Private vs. public

by Russ Roberts on February 27, 2009

in Environment

The New York Times reports:

The Energy Department has $25 billion to make loans to hasten the
arrival of the next generation of automotive technology —
electric-powered cars. But no money has been allocated so far, even
though the Advanced Technology Vehicles Manufacturing Loan program,
established in 2007, has received applications from 75 companies,
including start-ups as well as the three Detroit automakers.

The rest of the article is mostly about the bureaucratic bottlenecks that have kept the program from doing anything. But the best part is this quote from the director of the program:

“No one else out there will take on this risk,” said Mr. Seward. “It
reminds me of the time at the dawn of the auto age when you had
hundreds of companies making hundreds of kinds of cars and then they
all coalesced. We are back in that era of invention again.”

No one else will take on this risk? GM has put $2 billion into the Chevy Volt. Toyota is working on a battery powered car. The Tesla is out there. There are all kinds of other efforts going on, all financed privately and all actually doing something. But he's partly right. If the government program gets big enough, all those efforts will stop and everyone will turn to Mr. Seward.

Be Sociable, Share!

Comments

comments

17 comments    Share Share    Print    Email

{ 16 comments }

Bob D February 27, 2009 at 11:12 am

We need to put all this in the context of the reality of Chinese $20K electric cars coming soon. The Chevy Volt is going to sell for about $40K. I think you don't need "turbo tax" to figure out who's the winner!

Kevin Brancato February 27, 2009 at 11:39 am

Fascinating!

An article about $25B in LOANS that fails to discuss the terms, and doesn't include a host of relevant words: terms, fixed, variable, interest, rate, payback, period, year, default.

E. Barandiaran February 27, 2009 at 12:12 pm

Let me play again the two-hand economists. Given what is going on, on one hand you should be very happy–there will be many stories to make much easier to show the stupidity of government. On the other hand, it is most likely that even for you the net benefit of the new government policies is negative.

john thurow February 27, 2009 at 12:30 pm

Catch 22:
In the future the Federal Government will mandate that everyone drive electric vehicles but unfortunately there won't be any one producing enough electricity to power them due to Federal Government regulation of the power industry via carbon credits et. al.. a windmill and a solar panel on top of the car won't get you very far…

Greg Ransom February 27, 2009 at 1:06 pm

My dad spent years running one of the Dept. of Energy's "alternative energy" research labs.

Most of this technology and science never becomes economically viable. Most of it takes decades to develop before anyone figures out how to produce it in a commercially viable form.

Lot of it is pie in the sky stuff — the technology turns out to be economically unviable — often radically so.

And the small amount of stuff that does go commercial is almost always an improvement merely on the margin. Revolutionary breakthroughs are rare and often unintended, and not the object of "energy efficiency" targeted efforts.

Some of what does enter the market does so only because it gets some sort of government subsidy.

Is there any honest analysis of the empirical experience of the government programs in this area over the last 50 years?

Has any economists worked on this?

mark February 27, 2009 at 1:49 pm

Is there any honest analysis of the empirical experience of the government programs in this area over the last 50 years?

Greg, you buzzkill! Where would this country be without velcro and Tang?

Carl Pham February 27, 2009 at 2:04 pm

Yes, well, he also could have said it reminds me of the dawn of the zeppelin age — or, er, what should have been the zeppelin age — when you had all these big airships, and then it all just kind of collapsed when the Hindenburg blew up. Or, he could have said it reminds me of the dawn of the credit default swap age, when you had all these companies excitedly finding ways to make money off of what had previously seemed like really stupid lending practises.

The problem with making analogies between today's baby technology and yesterday's subsequently successful baby technology is one of profound selection bias. Most of yesterday's baby gee-whiz ideas (zeppelins, Betamax, the Edsel, Minitel, gopher servers, eToys.com, the booming CDS market, socialism) turned out to be expensive dead ends, although they each seemed like amazingly cool and clever ideas at the time.

If you're going to argue by analogy with the past, you should be intellectually honest and compare your cool new idea with all of yesterday's cool new ideas, not just that small minority that subsequently proved to be lastingly good ideas.

Of course, if you did that, you'd be forced to admit that the chances of your cool new idea turning out to work well, just because it's cool and new, are damn small. But that way leads to conservatism and avoidance of meddling in the market, small government principles, The Failed Policies Of The Past(TM), with which we are now so totally done.

MnM February 27, 2009 at 2:10 pm

Very well said, Carl. I would add that it's not just a profound selection bias; it's an OBVIOUS selection bias.

mcwop February 27, 2009 at 2:33 pm

It could not be that electric cars suck – have no range, and are expensive.

Mezzanine February 27, 2009 at 2:38 pm

It's about time we invested in alternative energies. Stop giving money to the oil thieves that bought and paid for George Bush.

Stephen Smith February 27, 2009 at 5:06 pm

You know, the funny thing about the invention of the automobile was that nobody ever really figured out how to make a private highway/road profitable. Train lines and street car lines? Definitely – these were highly profitable in their day. But a road? Nope. We have some "privatized" highways nowadays, but the real brunt of the costs (i.e., the cost of the acquisition of the land, and the opportunity cost of that plot of land – which private corporations are generally immune from, given that roads are run under a regime where the state does not allow any other sort of investment in the land other than paving and letting cars and trucks run on it) has never actually been borne by private actors. (And don't even get me started on low-density land use regulation, which makes private mass transit impossible.) Just something to think about when you're tempted to use the words "financed privately" and "automobile" in the same sentence.

wintercow20 February 27, 2009 at 7:59 pm

Viz. empirical research, I would look at the work of Peter Grossman, who has an excellent paper detailing the history (economic) of the US alternative fuels programs. Read it yourself and draw your own conclusions. Fusion anyone? Synfuels?

LetUsHavePeace February 28, 2009 at 5:21 pm

Mezzanine's comments are an interesting rewriting of history. Passenger train traffic and street car lines were not profitable. The railroads could afford the losses for passenger traffic because they made profits on freight. For the traction companies successful entrepreneurship came from persuading cities to take over private franchises in the name of good government. August Belmont, lover of horses and other men's wives, was the best and the brightest at that form of public-private partnership. Paved roads were not the precursor for the automobiles success. It was quite the opposite. The Model T was successful precisely because, with its high axles, it could successfully navigate the mud roads of rural and suburban America. The spasm of road building that came after WW I was in response to popular demand. People who already owned Fords and, by then, Dodges and Chevrolets wanted decent roads to drive on. The roads were built by state and local governments and paid for by taxes on the primary beneficiaries – the property owners.

Stephen Smith February 28, 2009 at 7:18 pm

For the traction companies successful entrepreneurship came from persuading cities to take over private franchises in the name of good government.

People too often look at the period in the 1930s and 1940s when the streetcar operators were already so hobbled by unfair competition from generally-funded roads and onerous labor and "safety" regulations not faced by automobiles and buses that they didn't have a chance in hell of competing. The crucial period is the 1910s and '20s, not the point at which all that was left to do was sell it to the government. Zoning (almost always to thwart dense development) also became popular, which decreased economic freedom, increasing the costs faced by consumers using mass transit, and making automobiles and roads more cost-efficient than they otherwise would be.

Paved roads were not the precursor for the automobiles success. It was quite the opposite. The Model T was successful precisely because, with its high axles, it could successfully navigate the mud roads of rural and suburban America. The spasm of road building that came after WW I was in response to popular demand. People who already owned Fords and, by then, Dodges and Chevrolets wanted decent roads to drive on.

The crucial part here is "people who already owned Fords." The vast, vast majority of Americans did not own Fords. Sure, automobile ownership was becoming more popular, but I suspect that until the 1950s, car ownership was not an institution that most Americans participated it.

The roads were built by state and local governments and paid for by taxes on the primary beneficiaries – the property owners.

No, "the property owners" are secondary beneficiaries, in that most of them only benefit indirectly (that is, if you do the logical thing and include renters as a form of property owners). The "primary beneficiaries" are those who ride on the roads for their own pleasure and utility – i.e., a definitive minority of Americans.

John Papola March 1, 2009 at 8:15 am

Great link, Russ. Mr. Seward doesn't appear to be familiar with the notion of the "Arrogant Conceit", though he sure as hell seems to be the very living manifestation of it.

Probably the biggest problem with all of this government focus on "green technology" is that it's utterly disconnected from the price mechanism that underpins successful business calculation. Rather than allow price to direct the allocation of investment and productive resources, we are going to witness a purely political process try to take its place. All I can say to the potential success of that approach is ETHANOL with a footnote for SYNFUELS.

The end game appears to be a concerted effort by government to push up the price of doing just about everything involving energy and then calling the inevitable reduction in consumption (as well as standard of living) as "success" on environmental grounds. This is one giant prosperity destruction policy.

I'm happy to see Stephen bring up the hypocrisy of all this car talk in the context of it's federally subsidized underpinnings. The much-celebrated (by statists) federal highway public works is responsible for all kinds of unintended consequence that these very same statist advocates simultaneously are now condemning.

If the state really wanted to re-align the cost structure of transportation and energy in an equitable way, they'd sell off every road to private enterprise and allow the use of EZ-pass style metering to charge the users of the roads for 100% of their costs. You'd instantly see public transit use explode and certainly see better maintenance (I'm not sure how it could get any worse).

David C. March 2, 2009 at 12:19 am

As if to prove your point, Greentechmedia.com reports that "Solyndra, the well-funded manufacturer of cylindrical CIGS solar cells, is sending in the paperwork to obtain loans from the Department of Energy to build and operate a solar factory." The government funded factory would include a 4,000 square foot gym:

http://greenlight.greentechmedia.com/2009/02/26/solyndra-seeks-loans-for-420-megawatt-facility-and-company-gym-1155/

Solynrda is said to have raised an astounding $219 million in venture capital funding.

According to an October 2008 press release on its webite, Solyndra has "contractual backlog" of $1.2 billion in sales

{ 1 trackback }

Previous post:

Next post: