Advising Governor Schwarzenegger Jude Wanniski August 14, 2003

Memo To: Warren Buffett
From: Jude Wanniski
Re: Business in California

In the event Arnold Schwarzenegger becomes governor of California in October, with your help, I’d like you to not only think about how to help him prevent the state’s human and financial capital from fleeing but also to attract capital that has been leaving in droves. I know you are hostile to supply-side economics, mostly because I think you have been confused and misled by various representations of its principles. So I will not expect you to recommend Governor Schwarzenegger ask the legislature to eliminate the capital-gains tax, which I have been urging California do through its last several governors. Instead, I believe you will understand how important it is that California solve its energy problems if business can thrive there. The environmentalists have created a host of difficulties for energy suppliers that will only get worse unless they are dealt with in Sacramento. That is, if nuclear power plants can’t be built and terminals to permit importation of liquid natural gas can’t be built, energy planners are talking about a gas pipeline from Alaska’s north slope to meet energy demands in the not-too-distance future. The cost would be incredible.

Energy supplies are one thing, but conservation measures are really what will kill California business -- especially if the greenies continue to pursue their attacks on carbon dioxide in the name of preventing “global warming.” There was a law passed in 2002 with a requirement that the Air Resources Board develop and adopt, by January 1, 2005, regulations that will achieve “the maximum feasible reduction of greenhouse gases emitted by passenger vehicles and light-duty trucks,” i.e. SUVs, which are considered light-duty trucks in California, are the worst offenders. What is going on here, Mr. Buffett, is an attempt by the crazies who dominate policy in this area in California to drive people and businesses out of the state if they are going to emit carbon dioxide. The federal government will not support the Kyoto Treaty, which would shut down the national economy, but Californians are trying to replicate it within their state’s borders.

Now the earth may or may not be warming. And if it is, carbon dioxide, which is a greenhouse gas, may or may not be contributing to that warming. If it is, then certainly mankind contributes to that warming because we do oxidize lots of carbon. The scientist who first cooked up the idea, Robert Hansen, in 2002 did admit that the computer models that predicted higher concentrations of carbon dioxide did not turn out to be correct. It is most probable that Nature -- flora and fauna and water, which covers 75% of the earth's surface --soaks up all the CO2 produced from all sources by Mother Nature. Hansen suggested maybe scientists look into purely manmade gases, rather than carbon dioxide. He suggested CFC's, although in the last year there are reports that CFC's are also naturally produced. The problem the greenies really have, though, is that if the earth’s atmosphere really is warming at all -- from SUVs or greater solar activity -- the air around the earth should show increasing temperatures. Half the atmosphere around the earth is below 30,000 feet, the other half is above that level stretching to the moon. The fact is that measurements by satellites of this cloak of atmosphere show no changes at all.

What to do? Governor Schwarzenegger might consider assembling a panel of scientists who really know something about the subject, instead of relying upon the editorials that appear in the New York Times and the San Francisco papers for guidance. There is of course plenty of need for environmental regulation in the state, because there is plenty of opportunity for individuals and businesses to pollute. But unless the global warming issue is dealt with in the next two years, you can bet on further capital flight from California. Here is a link to a column written July 27, 2002 on the subject by Dr. Gordon Prather. It is not about whether there is global warming by mankind or not, but what to expect from the Air Resources Board when it reports on January 1, 2005. He reckons gasoline at the pump costing $7 a gallon.