Ozy: 1,200 Days to Change America’s Trajectory

Campaigning in 2008, Barack Obama expressed the desire to be a transformational president, citing how “Ronald Reagan changed the trajectory of America in a way that Richard Nixon and Bill Clinton did not.”

Excited, I walked precincts for the future president, and I voted for him twice. But 1,600 days later, we’re still waiting. His one attempt at something transformational — the Affordable Care Act — is largely an expansion of Medicaid, a program created nearly 50 years ago by Lyndon Johnson. Worse, that expansion steepens America’s trajectory of devoting more spending to entitlements (e.g., Social Security, Medicare and Medicaid) than to other services, such as research and infrastructure. Entitlements now consume 70% of federal spending, more than twice the percentage 50 years ago, and that percentage will grow as ACA is implemented. Even defense spending, once sacrosanct, has fallen from 50% of federal spending when John F. Kennedy was president to 20% now.

But there’s still time — and an enormous opportunity — for President Obama to set the U.S. on a new trajectory during his last 40 months in office. With a single piece of legislation, he could accelerate U.S. economic growth and decelerate global warming. How? By imposing a tax on carbon and reducing taxes on employment — and then letting crowds respond.

We all know Obama inherited a difficult economy. Five years later, the economy has recovered, but growth in jobs and wages is slow. At the same time, the earth keeps warming, and recent studies indicate even faster warming is on the way. Both problems must be addressed.

A carbon tax would impose a charge on pollutants now freely emitted at the expense of future generations who will have to cope with the consequences of global warming. Once a tax is imposed and there is a cost for emitting carbon, those polluters — consumers, governments, corporations, nonprofits and others — could either pay the price or engage in activities that emit less carbon. Because people tend to avoid higher costs, they will look for ways to reduce carbon.

How they do that will be up to individuals, because with a carbon tax, carbon-reducing actions would be crowdsourced rather than dictated by government officials. Polluters could determine for themselves the most efficient way to adjust to the tax. For example, consumers could choose to buy different cars, take more public transit, turn down thermostats, install solar panels, and more. Corporations and other institutions could reward employees for carpooling, switch from higher polluting to lower polluting fuels, and more. Alternative-energy companies could find higher profits from selling non-carbon-based fuels.  Utilities in one part of the country could do one thing while utilities elsewhere could do another, as suits local needs. Businesses would crop up offering new and more efficient ways to reduce carbon. Instead of top-down federal regulations that inefficiently require someone in Philadelphia to behave the same as someone in Phoenix, individuals would determine how best to respond. 

Carbon Tax Revenue Cuts Employment Taxes

But carbon emissions will not be reduced to zero, which means there’ll be a lot of new government revenue from the carbon tax. That new revenue should be used to reduce taxes on employment.

When we tax employment, the result is lower employment. In the United States, we counterproductively tax worker payrolls and the profits of organizations that employ workers, two things of which we want more, not less. If these taxes were reduced, current and future workers would see higher take-home pay and a greater demand for jobs.

To date, Obama has chosen to adopt antiquated top-down approaches to both global warming and economic growth. For example, he imposed top-down fuel-economy standards on car manufacturers and, more recently, proposed top-down regulations on coal-fired power plants. Similarly, his steps to boost jobs and wages have embraced not the wisdom of crowds but rather the top-down judgments of government officials selecting winners and losers. For somebody so young and well-connected to the crowdsource generation, it’s sadly surprising that the president is pursuing tired and inefficient paths when it’s easier than ever to access crowds and their ideas.

In order to successfully move forward with such a bold agenda, Obama would need to take another page from Lyndon Johnson’s playbook and navigate legislation through a reluctant Congress. He is in an ideal position to do so: Even Republicans skeptical about climate change would feel enormous pressure to join in what could be the most powerful market-oriented effort to boost U.S. jobs and wages in decades. If they are unwilling to compromise in favor of a massive stimulus to jobs and wages, then their rhetoric about economic growth will be seen as empty.

It won’t be easy — nothing transformational ever is — but with no re-election to worry about, Obama is in a strong position to press forward with such an agenda. If the president really wants to change the country’s trajectory, he
needs to move soon, and with something truly transformational.

Link to original article: http://www.ozy.com/c-notes/is-this-obamas-chance-to-transform-the-country/2863.article?utm_source=dd&utm_medium=email&utm_campaign=10242013