By Selwyn Duke
I'd appreciate a viable alternative energy source as much as anyone else. After all, who wouldn't like to run his car for a third or fourth the cost? I don't have much confidence in government schemes to develop those new sources, however, and the May 12 edition of The Wall Street Journal helps to illustrate why.
The Journal discusses government subsidies for various energy sources and asserts that producers of the alternative variety don't provide much bang for the taxpayer buck. The paper writes:
An even better way to tell the story is by how much taxpayer money is dispensed per unit of energy, so the costs are standardized. For electricity generation, the EIA [U.S. Energy Information Administration] concludes that solar energy is subsidized to the tune of $24.34 per megawatt hour, wind $23.37 and "clean coal" $29.81. By contrast, normal coal receives 44 cents, natural gas a mere quarter, hydroelectric about 67 cents and nuclear power $1.59.
The wind and solar lobbies are currently moaning that they don't get their fair share of the subsidy pie. They also argue that subsidies per unit of energy are always higher at an early stage of development, before innovation makes large-scale production possible. But wind and solar have been on the subsidy take for years, and they still account for less than 1% of total net electricity generation. Would it make any difference if the federal subsidy for wind were $50 per megawatt hour, or even $100? Almost certainly not without a technological breakthrough.
This is why I believe in the market. Many scoff at such sentiments, and the market certainly will only be about as morally healthy as what it responds to; namely, the consumers. Yet government orchestrated schemes will also rarely be better than the people, and they're usually far worse.
But let's talk about the market. If a fast-food restaurant can't provide hamburgers people like, it will go out of business. The owner's start-up money will then be lost, but it's private money, and that will be the end of it.
Imagine. though, that the government were subsidizing such an establishment. Conceivably, it then could continue to sell food that few wanted for as long as it could stay on the public dole. The result would be consumers who were poorly served by the restaurant, and the continued wasting of taxpayer dollars to prop up an unproductive business. Where the market would "cut the losses," the government would perpetuate them.
This is one of the beauties of a free market; to paraphrase Walter Williams, it ensures that my fellow man will serve me even if he doesn't give a hoot about me. After all, if he doesn't provide what the consumers desire, they don't reward him.
The same principles apply to the energy business. While I don't say it's impossible for the government to seed worthwhile enterprises, we rely on it to do so at our own peril.
And imperiled we are. Just consider the use of grain to make ethanol, a practice that is said to contribute to higher food prices. If ethanol isn't an efficient energy source, it won't be lucrative to produce it in a free market. Grain producers may then be able to earn more money selling their product for food consumption, which, it is rumored, might be one of its primary uses.
When the government subsidizes ethanol producers, it changes the equation. Then, even if the creation of ethanol isn't energy efficient, even if the grain would otherwise fill empty stomachs, it may still be used to create ethanol.
Obviously, under this scenario, the behavior and priorities of grain producers change markedly. In a free market, their interests align with those of the consumers; the latter have a desire for their product in a given form, and the former have a desire (financial incentive) to provide it in that form. But what happens when they get their money not from consumers, but from the government? Then, instead of serving the people, they serve the politicians, who may have political reasons to advocate an unwise use of resources. As the old saying goes, "He who pays the piper, calls the tune."
To put it in simple terms, if the government pays a business more to waste grain than the people would otherwise pay to eat it, there will be consequences. Much tax money and grain will be wasted, and the price of the latter will be driven up in the market.
Having said this, don't think I deify the market. Given the entertainment it chooses -- Howard Stern, rap, trashy TV -- I consider it far from infallible. It's just that I trust the determinations of 300 million Americans more than those of 535 Americans working in the halls of government.
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