Tag Archives: political economy

Solar and Wind Energy Subsidies

Posted on by
Reply

There was sort of a debate presented in The Wall Street Journal a few days ago concerning the efficacy of Federal subsidies for solar and wind energy companies.  I say “sort of” because the Mark Muro’s arguments in favor of the subsidies demonstrate an utter cluelessness of the basics of economics as well as of how well the subsidies have already performed.

For instance, the WSJ‘s lede cites generic proponents as saying in all seriousness,

There is widespread agreement that pulling the plug on the subsidy at this point could hobble the wind-power industry.  Meanwhile, the biggest federal subsidy for solar power, a tax credit for 30% of the cost of installed equipment, is set to drop to 10% at the end of 2016.  A cash grant for up to 30% of solar equipment costs expired at the end of last year.

Proponents say wind and solar subsidies are needed for a few more years to allow these clean, renewable sources of energy to develop to the point where they can compete on price with electricity produced from coal and natural gas.

Yet, if the technology can’t compete in a free market on its own, if it needs the subsidy to survive, the technology is not ready for commercial use or sale.  Spending taxpayer money—private citizen money—on such a thing is a textbook example of Fraud, Waste, and Abuse.  As the proponents admit without realizing it in that second paragraph: “…wind and solar subsidies are needed for a few more years to allow these clean, renewable sources of energy to develop….”

Muro then says in his argument,

Let’s remember the point of these temporary subsidies: to help emerging clean-energy technologies gain toeholds in challenging markets and advance toward unsubsidized price-competitiveness.

And

The ultimate reward is cheaper, cleaner energy and greater energy diversity, which will help guard against price shocks, keep energy costs down through competition and lessen the damage our energy consumption does to the environment….

Except that it isn’t cheaper if it needs subsidies coupled with coal, oil, gas (hydrocarbon) prices that are artificially elevated by government mandates to include “green” additives as the Feds do, or to buy electric power from solar and wind generators, as California does, in order to compete.  Moreover, diversity is reduced, not expanded by limiting us to solar and wind—or even by demanding that we buy a certain amount of solar and wind, regardless of market forces—and actively blocking access to hydrocarbon energy.  And finally, if these really are viable technologies that will deliver cheap energy easily, private investors will flock to invest, and no taxpayer subsidy will be even in the picture.

On top of that, there’s no case for environmental “damage,” given the great amount of cleanup already done, and the falsified “damage” attributed, for instance, to fracking by the EPA.

Muro goes on:

Wind and solar need the help because the barriers for new technologies in the energy industry are tougher than those in any other industry in this country.  Fossil fuels, with the help of their own government subsidies over the years, are thoroughly entrenched, with trillions of dollars’ worth of infrastructure in place.

Never mind that that entrenched infrastructure sits on top of centuries’ worth of economical, unsubsidized hydrocarbon deposits in the ground right here in the US and Canada, and the infrastructure easily can be extended to reach into the deposits in our respective territorial and economic zone waters, as the People’s Republic of China already is doing, filling the vacuum left by the present administration’s slow-walking of drilling permits for American companies.

Additionally, the beef that “the barriers for new technologies in the energy industry” are tough is just a cynical red herring.  Those technical barriers existed for the hydrocarbon industries, also, as they were developing.  Why should solar and wind get special treatment?  Muro has no answer; he merely asserts the “need.”

Muro concludes with this long-standing “promise:”

In sum, onshore wind is likely just a few years away from true subsidy independence, while several forms of solar aren’t far beyond.

Like commercial fusion, we’ve been “just a few years away” for decades.  It’s an empty promise.

As Dr David Kreutzer points out in his argument against these subsidies, though,

Surely some alternatives to fossil fuels will be developed, but they will only work if they are affordable.  Wind and solar aren’t, and that isn’t changed by shifting the costs from consumers and producers to the taxpayers.

Bureaucrats and politicians shouldn’t be the ones deciding which technologies are the most promising or what timeline is too long or what losses are too deep.  The market will do a much better job of answering the question: are wind and solar power really viable?

Let’s get rid of the subsidies and find out.

When Greed Meets Tinker Bell

Posted on by
Reply

State pension funds are another time bomb of malaise (to the tune of a $1.4 trillion shortfall) waiting to explode, and Rhode Island provides an example of the difficulty we each, in our own state, face in defusing it.

Rhode Island passed a massive overhaul (as such things go; they have a long way, yet, before they’ve completely cured their problem) of their state retirement system last year, including such unheard-ofs as raising the retirement age, suspending pension increases for several years, and generating a hybrid retirement plan that combines traditional pensions with 401(k)-like accounts.  Rhode Island’s General Treasurer, Gina Raimondo, says that this reform will save Rhode Islanders $4 billion over the next 20 years (compared to a 2013 budget that proposes spending $8 billion in that year alone, small potatoes, indeed, but a critical start).  This minor reform also seeks to redress astonishing conditions that include 58 percent of retired teachers and 48 percent of state retirees receiving more in their pensions than in their final years of work.

But it’s too much change for some.  The public “service” unions (service: you service me) object: it’s somehow wrong for their members to be responsible for their own retirement funding.  Even a little bit.  Instead, these public “service” unions protest that it’s all unfair.  Rhode Island is reneging on promises to workers, they say.  Bob Walsh, Executive Director of the National Education Association of Rhode Island, goes so far as to insist

What they did was illegal.  We’re deep into a real assault on labor.  It worries me that people who purport themselves as Democrats do this.

Never mind that there’s nothing at all illegal about these changes.  It’s a well-established principle in American jurisprudence that when the conditions extant when a contract was agreed (stipulating arguendo that the agreement was made in good faith by all parties) no longer exist, or have so radically changed that the terms can no longer be met, the contract can be abrogated and either a new one negotiated or the parties involved go their separate ways.  In extreme cases, this is what bankruptcy achieves; although, when the conditions have changed as radically as these have, bankruptcy isn’t necessary.

Never mind, also, these are promises that couldn’t be kept in any event, and both the state government and the public “service” unions at the time knew they could not be kept.  Or they blindly believed real hard in government’s ability to keep collecting funds from…somewhere.  Tinker Bell is alive and well in Public Service Land.

Never mind, finally, that this public “service” union greed at the expense of taxpayers makes “labor” a valid target.

One tear-jerker that the unions are trotting out is this:

North Providence retiree Jamie Reilly left her job as a secretary at age 50 [remember that raising of the retirement age?], thinking her 30 years of state employment would mean good benefits during her later years.  But now she said she may be forced to re-enter the workforce at age 55 because the state has put off pension increases.

“I counted on that money,” Reilly said….  “You work all your life and you plan, and they take it away from you.”

Worked all her life?  She worked 30 years and wanted to be retired for 40.  Workers in the private sector don’t get it that easy; they work until they’re in their mid-60s—a working life 50% longer.

And this one:

Cranston firefighter Dean Brockway said higher retirement ages mean he will have to work several years longer than he expected, and he wonders how he’ll climb stairs in heavy gear in his 60s.

“Could I do something else? I don’t know,” he said. “A lot of us chose to dedicate our lives to public service because to us it’s an honor.  Could I be a carpenter?  I don’t think so. This is what I do.”

Brockway has a legitimate concern, but it’s no different from the concerns of a private sector employee whose work is primarily physical labor.  But if he’s not going to look for alternatives, if he’s not going to try to retrain into something less physically demanding (certainly no stroll in the park for a middle-aged or older person, but assuredly not impossible), he loses sympathy for his plight, which begins to be self-imposed.  Certainly, there’s no more obligation for Rhode Island’s citizens to indemnify him against the outcomes of his choices than there is for them to indemnify similarly situated private sector employees.

Raimondo understands this in all its practicalities—how affordable are the existing programs:

These problems won’t go away.  The longer you wait, the bigger the problems get.  People looking for easy, short-term solutions. … Well, there are none.

Raimondo doesn’t believe in Tinker Bell.

Some Thoughts on the Fed’s Latest Guess at Monetary Policy

Posted on by
Reply

The good folks at Sober Look have a good post on this.  Basically, the Fed’s latest scheme is to buy $40 billion of mortgage debt from lenders every month until the labor market improves.  That’s nearly a trillion dollars every two years.  And its purpose is to hold down mortgage interest rates in particular, rather than interest rates in general, which have already been artificially lowered to near zero (to negative values in some cases in real, inflation-adjusted terms) for several years.

Those nearly non-existent interest rates generally, though, are associated with 43 months of unemployment above 8% (notwithstanding last week’s Labor Department claim of 7.8% unemployment).  Here’s what Sober Look thinks of this latest…idea…from the Fed.  Follow the links, too.

  1. It is not clear what impact asset purchases will have on consumer confidence.
  2. We’ve had extraordinarily low interest rates for quite some time now, yet improvements in job growth have been limited.
  3. Lowering mortgage rates from 3.5% to 3% is not going to have a significant impact on home affordability or materially reduce consumers’ interest expense (see this discussion).
  4. Raising bank excess reserves is not going to accelerate credit expansion.
  5. Fed’s unemployment targets are unrealistic – it’s going to be an exercise in “squeezing blood from a stone” (see discussion).
  6. US real median household income has basically been unchanged since 1994. The Fed’ program is unlikely to improve this metric and could actually impair incomes further by elevating inflation levels.
  7. The market “euphoria” effect is fleeting.

What will restore employment is less government interference—by the Fed and the Congress and the Executive—in our economy so that free market forces can start an actual recovery.  Which will lead to increased hiring; leading to more savings (in absolute terms, if not relatively), which are funds that can be loaned to support home purchases or business expansion (each of which is jobs) and to more spending, which supports business expansion (which is jobs); leading to increased hiring; leading to….

Blasts from the Past

Posted on by
Reply

This is what FDR’s Treasury Secretary Henry Morgenthau wrote in his diary in the depths of the Great Depression after years of explosive spending, rapidly increasing debt, enormously high unemployment, rising taxes and tax rates, and drastic intrusion of government controls into our economy:

We have tried spending money.  We are spending more than we have ever spent before and it does not work.  I want to see this country prosper.  I want to see people get a job.  I want to see people get enough to eat.  We have never made good on our promises.  I say after eight years of this administration, we have just as much unemployment as when we started.  And enormous debt to boot.

Although slow to (re)learn the lesson, Morgenthau wasn’t the first to articulate the failure of government spending to accomplish much of anything good.  Ludwig von Mises had some remarks on the matter, too.

When the government spends more, the public spends less.  Public works are not accomplished by the miraculous power of a magic wand.  They are paid for by funds taken away from the citizens.

And

It is obviously futile to attempt to eliminate unemployment by embarking upon a program of public works that would otherwise not have been undertaken.  The necessary resources for such projects must be withdrawn by taxes or loans from the application they would otherwise have found.  Unemployment in one industry can, in this way, be mitigated only to the extent that it is increased in another.

And

Government spending cannot create additional jobs.  If the government provides the funds required by taxing the citizens or by borrowing from the public, it abolishes on the one hand as many jobs as it creates on the other.

And

A policy of deficit spending saps the very foundation of all interpersonal relations and contracts.  It frustrates all kinds of savings, social security benefits and pensions.

Now contrast that with what the present administration has done, and the wonderful effects that explosive spending, rapidly increasing debt, enormously high unemployment, the constant threat of rising taxes and tax rates, and drastic intrusion of government controls into our economy have had on our economy and on jobs for Americans.

Unemployment Numbers and Jobs

Posted on by
2

In the aftermath of last week’s reported headline number of 7.8% unemployment, Democratic Presidential Candidate Barack Obama was out on the hustings bragging about how his policies had created some 5,000,000 jobs since the end of the Panic in 2009.  Like that’s a good performance.

Let’s look at that.  He promised in 2009 a 5.5% unemployment rate by now.  How many new jobs would have been created had we actually reached his promised number?  In December 2009 (some six months after the nominal end of the Panic of 2009), the civilian labor force was 153,059,000, of which 137,792,000 Americans were employed, a 10% unemployment rate, according to BLS statistics, and using round numbers.

In September 2012, again using BLS numbers, the civilian labor force was larger, at 155,063,000 (and it had a smaller participation rate than in 2009, but we’ll gloss over that).  There were some 142,974,000 Americans actually employed—that increase of 5,000,000 of which Obama is so proud.

However, a 5.5% unemployment rate corresponds, if my 1st grade arithmetic serves me well, to 94.5% of the civilian labor force actually employed: 146,535,000 Americans.  Again consulting my 1st grade arithmetic book, there are some 3,561,000 Americans that should be employed but aren’t—because Obama’s proudly proclaimed policies have come up short, and we aren’t anywhere near 5.5% unemployment.

Let’s look at this another way.  It’s been widely reported that this “recovery” is the weakest, most anemic post-recession recovery in our nation’s history.  Those reports aren’t far wrong.  A normal recovery coming out of a downturn as deep and steep as was the Panic of 2009 typically sees growth rates of 5%-6% per year, or more.  This Obama recovery has been 6.7% over the entirety of his term in office—nearly four years.  Had we seen a normal recovery (and using a pessimistic 5%/year growth rate), we would have reached today’s unemployment rate after a shade over one year—in 2010—and we would have been back to full employment (in the range of 4.8%-5.5%) in just under 2 years—by last year.

Obama says his policies are working.  Sure.