrialization in the face of higher energy costs, to the budgetary pressure that looks inevitable as governments look to smooth the roughest edges off the transformation. Perhaps those costs will be, uh, transitionary, perhaps they will not, but, regardless, the politics of net zero will be something to watch.
The Forgotten Book
This week we ran the second edition of our new fortnightly feature, The Forgotten Book, which is written by our new National Review Institute fellow, the writer and historian, Amity Shlaes. We live in an age of short attention spans, and one of Amity’s objectives is to introduce readers to books or other primary sources that warrant a second look. Some of these works may have been written decades ago — or even a century ago. Recently the forgotten writings of those who protested the New Deal were collected by Amity in an anthology, “New Deal Rebels” (American Institute for Economic Research).
With her Capital Matters column, Amity will dedicate herself to sharing with Capital Matters readers older, forgotten books, along with new books that aren’t getting the attention they perhaps warrant.
Her second column can be found here, and is focused on some of those New Deal dissidents.
Here’s an extract:
[T]he New Deal worked, in some narrow political way, when it provided a temporary job laying brick to an unemployed apprentice. The launch of Sputnik would “work” for Nikita Khrushchev in the sense that it suggested to the people of the Soviet Union that the Soviet system was capable of competing with the United States in the space race. Yet later, doping weightlifters or swimmers “worked” for the Honecker regime in East Germany, in that it secured the regime prestigious medals in international competitions. As Garrett noted, to challenge New Deal economists in their own language was to doom oneself to defeat. “It’s no use saying this or that won’t work, or won’t work here. Many things that we hate may work.”
The point of all these outsiders was a simple one, with relevance for today. Economics has its uses. But economics, however vast, cannot do all that is necessary for the human soul. Indeed: the broader the economic plan, the more dazzling its name, the more suspect.
Amity chairs the board of the Calvin Coolidge Presidential Foundation, whose mission is to share the ideals of Calvin Coolidge with younger Americans.
I thought I’d take the opportunity to link to an article she has written in the latest issue of NR on Coolidge from which this is an extract:
It is in the context of [his] constitutionalism that his achievements as president must be understood. Certainly, the Coolidge tax reform was a marvel: Though the top tax rate under him dropped to 25 percent from 58 percent, revenues remained so strong that they inspired 1980s supply-siders.
Certainly, he rejected the era’s equivalent of entitlements — he vetoed the bonus pensions for vets, not once but twice. Certainly, he rejected pork, including subsidies to agriculture, a shock to lobbyists who expected a warm reception from a president raised in a dairy town. And certainly, the decade that resulted lived up to its nickname, the Roaring Twenties…
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and National Review Institute trustee, David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 129th episode, David was joined by the chair of the Economics Department at George Mason University, Dr. Donald Boudreaux. The Café Hayek economic genius joins the Capital Record this week to talk about Misesian pessimism, market complexity, and new-right market skepticism.
No Free Lunch
Earlier this year, David Bahnsen launched a new six-part digital video series, No Free Lunch, here on National Review Online. In it, we bring the debate over free markets back to “first things” — emphatically arguing that only by beginning our study of economics with the human person can we obtain a properly ordered vision for a market economy…
The series began with a discussion with Fr. Robert Sirico of the Acton Institute. Later guests include Larry Kudlow, Dennis Prager, Dr. Hunter Baker, Ryan Anderson, Pastor Doug Wilson, and Senator Ted Cruz.
Yes, the six-part series now has seven parts.
Enjoy.
The Capital Matters week that was . . .
Regulation
The general panic over artificial intelligence and the Federal Trade Commission’s aim to insert itself into every corner of the U.S. economy recently dovetailed in a 20-page investigative letter the agency sent to OpenAI, the owner of ChatGPT…
Last month, I defended the Metropolitan Transportation Authority’s proposed tolling program; New Jersey politicians are now assailing it.
Reason’s Christian Britschgi details how New Jersey is weaponizing the National Environmental Protection Act (NEPA) against the Federal Highway Administration (FHWA) to indefinitely delay the implementation of the MTA’s congestion-pricing scheme. It’s not as if the FHWA’s assessment has been expeditious: The FHWA has already spent four years evaluating the environmental impact of the tolling program after New York’s state legislature approved the plan in 2019…
In the aftermath of supply-chain issues caused by the Covid-19 pandemic, there is a renewed interest – more so in politics than in actual business — in “onshoring”: i.e., returning aspects of manufacturing and production to the United States. The latest example from the latter is Bath & Body Works (BBW), a specialty-retail company based outside Columbus, Ohio…
ESG
House Republicans have declared July “ESG month,” planning hearings and bills to push back against politicized environmental, social, and governance investing. Yet so far, lawmakers have almost exclusively focused on environmental issues. Republicans should also pay attention to the “S” in ESG, which labor unions are using to advance their agenda at the expense of workers, their own members, and even taxpayers — a problem that President Biden has significantly worsened…
Taxation
In 2025, the individual provisions of the TCJA must be reauthorized by Congress. At that time, if SALT-concerned members think they have a better way to design the SALT deduction, they should come up with a plan and bring forward their idea. Fairness concerns they have raised include the fact that the SALT deduction has an inherent marriage penalty (it’s $10,000 for both married couples and singles), there’s no special relief for fixed-income seniors who have expensive property-tax bills, and so on. These are not unreasonable concerns, but they should not hold up common-sense tax legislation today.
The Economy
In the period immediately ahead, a big fly in the ointment for the U.S. economy could be the likelihood that the full effects of last year’s monetary-policy tightening are yet to be felt. If it is true, as many economists believe, that the full effects of tightening are only felt between twelve and 18 months after the fact, then last year’s large-scale interest-rate hikes are yet to truly work their way through the economy. After all, it was only in June last year that the Fed began the first of its four unusually large 75-basis-point rate hikes.
AI
Labor is a good, and labor unions capitalize on the infinite substitutability of goods to argue that various technologies will replace labor. These arguments are reasonable to varying degrees. There are clearly applications by which AI can replace human screenwriters and actors. There are also applications by which AI can complement human screenwriters and actors. The writers’ and actors’ unions pay less attention to the latter applications, which would make writers’ and actors’ jobs easier, and instead focus on the former applications, which generate good sob stories in the press while they negotiate new contracts with the studios. This is especially true when the bigger issues at stake are about how writers and actors get paid as the studios’ business models change. AI is just a sexier sideshow for the press to obsess over.
Climate
It was a bad week for anyone who thought China would cooperate on emissions reduction. President Xi Jinping reiterated that his country would set its own path on the issue and not be influenced by outside factors, according to the Washington Post and Bloomberg. This contradicts Xi’s 2015 Paris Agreement pledges to reduce its carbon emissions at the latest after 2030…
Economics
After my original McPost, I’ve continued enjoying a breakfast-sausage-burrito meal at McDonald’s many mornings. Depending on how tardy I am to work — sorry, editors — I alternate between the Mickey D’s on 6th Ave between 46th and 47th and the one on 42nd between 5th and Madison. Considering the standardization for which the McDonald’s is (in)famous, one (read: I) would expect the prices between these two proximate stores to be exactly the same.
They aren’t…
Government overspending and absurd regulatory initiatives abound, but not all is lost for proponents of the free market. Now, just as in the past, many of the wins for those advocating a freer society can be attributed at least in part to the influence of one great economist: Milton Friedman, who would be celebrating his 111th birthday on July 31…
Industrial Policy
From Solyndra to the permanently closed Fisker Automotive to Lordstown Motors to “Yellow, a trucking company that received a $700 million federal loan during pandemic-era industrial policy” and more, it is hard to argue that industrial policy and its favorite offspring, cronyism, don’t waste a lot of taxpayer dollars. That’s not surprising. The whole point of industrial policy is either to (1) incentivize companies to do something that they wouldn’t do otherwise because it wouldn’t be profitable, or (2) incentivize banks to lend money to companies and projects that couldn’t get access to capital on their own merits. Neither is part of a recipe for profitability, economic growth, or the creation of better-paying jobs…
[T]he belief that we should bring manufacturing home is often driven by the belief that we aren’t producing anything here anymore. Contrary to popular belief, we manufacture a lot in the United States. Our manufacturing is high value added, not snapping or stitching things together in their final stage of production. That’s also a good thing. It is a reflection of our being an advanced nation. I would prefer that politicians on the campaign trail remind voters of this good news rather than worry them.
Electric Vehicles
The deadline isn’t moving, and trucking companies have started purchasing electric trucks to comply with the regulations. “As automakers deliver new electric trucks to fleet customers, parking lots that once needed enough power for a few floodlights now might need to draw as much power as a skyscraper,” the Journal says.
Building that kind of infrastructure takes years. In the meantime, temporary solutions include electric-vehicle chargers powered by diesel or natural gas…
Was it a green vigilante, I wonder, or a passing cynic wanting to make fun of yet another green fiasco?
The creation of a mass market for EVs in the West was never going to be straightforward, which is why it would have been better to let one develop naturally (or even with a little government help here and there: it’s not unknown for government to play some role in the development of innovative technologies). Instead, Western governments have embarked on a rushed transformation away from the internal-combustion engine without taking much heed of the consequences other than so far as the climate is concerned. (And switching to EVs won’t make too much difference to the climate in the short term, or perhaps even longer, either, but shhhh . . .)…
The Fed
GDP growth in the first two quarters of last year was negative, inflation was accelerating, and the federal funds rate spent much of the summer in the ones until the end of July. It was easy to look ahead and see the economy dropping into a steep recession in response to the Fed’s tightening cycle. Fast-forward to today’s GDP report that showed healthy growth across the board: This is really the fourth unexpectedly positive reading in a row. What happened? Has the economy stopped responding to monetary policy?
Inflation
Ramesh has already mentioned that former VP Mike Pence has released a plan to fight inflation by lowering costs and reducing spending. I have issues with some of Pence’s ideas, but at the very least he has a plan, one that even features genuine policy ideas.
More importantly, the former VP has a good instinct, which is that the Fed can’t fight inflation alone. Yes, the Fed’s raising interest rates is an important step. But reducing government spending is also key, as his plan notes (three cheers to that part of the plan). And so is freeing the supply side in order to reduce the costs through supply abundance and economic growth.
Trade
India is less than a year away from its next general election in April–May 2024. The export ban is politically expedient for the government of Prime Minister Narendra Modi. Export bans can effectively reduce prices in the short term, and the short term will be enough to get through the election.
But export bans are not smart policy overall. Economist Alex Tabarrok explains why in a post for Marginal Revolution…
Pensions
Like mutual funds, CITs allow workers to invest in funds tied to a vast array of stocks and bonds — diversifying their portfolios in ways intended to mitigate risk. However, unlike with mutual funds, regulation of CITs falls to the U.S. Treasury Department’s Office of the Comptroller of the Currency, not the Securities and Exchange Commission. As a result, they do not face SEC regulatory requirements (despite theoretically being just as safe) and thus frequently have fees that are 25 to 40 percent lower than those of mutual funds. In fact, according to Lazard Asset Management, “CITs are lower 82% of the time when comparing the least expensive CIT and mutual fund classes or tiers.” …
Healthcare
One argument for school choice is that government should not hold all the power when it comes to deciding where students attend school: Parents should be able to use the money that would be spent on education anyway wherever and however they choose to. Cannon makes a parallel argument about health insurance, except that instead of the government’s holding the decision-making power, employers hold it as a result of government intervention.
In total, employers spend about $1 trillion on health benefits each year. “The U.S. tax code threatens workers with $352 billion in additional taxes if they do not let employers control that $1 trillion,” Cannon writes…
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