Friday, April 27, 2007

Iraq War Is Diverting Attention

I cannot with any degree of expertise comment on the war in Iraq. I can address how it is affecting the economy. Unfortunately in my judgment, the Iraq war is diverting attention from other important issues that will have long-term and negative impacts on the U.S. economy. These include:

1) Tax increases. The press, the Congress, the President and U.S. citizens are failing to discuss the potential for the largest tax increase in the history of the U.S. when the Bush tax cuts are scheduled to end in 2010. The war has sapped President Bush’s political capital and even his will to address this very important domestic problem.

2) Wacko environmentalism. While the press reports excessively on the war, Congressional Democrats are slipping environmental legislation and regulations past sleeping Republicans. Under the untested assumption that global warming will melt environmental quality for current and future generations, we are seeing excessive financial support for costly “renewable” energy such as ethanol. For example in most Midwestern states, ethanol is subsidized to the tune of $1.15 to $1.50 per gallon. These subsidies have enriched a few at the cost of many with little impact on the nation’s addiction to oil. Furthermore current environmentalism, as reflected in new legislation and regulations, will lower U.S. productivity growth over the next decade and damage U.S. competitiveness until sanity returns to Washington.

Are we forgeting the impact of the Vietnam War on the U.S. economy? Remember the economic malaise of the 1970s that followed this ugly war. Only the election of President Reagan in 1980 returned the U.S. to economic sanity with lower taxes and environmental wisdom.

Ernie Goss

1 comment:

Ron Steenblik said...

Mr. Goss, I think it is unfair to blame "environmentalists" for the President's and the Congress's (both parties) obsession with ethanol. The roots of this industry -- born subsidized -- extend back almost 30 years. Current policy is driven much more by the interests of the agricultural lobby, and confusion between energy independence and energy security, than by genuine environmental policy. But most of all, subsidizing ethanol is a palliative that enables politicians to tell the voting public, "Don't worry about the price of gasoline: we're taking care of things by boosting the supply of a home-grown alternative!"

In case any of your readers are interested, the subsidy numbers that you quote are contained in a report that we (an NGO dedicated to sustainable development) published last October, "Biofuels--At What Cost?". In that report, total subsidies to ethanol are estimated at around $6 billion a year. But what is more significant is that most of those subsidies are linked to production. So the more ethanol is produced, the greater the loss to the U.S. Treasury. Thus, for example, meeting President Bush's proposed 35-billion-gallons-a-year by 2017 "Alternative Fuels Target" with ethanol would cost at least $118 billion in subsidies over the next 11 years. Additional subsidies at the state level could inflate that number by 50% or more.

Ron Steenblik
Research Director
Global Subsidies Initiative