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Will Obama Opt for Pragmatism in Energy Policy?

President-elect Barack Obama is proving to be remarkably pragmatic and centrist as he tackles the global economic crisis. Big tests are yet to come on energy, however.

[IMGCAP(1)]Will Obama tilt toward fossil-phobic environmentalists who heavily influence the Democratic Party, or do-it-all pragmatists like his apparent choice for White House national security adviser, retired Marine Corps Gen. James Jones?

Jones’ present job is chief executive officer of the U.S. Chamber of Commerce’s Institute for 21st Century Energy, which contends that offshore oil drilling, clean coal technology and nuclear power have to be part of America’s energy policy.

On Oct. 20, Jones made it clear at a panel discussion I was part of that he regards energy policy as “an international security issue of the highest order,” which suggests that he will make it part of his portfolio at the National Security Council.

He released a step-by-step “transition plan” for energy that included “aggressively” promoting energy efficiency and alternative fuel research, but also domestic oil and gas exploration and elimination of restrictions against nuclear power plants, new electric grids, and oil and gas pipelines.

Such ideas are anathema to many Democratic “greens” — including leaders in Congress — who want to close down the carbon economy and base the country’s energy future strictly on renewables such as wind, solar and geothermal power, plus conservation.

In particular, Jones has aroused the ire of Senate Majority Leader Harry Reid (D-Nev.) for backing disposal of the nation’s nuclear waste at Yucca Mountain in Nevada.

The power of the greens was also demonstrated by the toppling of Rep. John Dingell (D-Mich.), the auto industry’s longtime protector, as Energy and Commerce chairman. His replacement, Rep. Henry Waxman (D-Calif.), is a “green” and his coup was backed by Speaker Nancy Pelosi (D-Calif.).

After behaving like a leftish liberal for much of his political career — and becoming the darling of the left during the presidential campaign — Obama so far is fulfilling his self-assessment that he’s a pragmatist, willing to try “whatever works.”

His economic appointments — Timothy Geithner as Treasury secretary, Lawrence Summers in the White House, Christina Romer at the Council of Economic Advisers and Peter Orszag at the Office of Management and Budget — have sent reassuring signals to terrified financial markets.

And his heavily leaked selections for foreign policy posts — Sen. Hillary Rodham Clinton (D-N.Y.) as secretary of State, Jones at the NSC and possibly current Defense Secretary Robert Gates — definitely lean toward the “realist” or “national interest” school of foreign policy, not the “liberal internationalist.”

On policy, moreover, Obama has shown reassuring resilience, utterly abandoning his previous intention to follow the Franklin D. Roosevelt model of crisis governing.

FDR famously refused to involve himself in policymaking to deal with the Great Depression from November 1932 until his inauguration in March 1933 and refused to have any contact with outgoing President Herbert Hoover’s administration.

At his initial press conference as president- elect on Nov. 7, Obama repeated the mantra that “the country has only one president at a time.” Crashing financial markets and the impending “Great Recession” — or worse — changed his attitude.

A good case can be made that George W. Bush will go down in history as another Herbert Hoover, but if Obama means to be FDR, at least he’s starting early.

The case for Bush as Hoover is this: Bush’s carelessness about deficit spending and doubling of the national debt created a nationwide atmosphere of fiscal irresponsibility, leading to over-leveraging (that is, massive debt accumulation) by investment banks, homeowners and consumers.

Bush maintained a hands-off attitude as the housing bubble expanded to the bursting point, as banks invested in impossible-to-understand mortgage-backed securities and rating agencies slapped triple-A ratings on all of them.

Bush and Treasury Secretary Henry Paulson have been un-Hoover-like in expanding government power to rescue the financial industry — Wall Street — but have been reluctant to adopt similarly aggressive policies to deal with the “Main Street” effects, including unemployment and home foreclosures.

For unexplained reasons, the Bush administration also has refused to adopt solutions backed by Sen. John McCain (R-Ariz.) during his presidential campaign — revising the “mark to market” accounting rule and limiting “short-selling” by speculators, both of which are depressing bank stocks.

As Rep. Mark Kirk (R-Ill.) and former McCain policy adviser Douglas Holtz-Eakin told me in interviews, banks are forced by mark to market rules to value their securities at zero if no one will buy them even though they are based upon mortgages that are being paid on schedule. That rule came into effect in 1997, so eliminating it — and evaluating securities on the basis of a property’s “intrinsic value” — would immediately bolster the banks. Also, reinstating the “uptick rule,” whereby a stock can’t be “shorted” unless it has previously risen, would discourage speculators from driving down prices.

If Bush won’t do anything about those policies, Obama should, along with passing a huge new stimulus package including infrastructure spending and middle-class tax cuts.

As a pragmatist, Obama is signaling that he won’t raise taxes on rich people immediately — though he wants to for “fairness” reasons — but he should just declare that policy to spur investment.

And when it comes to infrastructure, Obama should encourage private investment as well as public. Besides roads and bridges, he should encourage wind farms, solar panels — and nuclear plants and offshore oil rigs.

The basis of Jones’ case is that the United States will be heavily dependent upon fossil fuels for the next 20 years, until not-yet-mature alternative sources and conservation methods are developed.

The pragmatic thing for Obama to do is “do what works” in energy as well as the economy.

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