Biden Promises $2 Trillion to Fight Climate Change
Democrat presidential nominee Joe Biden has been promising to build back better. Better seems to include throwing a lot of money away on his pet projects.
It is no secret that the Republican Party in the U.S. is known for its greater focus on economic prosperity overall, where the Democratic Party has other priorities. It is not that the Republicans only care about the economy, or that the Democrats do not, it’s just that this goal is weighed quite differently by each party.
We can compare the approaches of Republican incumbent Donald Trump with Joe Biden on issues of taxation and fiscal spending, now that Biden has dipped his toe into both, and view this from the perspective of how each candidate’s policies may affect it.
We cannot afford to be biased when it comes to evaluating the potential economic effects of political decisions, because if we allow our judgements to be colored, we won’t have a good sense of what we may expect or its impact. It is only when we put facts in that we can get facts out.
Biden has long promised to raise corporate taxes up from the 21% that Trump put them down to, up to 28%, and since then we have learned that the plan is to divert this extra tax money and a whole lot more, $2 trillion in total, to spending on promoting “green” energy. This cashes out to a redistributive measure that takes money out of all of our pockets and spends it on this project.
This is by no means a surprise, as this is something the Democrats in general support, but the sheer amount that Biden plans on spending on this is staggering, Perhaps a couple of trillion doesn’t seem like that much anymore after we have thrown around these amounts to try to put out the economic fire that the lockdown has caused, but this is still an enormous sum.
Democrats love to spend though, and if you gave them an extra $20 trillion a year, they surely would have no problem figuring out what to do with it, and even some of the current projects that are being talked about might not be able to be included. They wish to have as many things free as possible, free health care, free college education, free housing, and the like, and free massive spending on green energy is on their list as well.
Trump, on the other hand, takes the economy and at least some sort of fiscal responsibility into account as well. We do spend on green energy already, and while the question of whether governments should be spending money on this remains a valid one, there are some real issues of inefficiency involved, especially if we spend this much.
Biden also wants to rid us of fossil fuels in generating power by 2035, which is a pretty ambitious goal given that this extends well beyond the time he could possibly remain President and probably beyond his lifespan as well. This at least needs to be prefaced by the fact that like-minded politicians will need to carry this ball most of the way to that finish line and the most he can do is offer to run the first leg.
Biden is also setting his sights on a bigger goal, which is to see fossil fuels eliminated altogether by 2050. He tells us that his goals are not pie in the sky, although it doesn’t even seem possible to be able to pull this off without requiring either a massive increase in nuclear power generation or the discovery of a new source of power, because the alternative sources we’ve discovered so far just don’t cut it.
One of the features of combustion-based energy sources is that when you burn something instead of relying on nature to some degree to provide the energy you need, you can time it according to need, and this is necessary to match supply with demand. While we have come a long way with energy storage, the sheer amounts we need to store to replace on demand-based sources is well beyond what is even conceivable today.
There is only so much you can improve batteries and if we are going to truly replace fossil fuels, we’re going to need to find a replacement considerably better than anything we have now. It wasn’t that many years ago that the depletion of fossil fuels was seen as a potential civilization-ending event, and while we have more hope today that we will one day come up with a good way to replace it, that day is not today and may not happen for decades.
Alternative energy isn’t without its environmental concerns either. Wind power in particular has been found to be harmful to wildlife, as well as humans who live in proximity where the sound of the turbines have been found to interfere with physiological processes enough to become a real concern.
This doesn’t matter much because these forms of power are at best of limited use as a secondary means of supplying power to the grid and are not dependable enough to use as a main source without producing constant rolling blackouts. When the wind doesn’t blow and the sun doesn’t shine, we still need power.
It’s Fine to Dream, But All Dreams are Subject to Reckoning
If we wish to set goals based upon the elimination or even drastic reduction in fossil fuels, we at least need to stay within the realm of practicality, goals based upon what is possible and not what might be possible, hopefully will be possible, or may not even be possible. Biden is incorrect when he tells us his dream isn’t pie in the sky, because this pie is still in the sky and he needs to at least wait until we can figure out how to bring it down from the sky before he tells us his dreams are more than just fantasy.
While we may think that any talk of what may happen 20 or 30 years from now is just pontificating and doesn’t really matter much, we can’t just jump into shorter-term goals designed to promote a longer-term goal prior to knowing that the longer-term goal is achievable. We might think that anything we can do to reduce greenhouse gas emissions is a worthy goal in itself, but if it turns out that our best efforts, involving colossal amounts of money, isn’t going to matter much, the time to discover this isn’t later.
Aside from being practically necessary, the other major reason why we use so much fossil fuel is due to its superior cost efficiency. We may wish to pretend that cost efficiency doesn’t matter, but when we spend a lot more on something, we need to calculate the additional costs not only now but down the road as well, and adding an amount that is in itself a full one tenth of all the national debt we have compiled over the country’s history over just 4 years is no small amount.
Biden and other like-minded people proclaim to be on a mission to help the world overcome the future impact of climate change, where they are particularly focused on scenarios several generations ahead in time, which involve ignoring the economic costs as well as our capacity to bear them. No matter how badly we may want such a thing, we first need to calculate whether we can afford such a thing.
Even the worst forecasts of climate change would be something we have the capacity to bear, even though this may mean that we need to lose coastline. Ironically, doing away with fossil fuels before we will be ready would not be something we could manage, because life would grind to a halt and civilization as we know it would come to an end, leading to a crisis that would see most of the world starve to death, with the survivors seeing their quality of life severely reduced.
We would essentially be back to the frontier days in America, with far too many colonists than the land could bear unassisted by sustainable energy sources, and we aren’t entitled to just fantasize about improving climate change and place us upon a path toward destruction while ignoring much bigger perils that we are beckoning out of ignorance.
This includes the prospect of speeding up our fiscal destruction, the point where we can no longer borrow and our economy collapses that way, and this day is coming regardless. If we are planning on spending such massive amounts on climate change and we slow down global warming but create an economic meltdown of apocalyptic proportions instead, we are far from helping ourselves.
If this $2 trillion that Biden wants to spend on this was money that just fell from the sky or was conjured up by wizards on his staff, with no consequences attached, then this decision would be far easier, but there are real economic consequences to this, and adding to our debt or taking away our ability to use this to cut down on existing deficits needs to have its effects accounted for.
Biden doesn’t even have a clue where his expected treasure chest of money is to come from by way of his increase in corporate tax that he is salivating over. It’s easy to pretend that it just comes from corporations who pay the tax, but corporations are just pass-through structures and these taxes get passed through to consumers, and this will fall upon the backs of Americans, anyone who buys anything that is produced by a corporation, which means just about everything we buy.
Additional Tax Revenues May Help, But Most of This Is Left to Santa to Provide
The U.S. collects $284 billion a year these days in corporate taxes, so raising the rate by 7% will at best will produce additional tax revenues of only about $70 billion, far less than the $500 billion a year that Biden wants to spend on climate change alone. The unadjusted shortfall of $430 billion will represent an almost 50% increase in the trillion dollar a year deficit of 2019.
This will already grow to $3.8 trillion in 2020 without any additional help, nothing that we should be so eager to add to. The cumulative effects of this deficit rising as much as it is already predicted to before all this is something that we need to be vitally concerned with, and we make this situation worse at our peril.
It’s not even that we can rely on this extra $70 billion in tax revenue from this tax increase, as tax increases reduce the tax base. There is a certain amount of demand that exists at current price levels, and when you put the price of things up like this, this will result in less demand at these new price points. People buy less, some companies go out of business, and this all impacts the amount of additional tax revenue you get out of this due to it shrinking the base.
The $70 billion therefore represents the amount that requires all other things to be equal, but this is just a fantasy as the effects of a higher tax will always reduce the tax base, where we’re now using Biden’s 28% rate on a lower overall amount, reducing the projected increase based upon the old revenue numbers.
We don’t need to ask where the big shortfall will be coming, whether this is $430 billion a year or the even higher amount that will result, as this will need to be added to the national debt, speeding up economic warming, which is a much bigger threat to our way of life than global warming. Compared to the claims that we are ignoring the fate of future generations by not paying enough attention to global warming, our ignoring economic warming is far more dangerous, and just as imminent, and we should take economic doom much more seriously than we do.
This scheme of Biden’s is also quite inflationary, which may not bother us at the present time while inflation is so low, but we won’t be in this spot all that long and there are already concerns that much of the recent stimulus will have to be retracted, where we’re going to have to slow the economy by putting a lot of people out of work to combat the coming wave of inflation that this is expected to produce.
Raising corporate taxes will in itself put prices up, as will an extra half a trillion a year of spending on alternative energy. We are going to be left with higher residual unemployment from the lockdown and will have to increase it to fight inflation, and will have to increase it even more if we wish to stimulate inflation even more as Biden plans on doing,
We don’t need to do any sort of robust economic analysis to figure out how inflationary a 7% increase in corporate taxes will be, as even a child would be able to calculate how much putting the price of everything up 7% will have on prices.
Few people, including few politicians, understand the harm that inflation causes, but if they consider that it is significant enough that we gladly put as many people out of work as is necessary to control it, which is the lesser evil, that should serve to enlighten us pretty well, given that so many think that higher unemployment is the worst thing out there.
If we add the additional inflationary pressure of both ends of this particular plan of Biden’s to all that massive stimulus that we have unleased upon the economy in response to the pandemic, Biden is simply adding fuel to a fire that we already need to worry a lot about how we are going to put out. These worries have now grown significantly as Biden and his cohorts get ready to take the helm.
By subsidizing this so-called green energy, this might cut down on emissions for a time but also comes with a big economic deadweight loss. The easiest way to explain it is to consider what economic benefits there are in paying more for the same thing, the cost of these subsidies to make this form of energy competitive enough.
At best, we may be able to buy this alternative energy at the same price as fossil fuels, but there’s no economic benefit there, but there is still the cost of the subsidy to account for, which represents the deadweight loss. Our economy grows as we make it more efficient, and it goes the other way when we make it less efficient and especially when we have to bear deadweight losses in the trillions.
It may be that the voting public is willing to bear this huge economic loss if cutting down this much on emissions is that important to them, but they can never come to such a decision in an informed way without being aware of the costs, and just pretending that they do not exist doesn’t cut it.
Joe Biden is like a young kid preparing his wish list for Santa, still believing in him and not getting that the stuff on the list must correspond with reality and that his parents are the ones that actually will foot the bill and need to be able to afford buying him these presents. This $2 trillion is just one of the things on his list to Santa though, but is enough in itself to have opponents claim that he is about to cripple the economy with just this one thing.
Should this end up not being quite this bad, don’t worry, as he won’t just be stopping there and will be on track to achieve this goal regardless with plenty of redundancy. Seeing him achieve his dream of playing Santa to the country certainly will please Biden as he embarks on his journey into second childhood, but this fantasy is a nightmare just waiting to happen, and we won’t have to wait long either.
Editor, MarketReview.com
Monica uses a balanced approach to investment analysis, ensuring that we looking at the right things and not confined to a single and limiting theory which can lead us astray.
Contact Monica: monica@marketreview.com
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