July 1, 2021

Thought of the Week:

A paradigm shift among Republicans is occurring on climate change.  There is growing recognition in Washington within the Republican Party that if the GOP is going to be competitive in upcoming elections, the party needs to develop a credible position on climate change. Previously, the default response by Republicans to climate alarmists’ claims, such as when the director of the New York office of the U.N. Environment Program warned in 1989 that rising sea levels would cause entire nations to disappear if the global-warming trend were not reversed by 2000, was dismissive mockery. More recently, Republicans did little more than roll their eyes when President Biden echoed existentialist concerns in his inaugural address when he said, “A cry for survival comes from the planet itself. A cry that can’t be any more desperate or any more clear.” Now, however, a growing number of Republican legislators are coming to terms with what the polls have been indicating for years: independents, suburban voters, and young Republicans are worried about climate change and want the government to take action. In short, Republicans are beginning to realize that it is a political liability to dismiss or even avoid discussing climate change. In the coming weeks, House Minority Leader McCarthy plans to start a Republican task force on climate change, and Rep. Curtis (R-UT) has announced the formation of the Conservative Climate Caucus, which is aimed at educating the party about global warming and developing policies to counter what the caucus terms “radical progressive climate proposals;” 52 Republican House members have joined so far. To no one’s surprise, the Republican ideas being floated include limited government, free-market policies to curb greenhouse gas emissions; introduction of a package of bills focusing on carbon capture; promotion of tree planting; and expansion of nuclear energy. While Republicans remain opposed to President Biden’s climate proposals, noting that full implementation of the administration’s ‘net-zero’ emissions goals would reduce global temperatures by 0.17 degrees Celsius by 2100, an effect that would be barely detectable given normal variations in global temperatures, the fact that a growing number of Republicans are crafting a climate strategy is significant. The construction of a policymaking apparatus on the right in the climate space is more than a Republican political strategy that realizes that they cannot just turn the issue over to the left, it actually sets the stage for real policymaking to advance.

Thought Leadership—from our Associations, Think Tanks, and Consultants:

Eurasia Group: SEC moves towards requiring climate disclosures from public companies: President Biden convened a meeting of financial regulators at the White House to discuss plans to require disclosure of climate risks from public companies, a key part of the administration’s efforts to channel capital into green investments and away from fossil fuels and other carbon-intensive industries. While the SEC solicited input from stakeholders in March, the agency faces a difficult task in determining what climate risks are material and in what form companies should be required to disclose them. Companies in industries that have already made ambitious climate commitments are pushing the Commission to require maximal disclosure, while more carbon-intensive industries worry that the SEC could choose metrics for carbon emissions that are not sufficiently standardized, hurting their ability to attract investment capital. The SEC is hoping to release a draft rule by October, although it is likely to face multiple court challenges. Republicans in Congress oppose the SEC’s plans, but the Commission can act independently, and both the White House and the SEC are committed to new rules as a key plank of the administration’s climate agenda.

AEI: The U.S. economy’s next crisis is a massive asset price bubble: Whether or not the recent surge in consumer price inflation will be a lasting phenomenon is subject to legitimate debate. However, one thing is clear—through its massive bond-buying program, the Federal Reserve has created and continues to create asset price and credit market bubbles. Based on experience, this hardly bodes well for the U.S. economy having a soft-landing next year when the run of easy money eventually stops. Anyone doubting that the U.S. economy is in the grips of another housing market bubble need only look at the Case-Shiller housing price index. Adjusted for inflation, the index is at approximately the same level it reached in 2006, at the peak of the last housing market bubble. Of further concern is the fact that U.S. home prices continue to rise at an annual 12% rate. Anyone doubting that we are also experiencing an equity market bubble need only look at stretched equity market valuations. As measured by cyclically adjusted price-earnings ratios, today’s equity valuations are more than double their long-term average. More striking is the fact that these valuations are at levels that have been experienced only once before in the last hundred years.

AEI: Biden’s Corporate Tax Hike is bad for Growth; Try a Carbon Tax Instead: Under President Biden’s tax-and-spend infrastructure proposal, the corporate tax rate would rise to 28%. Such a move would reduce the competitiveness of U.S. firms, burden workers, and discourage investment. A carbon tax, however, would encourage innovation in the energy and transportation sectors, grow the economy, and mitigate the effects of climate change. 

In Other Words (Quote): 

“If you look behind the headline and look at the categories where these prices are really going up, you’ll see that it tends to be areas that are directly affected by the reopening. That’s something that we’ll go through over a period. It will then be over. And it should not leave much of a mark on the ongoing inflation process.”

— Federal Reserve Chairman Powell

Did You Know:

With the addition of Juneteenth, there are now 11 federal holidays, and every four years there are 12 with Inauguration Day. The four original national holidays were New Years, Independence Day, Thanksgiving, and Christmas. 

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