2010 - %3, February

Obama Budget Scales Back Expectations for Climate Bill

| Mon Feb. 1, 2010 4:02 PM EST

The most significant thing about the Obama administration's 2011 energy budget is what it doesn't contain.  Last year's budget projected that a cap and trade system would raise $79 billion from the auction of carbon credits in 2012, and $605 billion from the sale of credits over the following decade. This time around, the Obama administration hasn't named a dollar figure for expected revenue from cap and trade, or even noted when it expects to see a carbon cap in place.

Sadly, this is perhaps a more realistic approach. There is no new cap-and-trade law to speak of yet, and it's not clear whether there will be one this year. And the bill that passed the House last June auctioned off very few of the pollution permits—roughly 85 percent of the permits would be given away for free in the early years. 

The Obama administration's $3.8 trillion 2010 budget does still call for legislators to establish a "comprehensive market-based climate change policy" that would cut emissions in the range of 17 percent below 2005 levels by 2020 and by more than 80 percent by 2050. It says the administration expect cap-and-trade to be deficit neutral, and that some of the proceeds would be used to "compensate vulnerable families, communities, and businesses during the transition to a clean energy economy." It also notes that there will be "investments to reduce greenhouse gas emissions, including support of clean energy technologies, and in adapting to the impacts of climate change, both domestically and in developing countries." There aren't, however, any dollar figures to flesh out those expectations.

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A Grim Economic Forecast

| Mon Feb. 1, 2010 2:42 PM EST

Ryan Avent is listening to a budget briefing:

OMB head Peter Orszag is giving a press conference just now with Christina Romer, head of the Council of Economic Advisors, on the president's Fiscal Year 2011 budget. Ms Romer explained the economic assumptions underlining the budget forecasts....She then gave the unemployment forecast. At the end of 2010, the unemployment rate, according to the administration's forecast, will be 9.8%. At the end of 2011, the rate will be at 8.9%. And at the end of 2012, after the next presidential election, the unemployment rate will be 7.9%.

Good God. I suppose this isn't a big surprise anymore, but it's still painful to have your nose officially rubbed in it. In any kind of normal economy, 8% unemployment would be considered disastrously high, but Orszag and Romer say we're not even going to improve to disastrous levels for another three years. A $100 billion jobs bill, even assuming it passes, is going to do very little about this.

Our economy is going to stay fragile for a very long time. I sure hope our banking system can handle that. Our political system too.

A Less Toxic Environment for Environmental Justice?

| Mon Feb. 1, 2010 2:18 PM EST

In Kettleman City, a town on Interstate 5 midway between San Francisco and Los Angeles, nearly half of the 1,500 mostly non-white residents live below the poverty line and an unusually high number suffer from cancer, asthma, and birth defects. Environmental justice groups and residents blame the town's landfill, which contains polychlorinated biphenyls, or PCBs, a cancer-inducing, immune-weakening, development-impairing toxin. But the 23 years that they've spent lobbying the US Environmental Protection Agency to investigate the problem have come to naught. Until last week. Speaking at a protest of 150 people on Wednesday, Jared Blumenfeld, the new head of the EPA's Region 9, pledged to visit Kettleman City, tour the landfill, and meet the mothers of infants who died or were born with birth defects. The breakthrough is one of the more tangible signs that Obama's EPA could be getting serious about protecting poor and minority groups from the toxins that often disproportionatley affect them.

Environmental justice groups have had high hopes that the nation's first African-American president understands their cause. As a Senator in 2007, Obama introduced the Healthy Communities Act, which would have expanded research on environmental toxins and provided funding to clean up blighted communities. During the presidential election, he vowed to strengthen federal environmental justice programs and provide low-income and minority communities the legal ability to challenge environmental policies that adversely affect their health. Asked if Blumenfeld's visit to Kettleman City is part of Obama's push to take environmental justice more seriously, an EPA spokeswoman wrote in an email, "Jared is an Obama appointee and the Obama administration has made EJ a priority."

The Kettleman City case illustrates how "solving" environmental problems can just mean kicking pollution further down the socio-economic ladder. Some of the PCBs in the landfill come from a power plant in San Francisco's predominately Black Bayview-Hunters Point community. In 2006, city workers found that Hunters Point residents living near the plant suffered from excessive rates of breast cancer, leukemia, childhood cancers, respiratory illness, and other diseases. That year, locals convinced the city to shutter the plant, but also sought assurances from the plant’s owner, Pacific Gas & Electric Co., that the hazardous waste collected from the site would not be funneled into another town.  “We couldn’t see our way to causing the same problems in other communities,” Marie Harrison, whose grandson suffered from chronic nosebleeds and asthma attacks, told me. Kettleman City residents fear that's exactly what happened.

Advocates want the EPA to deny, or at a minimum, extensively review the draft permit that allows disposal company Chemical Waste Management to continue dumping PCBs in the landfill. They also want the agency to withdraw its 2007 draft environmental justice assessment, which denies that the landfill poses a health risk to residents. Until then, they're witholding judgment on the EPA's new approach to their cause.  Bradley Angel, Executive Director of Greenaction for Health and Environmental Justice, says, "We are seeing some concrete action to indicate that it might be a new day, but it's too soon to tell." 

Corn and Oil

| Mon Feb. 1, 2010 2:05 PM EST

Stuart Staniford surveys various liquid alternatives to oil and concludes that the only one that's truly sensitive to oil prices is biofuels. Today, that primarily means ethanol:

Biofuel production growth appears to be extremely oil price sensitive, and increased the fastest and reached the largest volume in response to the mid-to-late 2000s oil shock.  I have argued in the past that there are structural reasons for this: given the comparatively low capital requirements and small plant size of biofuel plants, they can respond much faster to episodes of high oil prices than can the other sources, all of which tend to involve larger, slower-to-build, more capital intensive plants.  This has important implications for food and land prices in future oil price shocks.  Food prices are likely to rise quickly and markedly in response to oil shocks, public policy permitting.

Italics mine. I don't have a lot to add to this at the moment, but it's a thought-provoking, chart-laden post. Worth taking a look at.

Money Meet Mouth

| Mon Feb. 1, 2010 1:39 PM EST

Minnesota Gov. Tim Pawlenty wants to run for president in 2012. That's been pretty obvious for the past year, ever since the once-earnest wonk took up the death panel meme, started jabbering about the tenth amendment, and began delivering stemwinding speeches to the tea party crowd. Today he writes in Politico about his outrage over the budget deficit. Bruce Bartlett is unimpressed:

Like all Republicans these days, Pawlenty wants to have it every possible way: complain about the deficit while ignoring everything his party did to create it (Medicare Part D, two unfunded wars, TARP, earmarks galore, tax cuts up the wazoo, irresponsible regulatory and monetary policies that created the recession that created the deficit, etc.), illogically insisting that tax cuts are a necessary part of deficit reduction, and never proposing any specific spending cuts.

The only specific thing Mr. Pawlenty is capable of proposing is a balanced budget amendment to the Constitution. It’s hard to know where to begin in explaining why this is such an irresponsible idea, but I will try.

And try he does. And succeeds! Until he gets to his final paragraph:

In conclusion, Tim Pawlenty is not ready for prime time. He may think he has found a clever way of appealing to the right wing tea party/Fox News crowd without having to propose any actual cuts in spending, but it isn’t going to work. It’s too transparently phony even for them.

I don't think anything is too transparently phony for this crowd. There's a famous old Onion headline that goes like this: "Report: 98 Percent Of U.S. Commuters Favor Public Transportation For Others." This is pretty much the sentiment that Pawlenty — and the rest of the Republican Party — are pandering to in the tea party movement: 98 percent of them favor spending cuts for others. Just don't cut their Medicare or their Social Security or take away their mortgage interest tax deduction or — in Minnesota — do anything to rein in farm subsidies. Unfortunately, Pawlenty can't think of anything sizeable to cut that would affect only "others" for a large enough definition of others. So he's stuck. Just like his entire party is stuck, never willing to put its money where its mouth is because they know perfectly well that would mean having to make some hard decisions.

But I'm sure he'll do fine with the tea partiers anyway. Just think of him as a slightly less robotic Mitt Romney without the Mormon baggage and you've got his number. There's no reason that shouldn't wear pretty well with these folks.

Suburbia's Discontents

| Mon Feb. 1, 2010 1:00 PM EST

The day after Obama's State of the Union address my sister called me. "Was there anything in it for me?" she asked.

This has become sort of a running joke between us. The answer is always "no." That's because when presidents announce plans, she pretty much never benefits from them. Child tax credits? She doesn't have kids. Education loans? She graduated from college 30 years ago. Healthcare reform? She's already covered. Small business loans? She's not a corporation. Mass transit funding? She commutes to work in her car. Cap-and-trade? That'll probably cost her money in higher energy bills. Etc.

I was reminded of this by a link from Atrios to a recent Joel Kotkin piece called "The War on Suburbia":

A year into the Obama administration, America’s dominant geography, suburbia, is now in open revolt against an urban-centric regime that many perceive threatens their way of life, values, and economic future....For the first time in memory, the suburbs are under a conscious and sustained attack from Washington. Little that the administration has pushed — from the Wall Street bailouts to the proposed “cap and trade” policies — offers much to predominately middle-income oriented suburbanites and instead appears to have worked to alienate them.

And then there are the policies that seem targeted against suburbs. In everything from land use and transportation to “green” energy policy, the Obama administration has been pushing an agenda that seeks to move Americans out of their preferred suburban locales and into the dense, transit-dependent locales they have eschewed for generations.

Atrios says, "This is completely idiotic for mostly obvious reasons, including the hundreds of billions devoted to propping up single family home prices. It isn't necessarily a wise policy, but it's hardly a war on the suburbs." I agree: Kotkin is overwrought. And yet, Atrios bangs the drum pretty regularly for the notion that if Obama wants the public to support his policies, then the public better get some goodies out of it. And for the most part, suburbanites might well be feeling that they aren't getting many goodies lately. "Hundreds of billions devoted to propping up single family home prices" is overwrought too, and in any case is generally invisible. The stimulus bill, for example, might have benefited my sister in some way, but there's really no way to know. It's just too diffuse.

In other words, I wouldn't dismiss this quite so breezily. Yes, Kotkin has an agenda. But there's a real tension between good policy and good politics. Cost controls are good policy on the healthcare front, but lousy politics. Mandates are good policy but lousy politics. In the stimulus bill, metering out tax cuts a few dollars per paycheck was good policy but lousy politics. Likewise, promoting high density residential patterns might be good policy, but for suburbanites anyway, it's lousy politics. You can ridicule it all you want, but suburbanites still have lots of votes, and they want some goodies too. That's politics.

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Why It's Tough To Cut the Budget By Killing Programs

| Mon Feb. 1, 2010 12:25 PM EST

It's not easy to cut the federal budget.

On Monday, the White House released its 2011 budget. The numbers are daunting—particularly the projected $1.6 trillion deficit. But the Obama administration is doing all it can to show it's serious about restraining government spending. With this budget, it proposed $23 billion in savings that would come from terminating, reducing, or squeezing 126 government programs.

That's not a big amount in budget terms, though it's a symbolic start. Yet the breakdown of those numbers suggests that President Obama is not likely to achieve any truly significant savings by eliminating whole programs. 

The budget notes that of the $23 billion in proposed savings, only $8.36 billion would come from the discretionary termination of programs. And though 47 programs have been targeted by the White House for extermination, most of the savings would result from killing two programs: the military's C-17 cargo plane ($2.5 billion) and NASA's Constellation Systems program, which was initiated by President George W. Bush in 2005 to return astronauts to the moon and then send them to Mars ($3.5 billion). These two programs account for almost 75 percent of the discretionary termination cuts. There's not much of a payoff for the administration if it does end—as it proposes to do—the Christopher Columbus Fellowship Foundation, which was established in 1992 to fund research designed "to produce new discoveries in all fields of endeavor for the benefit of mankind." Total savings here: $1 million.

It's a Washington cliché: every program is somebody's baby. But the C-17 program is especially so. Worse, it is a vampire. It cannot be killed. Last year, the administration tried to end production of the plane and save $2.5 billion. It says that with the existing fleet of C-17s (and those already ordered) and C-5 cargo aircraft, the Defense Department can meet its "mobility needs, even under the most stressing scenarios." But the Senate in October voted 68-30 against grounding the program. (The move to cancel production of more C-17s was led on Capitol Hill by Senator John McCain). This Boeing program employs more than 30,000 workers in 43 states. So lots of politicians in both parties fought for it—and will continue doing so.

The Obama administration might have an easier time deep-sixing NASA's moon program. It notes that the troubled program has been behind schedule and cannot achieve its goals without multi-billion-dollar budget increases. The program, the budget says, "was not clearly aimed at meeting today's national priorities." Still, the program has its political champions. "I, for one, intend to stand up and fight for NASA, and for the thousands of people who stand to lose their jobs," said Democratic Senator Bill Nelson of Florida.

Nelson may have a tougher time than Capitol Hill fans of the C-17. But the hardest job by far is finding whole programs to wipe out. Banking on a C-17 termination to achieve budget savings is quite a risk.

You can follow David Corn's postings and media appearances via Twitter.

Watchdog: No Prayer Day for Obama, Congress

| Mon Feb. 1, 2010 12:10 PM EST

Should President Obama and members of Congress attend the annual National Prayer Breakfast, hosted by the shadowy yet extremely well-connected Christian organization The Fellowship? No way, says [PDF] the government watchdog organization Citizens for Responsibility and Ethics in Washington (CREW), who today is urging the president and lawmakers to avoid the group's entreaties and star-studded annual breakfast this Thursday. The Fellowship, also known as The Family, is headed by a spiritual confidante to government figures named Doug Coe who claims to be leading a "spiritual war" for Christ. Its acolytes have included public officials like Sen. John Ensign (R-NV), disgraced South Carolina governor Mark Sanford, and even Secretary of State Hillary Clinton, whose close ties with the Fellowship were reported by Mother Jones in 2007.

Like others who've written about the Fellowship, CREW says the secretive group uses its connections and clout to arrange meetings between US and foreign officials behind closed doors, and has told its members, like Sen. James Inhofe (R-OK), to spread the Fellowship's evangelical mission while on taxpayer-funded trips. The group's National Prayer Breakfast, CREW contends, is merely a chance for the group to draft more members into its ranks and to boost its fundraising coffers. "The president and members of Congress should not legitimatize this cult-like group—the head of which has praised the organizing abilities of Hitler and Bin Laden—by attending the breakfast," said Melanie Sloan, CREW's executive director. It's doubtful, however, whether CREW's advice will be heeded: There are no signs that Obama, who spoke at the breakfast last year and is slated to do the same on Thursday, plans to back out. 

How to Kill the Recovery

| Mon Feb. 1, 2010 9:00 AM EST

There's plenty to sink your teeth into in the latest report to Congress [PDF] from Neil Barofsky, the main bailout watchdog, including yet more questions about the Treasury and Federal Reserve Bank of New York's handling of AIG's rescue. In essence, Barofsky, whose title is special inspector general for TARP (SIGTARP), calls the Treasury hypocrites for failing to extract concessions from AIG's counterparties (like Goldman Sachs and Societe Generale) when they did just that with General Motors and Chrysler's creditors during the automotive bailout. Barofsky's report also criticizes the Treasury for failing to anticipate the backlash over AIG's post-bailout executive compensation, especially to its Financial Products division that was at the epicenter of the financial meltdown.

But arguably the most fascinating finding in the SIGTARP report is the extent to which the federal government now backstops the housing market—in short, the federal government today is the housing market. According to SIGTARP, in the past two years, the private sector has shed $1.5 trillion in mortgage assets, and it's the government who's filled that massive void. "Between net mortgage lending and existing mortgage management," the report says, "the Federal Government now completely dominates the housing mortgage market, with the taxpayer shouldering the risk that had once been borne by the private sector." As the above chart shows, the government's support of the housing market nears a staggering $11.5 trillion.

More worrying than the size of that support, without which frankly there wouldn't be a housing market, is the fact that it could be ending soon. As the Washington Post recently reported, the federal government plans to wind down some of that backing in the next couple of months, and when that time comes, officials say they hope the industry will stand on its own. But as the SIGTARP report shows, that's blind optimism; a major pullback in housing support could very well send the industry into freefall again and derail the glimmers of recovery we're now seeing. It could undercut the Obama administration's stimulus efforts, and possibly drag Obama's support down with it. Even with government support, housing's future is very much unclear—foreclosures set new records last year, too many homeowners still owe more than their houses are worth, more people are voluntarily defaulting and walking away from their homes. Yet the federal government wants to walk away from the industry itself sooner rather than later.

If SIGTARP's findings reveal anything, it's how much the government's backstopping is critical to economic recovery. Without it, we could see shades of 2007 and 2008 all over again.

We're Still at War: Photo of the Day for February 1, 2010

Mon Feb. 1, 2010 8:05 AM EST

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U.S Army Spc. Kayla Moore covers her sector in a UH-60 Black Hawk helicopter while traveling from Forward Operating Base Lightning to Contingency Operating Base Ajiristan in Afghanistan. Photo via the U.S. Army by Airman First Class Laura Goodgame.