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The Cap-and-Trade Bait-and-Switch

By Robert Tracinski

If you want to know why McCain is losing votes on the right, take a look at his speech on global warming earlier this week, in which he takes up the global warming cause and warns us that he really means it: "I will not shirk the mantle of leadership that the United States bears. I will not permit eight long years to pass without serious action on serious challenges."


To appease the base, McCain tries to dress up his global warming proposal as a "free-market" approach--just as President Bush tried to dress up the new prescription drug entitlement as a "free-market" reform of Medicare. But this free-market charade is not very convincing, and the dead giveaway is in McCain's own speech.

Here is what he proposes as his "free-market" alternative to carbon taxes, subsidies, and central-planning mandates.

For the market to do more, government must do more by opening new paths of invention and ingenuity. And we must do this in a way that gives American businesses new incentives and new rewards to seek, instead of just giving them new taxes to pay and new orders to follow. The most direct way to achieve this is through a system that sets clear limits on all greenhouse gases, while also allowing the sale of rights to excess emissions. And this is the proposal I will submit to the Congress if I am elected president--a cap-and-trade system to change the dynamic of our energy economy.

McCain's "free-market" alternative to taxes, subsidies, and regulations is: rationing.

The cap-and-trade bait-and-switch tries to distract us with the words "trade" and "market"--words that refer to voluntary transactions in a free economy--in the hope that we will forget about the word "cap" and not inquire too closely about the meaning and mechanism of this cap. But here is what McCain has to say about the "cap" part of cap-and-trade.

We will cap emissions according to specific goals, measuring progress by reference to past carbon emissions. By the year 2012, we will seek a return to 2005 levels of emission, by 2020, a return to 1990 levels, and so on until we have achieved at least a reduction of sixty percent below 1990 levels by the year 2050.

What do we call it when the government imposes an ever-shrinking legal limit on the total consumption of fossil fuels, then distributes allowances to various businesses giving them permission to consume their designated share? We call it rationing. In its essence, cap-and-trade is a scheme for energy rationing, adorned with a little bit of "free-market" window-dressing: we'll all be given ration cards, but we will be able to buy and sell them.

Cap-and-trade is a system involving the most sweeping government interventions and central planning--yet McCain bills it as if it were a "free market solution" and an alternative to taxes and regulation. But he cannot maintain this fiction for long, and McCain ultimately admits in so many words what he is up to.

He acknowledges that "for all the good work of entrepreneurs and inventors in finding cleaner and better technologies, the fundamental incentives of the market are still on the side of carbon-based energy. This has to change before we can make the decisive shift away from fossil fuels."

Read that through again more slowly, and you'll see what he wants to do. The essential phrase here is that "the fundamental incentives of the market...[have] to change."

McCain is clearer about what this means in a later passage in his speech:

For all of the last century, the profit motive basically led in one direction--toward machines, methods, and industries that used oil and gas. Enormous good came from that industrial growth, and we are all the beneficiaries of the national prosperity it built. But there were costs we weren't counting, and often hardly noticed. And these terrible costs have added up now, in the atmosphere, in the oceans, and all across the natural world. They are no longer tenable, sustainable, or defensible. And what better way to correct past errors than to turn the creative energies of the free market in the other direction? Under the cap-and-trade system, this can happen. In all its power, the profit motive will suddenly begin to shift and point the other way toward cleaner fuels, wiser ways, and a healthier planet.

Here we see the dream of every central planner, every interventionist economist, every power-hungry commissar: to magically reverse the workings of the whole economy by government fiat, so that everyone is made to serve the government's goals.

I call this a "dream" because it has never worked and it never can work. As countless examples have shown--from the Soviet Union, to Maoist China, to Cuba, to Venezuela, to Zimbabwe, and everywhere in between--sweeping government control of the economy does indeed cause the economy to "turn in the other direction": downward.

Cap-and-trade is even more likely to cause this result, because its whole purpose is to implement a drastic constriction in the economy's supply of energy. If a foreign power proposed to constrict our supply of oil to 60% below 1990 levels, we would regard it as tantamount to an act of war. We certainly would have no illusions that they were doing us a favor because of all of the new jobs generated in our effort to cope with deprivation.

Rather than being a way to recalibrate the incentives of the free market, cap-and-trade is a scheme to smash the incentives of the free market. It is a plan to impose an artificial scarcity so that we focus, not on the creation of new wealth, but on schemes for eking more out of less--which is what rationing always entails.

What makes McCain think this will work? His answer will be familiar to anyone who has read Ayn Rand's Atlas Shrugged. When the industrialist Hank Rearden asks a group of government bureaucrats how they expect him to stay in business under the onerous new controls they are imposing, one of them answers, off-handedly, "Oh, you'll do something!" Here is McCain's version: "The people of this country have a genius for adapting, solving problems, and inventing new and better ways to accomplish our goals." They'll do something, somehow, to prevent McCain's policies from leading to disaster.

McCain is right about one thing. At the end of his speech, he declares, "We need to think straight about the dangers ahead." But the first step toward thinking straight--and talking straight--is to be clear that cap-and-trade is not an example of the free market. In fact, it is the oldest statism of all: the idea that it is prerogative of the government to rearrange by fiat the fundamental working of the marketplace, placing the burden on individuals to adapt, to adjust, and to somehow make the politicians' schemes work.

Robert Tracinski writes daily commentary at TIADaily.com. He is the editor of The Intellectual Activist and TIADaily.com.

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