Why Obama's plan for alternative energy is more important than ever

Against this, the current economic slump could have serious long-term environmental consequences, because it may reduce investment in greener production technologies without fundamentally changing the longer-term emissions picture. With so many renewable energy projects and programs in their nascent stages, their success is easily undercut by lack of credit or financing.-Elisabeth Rosenthal, NY Times

One more reason why I am happy that Barack Obama has been elected. With the global slowdown and dropping oil prices, alternative energy will be less attractive for investors for a certain period. That is why Obama's plan to invest massively in alternative energy is more important than ever. Government funding can help the industry while times are rough so that it is able to continue to develop. This way when the economy kicks in and oil prices go back to 150$/gallon, alternative energy sources might actually present itself as some sort of alternative.

Blocking health care reform to survive

Passing Obamacare would be like performing exactly the opposite function of turning people into investors. Whereas the Investor Class is more conservative than the rest of America, creating the Obamacare Class would pull America to the left. Michael Cannon of the Cato Institute, who first found that wonderful Markowitz quote, puts it succinctly in a recent blog post: "Blocking Obama's health plan is key to the GOP's survival."" -James Pethokoukis

They do have a point. If universal health care is passed, it will be a game changer in American politics. We Canadians might whine loudly about our health care system, but the reality is that it is one of the most appreciated institution in the country. If enacted, it will not go away on its own; Newt Gingrich realized in 1994 just how hard it was to attempt to tear down health entitlements. If such a policy is passed, it will force the GOP leftward.

But I'll leave you on a quote from hilzoy which sums up how I felt when I first read their argument:

An honest conservative might accept this claim and say: well, I guess our ideas are unpopular, so we'll just have to make our case more persuasively.

But that's not the conclusion they draw. Pethokoukis and Cannon say: because people will like health care reform, if we do not block it, our party will lose support. So precisely because people would like it if they tried it, we need to make sure that it fails. -hilzoy

Quote of the Day II

Yglesias on the bailout:

Everyone says that part of the conditions of doing a bailout is going to have to be some major restructuring of this and that. But normally Chapter 11 bankruptcy is precisely the means through which such restructuring is done. If unusual circumstances mean we can’t do Chapter 11 and we need extraordinary congressional intervention, then it seems to me that the extraordinary intervention should be aimed at making Chapter 11 possible. Of course key GM stakeholders on both the management and the union side would prefer to avoid that scenario. But the reason they’d prefer to avoid it is precisely that they’d prefer to avoid major restructuring.

Big 3 again: Bankruptcy or bailout?

On Friday I mentioned that I was for allowing GM (and the Big 3 if necessary) to go bankrupt, provided it goes through a Chapter 11 bankruptcy (company still operating while restructuring) and not Chapter 7 (full liquidation). Several experts seems to think that GM would have to go Chapter 7 because of the impossibility of securing credit, but I did not understand why it was not possible for the government to secure its credit somehow to ensure it goes Chapter 11.

Today, Paul Krugman linked to a piece by Jonathan Cohn which said bankruptcy would be disastrous because of the aforementioned reason without exploring the possibility that the government could ensure that it goes Chapter 11; and said the bailout was the only solution and that the Big 3 had definitely learned from their mistakes anyway. It just seemed that my point was too stupid to even mention, as I did not read anyone consider that it could be a viable alternative.

But Felix Salmon came to my rescue:

At heart, this argument is simple. There's no available DIP financing for an orderly Chapter 11 bankruptcy, and Chapter 7 liquidation would be disastrous, therefore we need a bailout which avoids any kind of bankruptcy at all. But I don't see why a government bailout must, ipso facto, avoid any kind of bankruptcy.

He makes some good argument on the timing problem:

So there would need to be serious negotiations between all of GM's stakeholders and the government -- negotiations which, I'll concede, would be all but impossible during this uncomfortable interregnum between the election and the inauguration. Even if GM can somehow muddle through until January, it can hardly expect such negotiations to be concluded in a matter of weeks.

But this is hardly an insurmountable difficulty, it is just slightly more tricky than a bailout where legislators simply give free money in the hope that the company will use it wisely and that it learned its lesson this time. But it is also the best hope of successful reorganizing for American automakers.

Big 3 troubles: consumers' fault?

Here are a few arguments from Blake Hounshell at FP Passport, explaining why consumers are to blame for the current plight of the Big 3 automakers:

• The industry was in trouble before, but it's the drying up of consumer demand due to the financial crisis that is threatening to destroy it at present. Even the innovative Toyota is feeling the pain right now.
• Who bought all those "gas-guzzling S.U.V.s and trucks" Friedman is ranting about? Martians?
• I must have missed the groundswell of grassroots activism in favor of the higher taxes that would have put a floor under the price of gasoline and made for a stable environment that could make technologies like plug-in hybrids viable even when market prices for crude oil collapse.

I think Blake is missing the point here by saying that it was basically the consumer's role to ensure that the Big 3 innovate or simply realize that gas prices would increase in the long term. That responsibility falls solely on those companies. It was (and still is, despite recent fall in price) obvious that world demand for oil increases faster than the output and, especially given limited reserves, the long term trend for oil price would be up. The Big 3 totally failed to see this reality.

While gas-guzzlers might have been profitable in the short term, it was the role of the directors of the companies to realize that to be competitive in the long term they would have to invest in fuel-efficient cars, not only because of government regulations but because of long term economic trends. It is in no way the fault of consumers that they bought them for a short period, while oil prices and the economy was good; the fault lie on the total lack of vision of the upper management of those companies.

Foreign automakers managed to foresee this trend and reacted accordingly, so this was by no mean an impossible thing. Also, while you claim that Toyota is feeling the pain, which is true, there are no signs that they are close to collapse; so the current crisis can not fully explain the desperate situation at the Big 3.

Foreign companies invested in the right places while American automakers closed its eye on reality. End of the story.

Obama the pragmatic

Some Obama supporters probably expect more than a nickel's worth of change, but they may be conflating the direction of policy with the peopling of the administration. To be sure, Obama certainly has left the impression that one of the problems with Washington was its people. But he found out early on that he couldn't run a presidential campaign without Democratic insiders playing integral roles. He turned to symbolism (no lobbyist donations) over substance (staying in the public financing system). And then he picked Joe Biden. And now he's turning to people who know how power flows in Washington. It's more evidence that Obama's modus operandi is pragmatism -- (radical empiricism, some call it). The secret is that Obama intends use very pragmatic, temperamentally conservative means to achieve radical -- not in the Bill Ayers sense but in the huge, big, transformative sense -- changes in how Washington works and how it relates to Americans. -Marc Ambinder

This analysis is spot on. Barack Obama is a pragmatic who will get things done effectively. I think after 8 years of Bush who picked ideologically correct people over competence and 8 years of a disorganized Clinton who didn't achieve much, Americans will not complain too much if they see competence in the White House. And to be honest, I don't believe he will do anything radical. He might manage to pass a legislation or two that would qualify as "major" (like a health care bill that look like Baucus' plan), but he will do nothing that change the way Washington is run; that is not just who he is.

Democrats playing big right from the start

Well, it appears that the Democrats will not attempt to pass modest legislation this cycle. Max Baucus has a blueprint for a health care plan that would go even further than Obama's plan toward universality of health care. I'll let Paul Krugman's words speak for themselves:

So this looks very good for the reformers. There’s now a reasonable chance that universal health care will be enacted next year!