Climate Policy On Earth 2

Dave Roberts: “as we saw with painful clarity during the climate bill fiasco, an elite-driven strategy isn’t going to cut it.”

Maybe. Here’s a story from an alternative reality. It starts on June 26 when the US House of Representatives passes the American Climate and Energy Security bill. Then a month later on August 26, instead of Neil Irwin reporting for The Washington Post that Barack Obama will reappoint Ben Bernanke to head the Federal Reserve because “he is viewed in financial markets as independent from the administration” which “helped assuage fears in financial markets that a chairman closer to Obama might boost the economy in the short-run at the expense of high inflation” we get a very different story. Irwin reports that financial markets respect new Fed chair Christina Romer’s academic expertise, but fear that she’ll boost the economy at the expense of high inflation. The ensuing confirmation battle was a bit tough, but it got the job done. The health care bill trundles on through Scott Brown’s election, Christmas, etc. But starting in 2010, Chairwoman Romer is leading the Fed and precisely as markets feared she announces that the Federal Reserve has decided that it can best achieve its dual mandate by targeting core PCE inflation at a 4 percent level. People freak out. She tries to reassure them that this is fine, that we’re talking about Reagan-era levels of inflation not Ford/Carter levels of inflation. But there’s still a fair amount of freaking out.

And yet the cure starts to work. The dollar depreciates a bit more rapidly, and net exports grow a bit more rapidly. Nominally sticky home sale prices are a bit more flexible in real terms, so we see more sales and less labor immobility. Indebted households are de-leveraging a bit faster. Equity prices are rising and the unemployment rate, though high, is clearly falling. Across the country, Democratic candidates laud the success of the American Recovery and Reinvestment Act in boosting the economy. On Election Day, Republicans pick up Senate seats in Arkansas, Indiana, and North Dakota but lose the New Hampshire seat vacated by retiring Senator Judd Gregg while securing big gains in the House that leave them just short of a majority. With Obama’s approval ratings in the mid-fifties, Republicans deeply regret the sense that they left winnable races on the table. Scott Brown can win in Massachusetts, Arlen Specter could have been re-elected in Pennsylvania and Mike Castle would have won in Delaware. But Tea Party extremism is clearly killing the party.

Democrats feel that the election has vindicated their majorities and their agenda, but can see that Mitch McConnell will use routine filibustering to stymie motion on any issue so on the opening day of the new session they change the rules to allow for passage of legislation by majority vote. As a gesture of good faith, and concession to the point that the collapse of the Senate is a bipartisan affair Barack Obama simultaneously agrees to nominate Miguel Estrada for one of the outstanding vacancies on the US Supreme Court.

Meanwhile, with the economy on the mend but the public still scarred from the controversial health care debate the White House wants to “pivot” to deficit reduction while Senators Collins, Snowe, and Brown are eager to sign their names to some bipartisan legislation. They team up with John McCain, Lindsey Graham, John Kerry, and Barbara Boxer to devise a framework for carbon pricing with the revenue split roughly equally between deficit reduction, rebate payments to the poor, green energy subsidies, and nuclear energy subsidies. Jon Kyl and Mike Enzi realize they represent low-emissions states with huge solar potential and ultimately get on board. The bill passes the Senate, and then it’s on to the House where Speaker Pelosi and Chairman Waxman face a difficult vote-whipping task, but one we’re confident they can achieve.

Maybe you don’t buy that store. I think it’s a plausible one. The point of the story is that congressional Republicans’ decision to adopt a highly disciplined “block everything” posture in 2009 was a bit unusual. It’s a strategy that seems to have worked largely because economic performance in 2010 was so bad. Yet changes that had nothing whatsoever to do with the legislative strategy of climate change (or immigration reform) advocates in 2009-2010 could have produced different election outcomes in November 2010 and thus different policy results in 2011. In other words all political advocacy strategies are largely hostile to events that occur outside their issue space in a way that makes it difficult to draw inferences about efficacy of strategy.