Congress has just voted to postpone the debt ceiling by three months until December 8. That’s okay; it’s just a tactic which also provides quick federal help for the damage caused by Hurricane Harvey. The important thing is not to repeal the debt ceiling entirely.
As I have said before, global warming and national debt are both creeping catastrophes. We ignore them at our great peril. Right now hurricanes Harvey and Irma are reminding us of the huge devastation which can be caused by extreme weather events (which are made more likely by global warming).
In the same way, having an explicit debt ceiling reminds us at regular intervals that we have a very serious problem which will eventually catch up with us if we don’t take strong action to address it.
The National Debt, now 77% of GDP (for the public part on which we pay interest), is the highest it has been since right after WWII. It is predicted by the non-partisan Congressional Budget Office that it will keep getting steadily worse without major changes in current policy.
The urgency of the debt problem is based on the fact that interest rates are now so low that our debt is almost “free” money. But interest rates will inevitably return to more normal, and higher, historical levels and, when this happens, interest payments on the debt will increase dramatically. This will eventually lead to a new Fiscal Crisis, much worse than the Financial Crisis of 2008.
The solution to this problem need not be drastic. Federal spending is growing by 5% per year while tax revenues are increasing by 3% per year. All we need to do, so to speak (because it will take some restraint!), is to hold spending increases to about 2.5% per year and then the federal budget would be balanced in a few years and debt would start shrinking as a percentage of GDP.
Conclusion. Congress, the President and the American people need to be reminded often and loudly how serious the debt problem is. Hopefully the message will eventually sink in. The sooner the better!
In my last post I summarized the scientific evidence which convinces me that global warming is occurring and is primarily caused by the emission of carbon dioxide from the use of fossil fuels for energy production.
Several Face Book comments on my post suggest that there could be other causes such as a decrease in cloud cover over the earth, sunspot activity and even the carbon dioxide which is exhaled by the 7 billion (and growing number of) humans now alive on earth. I am personally unable to evaluate the validity of these possible causes. I rely on the overwhelming consensus of climate experts that the problem is caused by the burning of fossil fuels.
Perhaps the scariest evidence is the warming of the oceans and the related rising of sea levels by 1/8 of an inch per year (which is equivalent to a one foot rise per century). When I referred to the three recent catastrophic hurricanes of Katrina (2005), Sandy (2012) and now Harvey, several readers responded that there is no proof that the severity of these storms was caused by global warming.
I agree! It is just that warmer oceans mean more evaporation and therefore more rainfall around the world. This means that severe storms will become more likely as the oceans become warmer.
Take a look at the two charts from the current issue of The Economist. They show that various types of natural disasters have been increasing in recent years and that record-breaking precipitation events are on the increase. Conclusion. Global warming is already happening. But we can act to keep it from getting worse. More renewable energy (wind and solar) is only part of the answer. The best way to cut back on carbon emissions is with a (revenue neutral) carbon tax. This would be much more efficient than ad hoc regulations like the Clean Power Plan and ever higher auto gas mileage standards.
Global warming is a controversial issue and I would like to take as dispassionate a look at it as I possibly can. First, I will summarize what I consider to be the main evidence for global warming and then discuss what this means for public policy.
Ocean heat content has been building steadily in recent years. Warmer water means more evaporation into the atmosphere which means more precipitation around the world.
The extent of summer sea ice in the Arctic has gradually been receding.
A big chunk of sea ice (the size of Delaware) has just broken off the Antarctic Peninsula and is floating in the South Atlantic Ocean.
The sea level is rising at the rate of one-eighth of an inch per year which is equivalent to one foot per century. Globally, eight of the world’s ten largest cities are near a coast.
In the U.S. Spring is arriving earlier each year on average, especially in the Southeast.
Some of these phenomena may be beneficial such as more rainfall around the world and longer growing seasons. Less ice in the Arctic Ocean allows more summer navigation. But rising sea levels will become catastrophic in low-lying coastal areas.
Conclusion. The above observational evidence for global warming is well established and hopefully non-controversial. The sources are scientific agencies whose integrity should be beyond reproach. Once we accept the fact that global warming is for real and is caused by human activity, the question is what we should do about it. This will be the topic of my next post.
Three devastating hurricanes have struck the U.S. in recent years: Katrina (2005), Sandy (2012) and now Harvey (2017). Hurricanes and tropical storms are natural events which have occurred since the distant past, long before global warming became a problem.
What has changed is that the oceans are now steadily getting warmer by absorbing much of the heat reflected back to earth by greenhouse gases (see chart). Warmer water has more latent energy and this makes hurricanes more severe. The warmer the oceans become, the more devastating future hurricanes will be.
It is (past) time to get serious about global warming. As the world’s strongest country, it is up to the U.S. to provide leadership on this very serious problem. The best way we can respond is by adopting a (revenue neutral) carbon tax to discourage future carbon emissions as much as possible. This problem is not going to disappear but it is within our power to limit the damage it causes before it gets a lot worse.
The exact same thing is true about our national debt. At 77% of GDP (for the public part on which we pay interest), it is the highest it has been since the end of WWII. Right now interest rates are so low that our debt is almost “free money.” But interest rates will eventually return to more historically normal levels. When this happens, interest payments on the debt will rise by hundreds of billions of dollars per year. At that point a severe Fiscal Crisis will not be far behind.
Again, debt is a solvable problem if only our national leaders will take it seriously. All it requires (so to speak, because it won’t be easy!) is to limit future federal spending in sensible ways.
Conclusion. Both global warming and national debt are serious, urgent problems. The sooner we get started on addressing them, the better off we will be.
As I frequently remind my readers I am a fiscal conservative and a social moderate. I usually write about particular economic and fiscal problems facing our country. But every now and then I like to step back and view our overall situation at one time. The last time I did this was here.
Let’s take another look:
The economy is puttering along at 2% annual growth with a relatively low unemployment rate of 4.3% and a good indication that faster growth, up to 2.5% annually, is right around the corner, see here and here. The economy, at least, is headed in the right direction.
Foreign policy. Long term our biggest problem is China, which has four times as many people as we do and is growing economically three times as fast. China will soon surpass us in both economic and military strength. Our best insurance for this inevitable day is to have lots of democratic friends around the world.
Global warming is real and getting worse. Our best strategy for dealing with it is a revenue neutral carbon tax, rather than depending on ad hoc regulations like the Clean Power Plan and ever increasing auto emission standards. If the U.S. demonstrates its seriousness with a carbon tax, it is likely that the U.S. and China (which is highly polluted) could work together to establish world-wide carbon emission standards.
National debt, currently 77% of GDP (for the public debt on which we pay interest), is predicted by the CBO to keep getting steadily worse (see chart) without major changes in current policy. Right now our approximately $14.3 trillion public debt is almost “free” money because interest rates are so low. But sooner or later interest rates will return to more normal levels and, when this happens, interest payments on the debt will rise by hundreds of billions of dollars per year. This will inevitably lead to a severe fiscal crisis, far worse than the Financial Crisis of 2008.
Conclusion. I am relatively optimistic that we can maintain good relations with China and will have the good sense to better control carbon emissions. But our debt problem is politically very difficult to address because it will require spending curtailments. How do we successfully address such a huge problem?
As I have discussed previously, the evidence for global warming is overwhelming. I had hoped that President Trump would publicly recognize this scientific reality and decide to stay in the Paris Climate Agreement. Nevertheless, it will take more than three years for the U.S. to completely withdraw.
But in or out of the Paris Agreement, the best way for the U.S. to show leadership on this critical issue is to adopt a (revenue neutral) carbon tax. The American Enterprise Institute has just issued a comprehensive report on the desirability and feasibility of doing this.
Here is the gist of the AEI argument:
$40 per ton is often taken to be the social cost of carbon in the atmosphere. A carbon tax at this level would raise the cost of gasoline by 36 cents per gallon.
A carbon tax is a consumption tax. Taxing consumption rather than income promotes economic growth. The revenue neutral offset would likely be an income tax such as the payroll tax or corporate income tax.
A carbon tax need not disadvantage the U.S. globally since a border adjustment tax could be imposed on imports from countries without a carbon price regime.
Replacing arbitrary regulations. The primary carbon-reduction regulations currently in effect are the 1) Corporate Average Fuel Economy (CAFE) standards for vehicles and 2) Clean Power Plan which limits power-sector carbon emissions at the state level. Leaving carbon abatement decisions to carbon producers is far more efficient than leaving it up to regulators.
Growing public acceptance. 84% of registered voters, including 72% of Republicans, support actions to accelerate the development and use of clean energy. Even 49% of conservative Republicans say that “Americans will make major changes to their way of life to address climate change.”
Conclusion. For the U.S. to adopt a carbon tax would be an even stronger statement of world leadership than participating in the Paris Agreement.
When Barack Obama was President I described our country’s two biggest long range problems as:
Massive Debt, now 77% of GDP (for the public part on which we pay interest) and predicted by the CBO to keep steadily getting worse.
Slow economic growth, averaging just 2% since the end of the Great Recession in June 2009. This means fewer new jobs are created and lower raises for existing jobs.
Now, under President Trump, I have modified this list to read:
Massive Debt, etc.
Global Warming, for which the evidence is overwhelming.
All three of these issues are large and urgent problems but President Obama was insufficiently concerned about both debt and economic growth while President Trump is insufficiently concerned about both debt and global warming.
Today’s Wall Street Journal, “Paris Climate Discord” has perhaps the best possible argument for withdrawing from the Paris Accord but it is ultimately unpersuasive. Even if full implementation of the Paris standards would have only a tiny effect on global temperatures by 2100, and even if other countries aren’t contributing their fair share, Paris represents a big step in the right direction.
Global warming is real and if the U.S. is the world leader which it needs to be, and often purports to be, then it needs to be part of the Paris Accord. Adjustments to our own domestic energy policies (such as adopting a revenue neutral carbon tax) will enable us to decrease carbon emissions much more efficiently than we are currently doing.
Conclusion. Global warming presents an opportunity for President Trump to show real leadership. I hope he is up to it.