Obama has obviously studied this debate, and early on during the flight to Chicago, he told me a story about Reich and Rubin. The previous week, Obama convened a discussion with a high-powered group of economists and chief executives. He was sitting at a conference table, with Rubin two seats to his left and Reich across from him. "One of the points I raised," Obama told me, "is if you just use you, Bob, and you, Bob, as caricatures, the truth is, both of you acknowledge the world is more complicated." By this, Obama didn't simply mean that their views were more nuanced than many outsiders understood. He meant that both have come to acknowledge that the other man is, in part, correct. The two now occupy more similar ideological places than they did in 1993. The battle of the Bobs may not be completely over, but it has certainly been suspended.
Leonhardt writes that Obama's ideology reflects the developing synthesis in the Democratic Party, one that attends to both the power of market forces and the need for government action to ameliorate the dislocation that forces create. He writes about how Obama was influenced by his association with the University of Chicago. Cass Sunstein " other former Chicago colleagues [Leonhardt] spoke with said they believed that Chicago had helped give Obama an intellectual framework for his instincts, at the least, and probably made him come to appreciate markets more."
The best example of how Obama's ideology will work as president, Leonhardt writes, can be found in his finessing of an emissions cap and trade system.
By last year, Democrats in Congress essentially agreed that to reduce greenhouse-gas emissions, the government should place a nationwide cap on these emissions and then issue tradable permits giving companies the right to produce them (thus the term "cap and trade"). Most Congressional bills envisioned giving away many of the permits to power companies. Economists, by and large, considered this giveaway to be the worst part of the plan. It would require Congress to decide how many free permits each company should get and would set off a frenzy of corporate lobbying.The alternative was to auction off the permits -- to let the market set their value. "If you don't auction 100 percent of the permits," Goolsbee told me, "this could be one of the biggest pieces of corporate welfare ever." With Congress making the decisions, the power companies with the best political connections might get the permits. With a full auction, the permits would end up with companies willing to make the highest bids. Presumably, these would be the most efficient companies, the ones able to produce the most energy (and profits) for a given amount of greenhouse-gas pollution.
The auctions would have another big advantage too. They would raise billions of dollars for the government, money that could then be returned to taxpayers to offset the higher energy prices created by the emissions cap.
It seems likely that a President Obama would sign a cap-and-trade bill even if it did give away some permits. But candidate Obama has at least moved the debate toward a more pro-market solution.
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