Larry Kudlow

Tuesday’s Wall Street Journal strongly editorializes against the Warner-Lieberman cap-and-trade plan that allegedly will solve our alleged problem with global warming -- now called climate change. This plan is very similar to the one Sen. John McCain announced two weeks ago. The Journal argues that cap-and-trade “would impose the most extensive government reorganization of the American economy since the 1930s,” including a huge tax increase, higher prices across-the-board, and significant losses to economic growth in the decades ahead.

But why do we need a planned economy for energy or anything else? Why not a fully deregulated free market for energy where prices allocate production and consumption?

And why not allow the current $130-a-barrel oil price to open the door to a full portfolio of energy resources, including offshore drilling, Alaska, nuclear power, oil shale, conversion of coal and natural gas to liquid fuel, and the development of so-called alternative-energy sources such as solar, wind, and various cellulosic investments (although this latter group may never contribute more than 10 percent to our energy needs)? A true free-market approach wouldn’t pick winners and losers with heavy subsidies or penalties.

Incidentally, market forces also will curb energy consumption. The rising price of crude oil and gas at the pump has already cut demand sharply. Michigan professor Mark Perry, at his great Carpe Diem blog, reports that Americans in March 2008 drove 11 billion fewer miles than they did in March 2007 -- a drop of 4.3 percent. This marks the first traffic decline since 1979 while the month-to-month percentage drop is the biggest since record keeping began in 1942. It’s also the fifth straight monthly falloff in miles driven on a year-on-year basis.

Perry correctly bemoans the fact that the U.S. is the only country in the world where policies actually limit energy supply. And it’s my contention that Gosplan-type cap-and-trade regulatory planning will sharply limit our energy resources and our economy in the decades ahead.

The Wall Street Journal notes that under Warner-Lieberman existing coal-fired power plants that currently provide about one-half of U.S. electric power will be shut down, to be replaced by new nuclear-power facilities and other alternative technologies yet to be developed. Let that idea sink in. By pulling the plug on half of our current electricity production, cap-and-trade will risk a massive undermining of the American economy, as well as our future economic and national security.

Larry Kudlow

Lawrence Kudlow is host of CNBC’s “The Kudlow Report,” which airs nightly from 7 p.m. to 8 p.m.