Silly Proposal

by Don Boudreaux on June 24, 2008

in Energy, Myths and Fallacies, Politics, The Profit Motive

John McCain’s proposal that Uncle Sam offer a $300 million prize to whoever develops a battery that “has the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars” is silly — as explained well by the Denver Post‘s David Harsanyi.  (Full disclosure: Mr. Harsanyi interviewed me for his column.)  Here are Mr. Harsanyi’s closing paragraphs:

But when McCain peddles prize money, he also feeds the perception that industry and scientists aren’t already working diligently on energy breakthroughs — with batteries and areas unknown — or that the market doesn’t incentivize them to do so.

Worse, McCain makes it seem that a cure for oil is just beyond our grasp. Around $300 million away.

In this arms race of goofy ideas between the candidates — windfall taxes and gas-tax holidays, to name two — we’re sure to see more poorly thought-out plans in the near future.

Let’s hope they are just empty promises.

Harsanyi explores McCain’s proposal further in this blog post.

Perhaps part of Sen. McCain’s health-care proposals will be to offer a taxpayer-funded prize of $300 million to whoever invents a safe pill that cures cancer.

Anyone who treats seriously successful politicians’ pronouncements about how the world works is about as rational as is someone who reads his or her horoscope in an effort to learn what’s in store for the day.

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{ 30 comments }

Blackadder June 24, 2008 at 12:39 pm

Part of the reason, presumably, that scientists are already working diligently on energy breakthroughs is that they know any breakthrough they make can be patented, and that they will, therefore, reap the financial benefits of the limited competition that a patent will bring. In this respect, a prize and a patent look pretty similar.

Also, even if a prize isn't the best idea, I'd still say it's better than most of the alternatives that typically get proposed. Funding for alternative energy is already like McCain's prize idea, except that the prize is handed out at the beginning of the contest.

Charlie June 24, 2008 at 12:53 pm

This is the same argument undergraduates make when they first learn about how car insurance changes incentives, something like "but they already have incentive not to get in a wreck, because they could be hurt in a wreck." Yes, that is true that does provide some incentive not to get in a wreck, but not as much incentive as the possibility of getting hurt combined with the damage done to your car.

Don, are you and the author arguing marginal effects don't exist? Obviously, you are saying this is a drop in the bucket, but why should I conclude that drops in the bucket don't effect behavior? It seems if you want to be against this, you should be arguing that the prize will make people try too hard to find this battery.

Methinks June 24, 2008 at 12:53 pm

Great. Our choice this year is a Republican idiot or a Democrat idiot.

tw June 24, 2008 at 1:00 pm

I strongly agree with Blackadder that this is relatively better than how Congress currently handles this.

Consider the two alternatives to solving a problem of a better battery:

* Congress doles out hundreds of millions of dollars to institutions who lobby them for R&D money….businesses in their districts, colleges, etc. There's no incentive for them to succeed here, and there's no true competition for the dollars on merit – it's about the relationship with the Representative or Senator.

* Congress pledges to award $X million to whomever develops the desired item. This gives everybody an incentive to try to create the desired item – businesses, universities, people tinkering in their garage, not to mention international likes competiting for these dollars. And the most efficient part for Congress is that they only pay for results…..pay once and only pay for results.

Again, it's not perfect or ideal….I merely say it's relatively better than what Congress is currently doing.

Peter June 24, 2008 at 1:08 pm

For a candidate who supposedly wants to find private solutions to things, I don't understand why he isn't touting instead the X-Prize Foundation's automotive X-Prize, the goals of which sounds suspiciously similar to McCain's plan. I suppose he thinks the $10 million prize X-Prize offers just isn't enough.
More on X-Prize here: http://www.xprize.org/x-prizes/automotive-x-prize

Don Lloyd June 24, 2008 at 1:18 pm

The real problem with the prize is that, even if completely successful, and awarded, it doesn't mean that it can be deployed and benefit society. The proper reward is a profitable and valuable business that benefits from the voluntary payments from consumers. There is no limit on the possible designs of batteries that may win a prize, but cannot be economically produced.

Regards, Don

Wes June 24, 2008 at 1:30 pm

This seems like a decent proposal to help nudge things in the right direction. Sure, $300 million is a marginal benefit compared to the billions that the developer of this sort of technologies will likely make, but more motivation is still more motivation. It's also important to compare this proposal against other proposals to solve this problem (requiring oil companies to invest a certain % in to alternative energies or some such) instead of evaluating it in a vacuum.

We can be sure that washington is going to want to be seen as doing SOMETHING to appease people screaming about $4 gas and I'd prefer a solution like this that actually encourages positive market outcomes as opposed to some of the more ridiculous solutions being kicked around.

Kevin June 24, 2008 at 1:39 pm

This is empty rhetorical nonsense, and it will not change any non-politician's behavior one iota. The odds that this prize will ever be paid are 0%. Even if it were adopted as policy, the odds would still be 0%. Can you imagine going to the government and trying to prove that your battery has met the standard to have "the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars"??

This political campaign is moving from absurd (the usual state of affairs for politics) to absolutely surreal.

BoscoH June 24, 2008 at 2:16 pm

I guess I'm the first to notice that our host here is now a shill for the Obama campaign, having spent yesterday as a shill for the McCain campaign. Heh.

The problem with McCain is that he really thinks as President, he would be able to define and set these goals, find the right incentive, and bring them to fruition. Battery technology isn't going to get where he wants without nano-scale rethinking, and then there's all the safety and convenience issues to balance. Like the gas tax holiday, this is a way for him to show that he cares. And apparently, we want to be cared for, because that's what these two yoyos are selling us this year.

Matt June 24, 2008 at 2:35 pm

Republicans picked the wrong candidate.

save_the_rustbelt June 24, 2008 at 2:46 pm

Damn, I agree with Don twice in one month.

And Methinks summarizes the election nicely.

Axel Molotov June 24, 2008 at 4:29 pm

There is plenty of research out there on the evolution of intellectual property rights in Western countries. During the 17th and 18th centuries (and maybe before, but I don't quite remember), countries like England and France made much use of 'prizes' in their intellectual property regimes. US, on the other hand, instituted the patent system still used today. Much as you'd expect, US became the world leader in new inventions during the last several centuries, whereas development in England and France stagnated. Moral of the story – prizes are not a successful model to encourage innovation. Strong property rights are. We have the latter and definitely don't need the former.

Methinks June 24, 2008 at 6:14 pm

Hey! If the winner of the election takes the loser as the VP (which is how it was done in the earliest elections in this country), we could have President Dumb and Vice President Dumber. The only thing you have to watch out for is that you don't elect Dumber for president. Not only does it not roll off the tongue as easily but it's hard to tell which one's which in this election.

I'm sorry professor. I just couldn't help myself. Is it me or are the candidates getting ever more ridiculous with every election?

jpm June 24, 2008 at 7:08 pm

I think picking Obama is just plain redundant. McCain needs to actually practice what he preaches and reach across the isle with Don Imus as the VP. Then we would have real balance on the ticket. A president who wouldn't call his political opponent by his real middle name and one who isn't affraid to.

Bruce Hall June 24, 2008 at 7:36 pm

From the Detroit Free Press:

Alexander Karsner, U.S. Department of Energy assistant secretary of energy efficiency and renewable energy, said Friday that while domestic battery supply was a concern, it shouldn't be overstated, in part because much of the research that created today's hybrid batteries originated in U.S. labs. [at U.S. taxpayer expense]

"Our challenge is to see that it is produced and deployed here so that it is available to us and our strategic interest," Karsner said. Domestic battery production "is an area that requires intensive … consistent interest, both throughout the remainder of this administration, and into the next."

Yes, but earlier in the report, this was noted:

U.S. automakers and battery companies lobbied Congress for a provision in last year's energy bill to provide loans and loan guarantees to firms that want to set up battery production. But Congress hasn't provided any money for the loans, and appears unlikely to pass many funding bills in the remainder of its term.

So Congress can mandate, but Congress can also refuse to accept any responsibility. It looks like the only guarantee coming out of this Congress is a guarantee to royally —- things up.

Martin Brock June 24, 2008 at 8:24 pm

Part of the reason, presumably, that scientists are already working diligently on energy breakthroughs is that they know any breakthrough they make can be patented …

Most scientists work for government or corporations and have signed away their patent rights.

Slocum June 24, 2008 at 9:35 pm

I strongly agree with Blackadder that this is relatively better than how Congress currently handles this.

I agree also. I'd much rather see the government set up prizes (which will cost nothing if no progress is made) rather than doling out billions in subsidies to dubious projects (corn ethanol!). Which funding takes on a life of its own even if the projects are useless (or, as in the case of corn ethanol, actually harmful).

In Don's ideal libertarian world, the government would stay out of it entirely. But we don't live in that world. Given that the government has to do *something* or at least be seen as doing something, offering prizes for technological advances seems like a much better approach than the status quo.

Charles D Quarles June 24, 2008 at 10:23 pm

Actually, Slocum, the only thing government needs to do is nothing other than getting out of the way.

It never ceases to amaze me that politicians, particularly leftist ones, believe that they can wave a magic wand and repeal the laws of physics, chemistry, and economics.

Martin Brock June 25, 2008 at 12:32 am

… offering prizes for technological advances seems like a much better approach than the status quo.

It could be better than awarding a monopoly of use of the technology. You get the prize, but the technology then is not patentable. Equivalently, the state announces before some invention that it will buy the patent at a fixed price. Since it needn't award the patent in the first place (and often shouldn't in my way of thinking), I see no fundamental problem with this offer. I'm not advocating it. I just don't think it's any worse than the status quo, the patent, and could be better.

But John McCain is still a shill for the corporative state.

Trumpit@aol.com June 25, 2008 at 2:23 am

If someone or group develops a battery that has the potential of putting the oil companies out of business, what makes you think that the oil companies or OPEC and their mafia henchmen will just stand by and allow this to happen? If the owner of the patent doesn't sell it to an evil oil company he'll find a horse's head in his bed in the morning. Besides Exxon/Mobil bitting the dust, you are looking at the national economies of Saudi Arabia, Iran, Venezuela, Nigeria, and Russia to name the most prominent ones falling by the waste side. And the Russian mafia or the KGB knows a thing or two about making you an offer you can't refuse.

Mick June 25, 2008 at 4:23 am

Prizes are a significantly more efficient way of procuring technology for the government than bureaucratic R&D. The money to output ratio of DARPA to NASA testifies to that.

Martin Brock June 25, 2008 at 9:08 am

But the guys at NASA will tell you that they're responsible for everything from Tang to the microwave oven and then claim every dime of revenue from General Foods and Panasonic as evidence of their contribution. They also invented the internet … or was that DARPA?

From 2006:

http://web.mit.edu/newsoffice/2006/batteries-0208.html

Presumably, McCain's description of a more efficient battery is vague enough to cover these carbon nanotube supercapacitors, but I wonder who'll get the $300,000,000? For that matter, I wonder who gets the patents now. I'm sure it's all just, right, proper and noble.

John Thacker June 25, 2008 at 9:45 am

"This is empty rhetorical nonsense, and it will not change any non-politician's behavior one iota. The odds that this prize will ever be paid are 0%. Even if it were adopted as policy, the odds would still be 0%."

Really? 0%? Well, then it's still much better than government grants. I'm skeptical about the 0% probability of payout claim, considering that DARPA has actually awarded money for some of its prizes, like the "Grand Challenge" driverless car challenge.

"During the 17th and 18th centuries (and maybe before, but I don't quite remember), countries like England and France made much use of 'prizes' in their intellectual property regimes. US, on the other hand, instituted the patent system still used today."

Axel– England and France made strong shifts away from prizes towards government grants during that time frame, so I think the history is a little different from what you're imagining. There also were continued prizes in certain fields worldwide, such as aviation, that certainly seemed to spur innovation.

ProHobo June 25, 2008 at 6:26 pm

No doubt that a prize maybe an incentive…however, why is it the government's roll to incentivise alternative fuels?

The government's roll is NOT to justify a business model and when they "Think" it can not work – to then socialize it.

We don't really live in a Free Market. And $300 million cash prizes are as silly as National Healthcare.

At the end of the day – if $100 dollars has to come out of my pocket to pay an insurance company or more taxes for insurance (or for that matter a premium for a hybrid car or to pay back prize money via taxes) – I am STILL $100 dollars lighter.

The government doesn't know what is best. They can't even balance their own accounts, you think they can justify a business model?

A great quote by Friedman http://marketpreview.blogspot.com/2008/01/how-money-is-spent.html

Joe Roberts June 25, 2008 at 8:15 pm

I just finished reading a fascinating book called "Longitude" wherein the greatest scientific question of the agein the 17th Century—how to determine longitude (they already knew latitude)— was solved when a prize offered by the British Parliament was claimed by a crafty peasant farmer who had little formal education but solved several key issues to make a timepiece that would hold accurate time over the high seas and thus allow a ship to plot its correct position in lat/long. Remember too that the first solo trans-Atlantic flight by Lindberg was motivated by prize money. Here in Montana the first flight over the Rocky Mountains/Continental Divide resulted in a prize of $25,000 in 1911 to a young man named Cromwell Dixon. So I would suggest that there is a rather noble history of the use of prizes for scientific and technological advances.

Free People, Free Markets June 26, 2008 at 9:48 am

Great article, and interesteing string of pro and con comments. So far, nobody has made the moral point that I would like to make: "The government prize is awarded by money that is coerced from taxpayers, while the market prize is achieved by voluntary exchange"

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Fuck Obama June 26, 2008 at 7:09 pm

Barack Hussei nObama = 6 6 6 . Obama’s real name is Mabus. Obama is a muslim. His father and step-father are muslim, no matter what he says in the eyes of all muslims that makes him one. The muslims around the world support him, praise his name. They burn American flags and burn Bibles daily, screaming Death To America, but yet wouldn’t be able to handle and cry about it if they saw me doing the same thing to their flags or Koran. They can’t even handle a cartoon drawing, when I watch Jesus on South Park boxing Satan. lol anyway. This is a holy war. They are the enemies of Israel and that makes them the enemies of God. This war is a necessary war that must be fought in the name of God. The muslims around the world are waging this war with the Christians. They are set in their plans to destroy the West and Israel, to have Islam the world religion. Nostradamus talks of Obama. Obama is a muslim of middle-eastern background, ‘The Black One’, Mabus. He is the charming, charismatic, mesmerizing speaker that the devil is. The Bible talks of the anti-christ, Obama fulfills these prophecies. 3.5 years into Obama’s rule, around election 2012 we will see his true self and intentions. 2012 the Chinese year of the dragon in which divine happenings occur on earth. Dec 21 2012 when the sun rises into the center of our Milky Way galaxy and into the 13th zodiac of a man wrestling a snake, symbolizing a time of struggle with evil. Dec. 21 2012 the earth completes a precession on it's axis, causing shifting of poles and magnetic fields. The Mayans predicted a completion of a cycle and a new cycle of change begins. The four horsemen are riding right now. Watch the news, you ain't heard? Natural Disasters, World Hunger, Oil Crisis, on top of a Holy War. Obama’s plans and ideas for change are unrealistic and are just lies to brainwash the people to follow and believe in him. ‘Change We Can Believe In’, he wants people to ‘believe’ in him. Obama is the devil. The American people are blind to the obvious and are persuaded and subliminally influenced by his image and the medias portrayal of him. Obama is going to be America’s next president then soon after proclaim himself a world leader, to be worshiped and embraced as a god, It has been written. These are the end times. Obama is the devil. One Nation Under God, Not Allah!

Hans Luftner June 27, 2008 at 12:04 am

Great. Our choice this year is a Republican idiot or a Democrat idiot.

You could always vote for a third-party idiot.

David June 27, 2008 at 8:56 pm

You could always vote for a third-party idiot.

"Go ahead. Throw your vote away!"

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