Mike Smith
I hope this post is not viewed as a ‘global warming’ post as it is not my focus. Rather, I want to elaborate on an earlier post about “unintended consequences” when Congress gets into an issue.
You may wish to read my earlier post at: http://stormtrack.org/forum/showthread.php?t=15479&page=3&highlight=unintended+consequences
For several years, I worked with Congress and two administrations (Bush I and Clinton), part time, over government policy regarding the weather industry. In Washington, insiders frequently speak of the "unintended consequences" whenever Congress gets involved in an issue. Here is an example illustrated by an issue near-and-dear to the hearts of many college students.
Today’s Wall Street Journal has an editorial that states, in part:
We're referring to the "student loan crisis" now appearing in a media outlet near you. In September, Congress vowed to make education more affordable by passing the "College Cost Reduction and Access Act." The law reduced the interest rates borrowers pay on federally insured student loans. Backed by the Federal Family Education Loan Program, these loans account for more than 70% of education lending. Taxpayers will fork over $7 billion by 2012 to pay for the rate cuts.
But Congress didn't stop there. Convinced that the private lenders who make these loans were reaping too much profit, Congress also cut the yield on each loan. The return on the popular Stafford loan for undergrads was reduced by 70 basis points [note: 70 basis points = 0.7%]. For loan consolidations, Congress cut returns by 65 basis points. In a vibrant market, banks might have absorbed these hits and continued to lend. But the combination of legislative fiat and fewer investors willing to buy asset-backed securities amid the credit crunch has put the squeeze on lenders.
What's now clear is that Congress didn't merely wring the profits out of student lending. It's blown up the entire student loan market…
Usually, the law of unintended consequences takes so long to reveal itself that no one remembers the culprits. But the speed at which Congress's student lending changes have gone south is raising political danger for Democrats, if Republicans had the wit to point it out. (They don't; that's why they're Republicans.)…
The result is that the same man who authored last year's bill to cut lenders' returns has crafted a new bill to subsidize those same lenders. Last week the House passed Education and Labor Chairman George Miller's latest foray into collegiate finance. The bill gives the Department of Education new authority to purchase loans directly from lenders...
To summarize: Congress mandated a return on student loans that is too low to attract private capital in the current market. So Congress will now use your money to create artificial investor demand. Taxpayers will bear more risk so that Congress can fashion a new business model to replace the one it just destroyed. The Bush Administration, unwisely but typically, has endorsed this approach.
Of course, the logical thing for Congress to do would be to repeal the regulations that caused the problem and reset things the way they were. But another truism is that Congress almost never admits to mistakes! So, we get a "Rube Goldberg" hodge-podge of laws and regulations stacked on top of each other that often makes a problem worse rather than better.
Why do I bring this up in the context of global warming? Here's why:
Energy is a crucial issue in our world and Congress, as an institution, is not well-equipped to deal with it. Generally (note I said "generally" not always), the marketplace is better equipped to deal with changes in economic issues (i.e. transition from oil to solar) than government.
Again, the post here is not intended to be about global warming as much as it is a cautionary tale. When we want the government to get involved in an issue we have to "be careful what we wish for."
You may wish to read my earlier post at: http://stormtrack.org/forum/showthread.php?t=15479&page=3&highlight=unintended+consequences
For several years, I worked with Congress and two administrations (Bush I and Clinton), part time, over government policy regarding the weather industry. In Washington, insiders frequently speak of the "unintended consequences" whenever Congress gets involved in an issue. Here is an example illustrated by an issue near-and-dear to the hearts of many college students.
Today’s Wall Street Journal has an editorial that states, in part:
We're referring to the "student loan crisis" now appearing in a media outlet near you. In September, Congress vowed to make education more affordable by passing the "College Cost Reduction and Access Act." The law reduced the interest rates borrowers pay on federally insured student loans. Backed by the Federal Family Education Loan Program, these loans account for more than 70% of education lending. Taxpayers will fork over $7 billion by 2012 to pay for the rate cuts.
But Congress didn't stop there. Convinced that the private lenders who make these loans were reaping too much profit, Congress also cut the yield on each loan. The return on the popular Stafford loan for undergrads was reduced by 70 basis points [note: 70 basis points = 0.7%]. For loan consolidations, Congress cut returns by 65 basis points. In a vibrant market, banks might have absorbed these hits and continued to lend. But the combination of legislative fiat and fewer investors willing to buy asset-backed securities amid the credit crunch has put the squeeze on lenders.
What's now clear is that Congress didn't merely wring the profits out of student lending. It's blown up the entire student loan market…
Usually, the law of unintended consequences takes so long to reveal itself that no one remembers the culprits. But the speed at which Congress's student lending changes have gone south is raising political danger for Democrats, if Republicans had the wit to point it out. (They don't; that's why they're Republicans.)…
The result is that the same man who authored last year's bill to cut lenders' returns has crafted a new bill to subsidize those same lenders. Last week the House passed Education and Labor Chairman George Miller's latest foray into collegiate finance. The bill gives the Department of Education new authority to purchase loans directly from lenders...
To summarize: Congress mandated a return on student loans that is too low to attract private capital in the current market. So Congress will now use your money to create artificial investor demand. Taxpayers will bear more risk so that Congress can fashion a new business model to replace the one it just destroyed. The Bush Administration, unwisely but typically, has endorsed this approach.
Of course, the logical thing for Congress to do would be to repeal the regulations that caused the problem and reset things the way they were. But another truism is that Congress almost never admits to mistakes! So, we get a "Rube Goldberg" hodge-podge of laws and regulations stacked on top of each other that often makes a problem worse rather than better.
Why do I bring this up in the context of global warming? Here's why:
Energy is a crucial issue in our world and Congress, as an institution, is not well-equipped to deal with it. Generally (note I said "generally" not always), the marketplace is better equipped to deal with changes in economic issues (i.e. transition from oil to solar) than government.
Again, the post here is not intended to be about global warming as much as it is a cautionary tale. When we want the government to get involved in an issue we have to "be careful what we wish for."
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