David Warsh: Democrats and the carbon tax

Amid the widespread vandalism in Washington over the last month – committed about equally by the White House and the Republican Congress – the carbon-tax initiative propounded last week by a small group of centrist Republicans stands like Parnassus above a swamp.

George Shultz and James Baker III (secretaries of state to Ronald Reagan and George H.W. Bush, respectively) billed their proposal as a “conservative” response to climate change, presumably because it calls for returning the proceeds of $40-a-ton carbon tax to citizens in the form of quarterly “dividends,” rather than turning over its enormous new revenues to the government to spend.

Sponsoring the measure would “be good for the long-term prospects of the Republican Party,” wrote Baker and Shultz in The Wall Street Journal.

It would be even better for the Democrats.

There are two broad approaches to reducing atmospheric pollution – the carbon tax, and the current regulatory approach. The former prices the carbon content of fossil fuels, at the well-head or the mine, and expects corporations to find efficient ways to reduce their energy bills. The latter sets emission quotas, and requires companies to buy permits from the government, which they may then trade among themselves (“cap-and-trade.”)

Democrats are facing a stark choice in 2020.  They can hope that a suitable candidate appears out of the mists, and risk the kind of circular-firing-squad primaries that produced President Trump.  Call this the Lochinvar strategy

Or they can seek to persuade some centrist figure to accept a draft from the party, a fusion candidate who might govern from the center in the White House while both major parties reorient themselves. Call this the receivership approach.

Receivers usually are appointed; elected trustees are rare.  But receivership worked well for the Republican Party, and for the nation, in 1952. Fragmented after 20 years of Democratic rule, shocked by Harry Truman’s victory in 1948, GOP leaders offered the party’s nomination to Dwight David Eisenhower. Having served, among other big jobs, as president of Columbia University and as  commander of the Western European theater in World War II,  Eisenhower had no strong party affiliation. He defeated Illinois Gov. Adlai Stevenson, twice, and served two mostly successful terms.

There’s even a plausible candidate at hand today: former  Defense Secretary and CIA Director Robert Gates, a thorough-going Midwesterner who served as defense secretary  in the administrations of George W. Bush and Barack Obama.  Gates would be 77 upon taking office, presumably a one-term president.  An Eagle Scout in his youth, he is currently president of the Boy Scouts of America.

Both major parties are deeply divided.  The White House after 2020 probably belongs to whichever succeeds in fashioning some strong appeal to the center. Polls show that climate change is the logical place to begin.

The Republican Party is dominated by climate-change skeptics; former Vice President Al Gore and major oil companies already prefer the carbon tax. It wouldn’t take much for an outsider among the Democrats to embrace the idea of revenue neutrality.

David Warsh, a veteran financial journalist and economic historian, is proprietor of economicprincipals.com, where this first appeared.