Cast Your Vote: Subsidies Advisable or Not?

by Don Boudreaux on November 16, 2011

in Energy, Environment, Other People's Money, Politics, Reality Is Not Optional, Seen and Unseen, Subsidies

Rob Bradley, debating at Economist.com, argues against government subsidies “alternative” energies.

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{ 83 comments }

Stephen Hollingshead November 16, 2011 at 5:29 pm

Direct subsidies are better than tax incentives, but subsidies are always a bad idea.

yet another Dave November 17, 2011 at 12:21 pm

I’m curious why you think direct subsidies are better than tax incentives. The problem I see with tax incentives (i.e. letting people keep more of their own money) is the added complexity and intrusiveness of the tax code. Direct subsidies are literally robbing Peter to pay Paul. How can that be better?

Greg Webb November 16, 2011 at 5:37 pm

Subsidies is a nice-sounding word for payoffs by corrupt politicians to political cronies pretending at business.

RPLong November 16, 2011 at 5:39 pm

If we the consumers wanted our money spent on something, we’d be spending our money on it.

Invisible Backhand November 16, 2011 at 6:08 pm

Careful what you wish for:

“As Indonesia’s GDP fell and unemployment surged, the IMF
stepped in to mandate austerity by abolishing subsidies on food
and kerosene
. The riots and violence that followed ‘tore the country’s social fabric’ apart. The capitalist classes, mainly ethnicChinese, were widely blamed for the debacle. While the wealthiest Chinese business elite decamped to Singapore, a wave of revenge killings and attacks on property engulfed the rest of the Chinese minority, as ethnonationalism reared its ugly head in search of a scapegoat for the social collapse.”

A Brief History of Neoliberalism

El Diablo November 16, 2011 at 6:43 pm

Marxists always resort to threats and coercion to steal other peoples’s stuff.

Invisible Backhand November 16, 2011 at 8:51 pm

Freedom’s just another word for nothing left to lose.

El Diablo November 16, 2011 at 10:15 pm

Irritable Bowel, songs, like movies, are fiction.

GAAPrulesIFRSdrools November 16, 2011 at 11:15 pm

I always follow the words of drug-addled, morbidly obese people who manage to off themselves really early. Definitely, they are fonts of wisdom!

yet another Dave November 17, 2011 at 12:04 pm

Kris Kristofferson may have been drug addled, but he certainly wasn’t obese and he’s still around at 75.

Invisible Backhand November 17, 2011 at 2:43 pm

I was thinking he mixed up Janis Joplin and Mamma Cass…who said it first?

Jon Murphy November 17, 2011 at 3:13 pm

I think Kristofferson sang it first, but I’m not sure.

You could also go with the Dilbert quote: “Freedom’s just another word not not caring about the quality of your work.” :-P

Dan J November 17, 2011 at 7:28 pm

Nothing like quoting drugged up nincompoops.
Just the other day on the train………. It was same f@%#ing day, ma’an.

Chris Bowyer November 16, 2011 at 10:00 pm

I don’t think anyone would deny that one of the perils of government intervention via subsidies is that people start flipping out when they stop. That’s not an argument to keep them going forever, that’s an argument not to enact them in the first place.

Also, subsidies that prop up food are quite different from all others; people may riot when the alternative is literal hunger, but that’s hardly an argument to engage in government speculation about possible, future alternative energy sources.

In other words, this quote is pretty useless.

Methinks1776 November 16, 2011 at 10:03 pm

In other words, this quote is pretty useless.

Well, at least Irritable Bowel is consistent.

Jon Murphy November 16, 2011 at 10:04 pm

That’s what I got from all this.

“That there’s no atheists in foxholes is not an argument against atheists. It’s an argument against foxholes.”

Darren November 17, 2011 at 2:29 pm

“That there’s no atheists in foxholes is not an argument against atheists. It’s an argument against foxholes.”

Foxholes have the advantageous characteristic of allowing the user a little time to consider things. The alternative will often be having your head shot off.

vikingvista November 17, 2011 at 2:38 pm

Although, what good is having time to think about things if your thoughts are irrational?

Greg Webb November 17, 2011 at 2:59 pm

Jon, that is an excellent argument against war.

Jon Murphy November 17, 2011 at 3:05 pm

I was pro-war (or, at least, not anti-war) until my best friend went to Iraq. Thank God in Heaven he came back and in one piece, but that was a huge wake-up call.

Greg Webb November 17, 2011 at 3:15 pm

I am neither for or against war. War is bad. But, sometimes, it is necessary.

Jon Murphy November 17, 2011 at 3:16 pm

I concur Greg. Sometimes I like to torture myself on the morality of wars. I know I am causing a digression here, but I have come to believe wars can be necessary, but they are never just.

Greg Webb November 17, 2011 at 3:26 pm

Jon, I think that wars can be just such as World War II. But, they are never the ideal choice. They should be avoided unless circumstances dictate that it is necessary.

Jon Murphy November 17, 2011 at 3:31 pm

WWII was thrust upon us (the free world). I judge wars by the aggressor, not the defender, so in that case, the war was unjust.

Also, don’t forget the massive bombing raids, fire bombing, and nuclear bombs dropped by the Allies.

That being said, the Allies were right in that war. But this is a conversation for another time

Greg Webb November 17, 2011 at 3:39 pm

Jon, I think that we are saying the same things. The US was justified in fighting WWII even if Japan had not attacked us and Germany had not declared war on us shortly after the Japanese attack. The Japanese and the Germans were not justified in starting the war. It was a miserable affair as it is every time it occurs. The loss in lives, liberty, and property as well as the enormous disruption of peoples’ lives were terrible, and should not have happened. It is also another good reason why governmental power must be expressly limited and controlled. But, as you said, this is a conversation for another time.

Jon Murphy November 17, 2011 at 3:40 pm

I’ll start a philosophy blog and we’ll discuss it there :)

Dan J November 17, 2011 at 7:33 pm

But… But….. War! Huuh! Good God, y’all! What is it good for? Absolutely nuthin! Say it again!

According to invisible dipstick, this quote is enough to formulate a societal policy to guide and dictate behavior.

Greg Webb November 17, 2011 at 9:42 pm

War destroys things….which leads to economic growth. That’s good, isn’t it?

Ameet November 17, 2011 at 1:47 pm

The one thing it is useful for is to consider the need for an escape plan from a country should government intervention prove too much or if the government can no longer maintain the intervention that placates those like IB.

No need to ignore the lesson of history.

Invisible Backhand November 16, 2011 at 11:08 pm

Keep in mind that what I especially like about David Harvey’s book on neoliberalism (“A Brief History of Neoliberalism”) is that it’s so thick on opinion and so thin on facts, verification, and sound theory. As Martha Stewart would say: And that’s a good thing.

It really is a time-saver cutting straight to the opinionated conclusion and omitting all that cumbersome, boring stuff about theory and factual verification. I mean, really, who needs it?

Jon Murphy November 17, 2011 at 7:26 am

I don’t like to allow facts to cloud my opinions!

RPLong November 17, 2011 at 9:07 am

So let me get this straight:

A protected class of subsidy beneficiaries had their property destroyed by people who bore the full brunt of the subsidies once the elimination of the market distortions caused a price spike that only the protected class could afford…

…and you’re blaming this on capitalism?

RPLong November 17, 2011 at 10:44 am

Invisible Backhand – My apologies. I think I misread you a bit. Disregard the above.

Invisible Backhand November 17, 2011 at 12:39 pm

Well, ain’t you sweet, RPLong, for saying so!

You sure do put the “bone” in bon jour!

muirgeo November 16, 2011 at 5:44 pm

Ron Bradley is apparently for subsidies too but just for the entrenched fossil fuel industry that has people like him convinced we are hopelessly dependent on them.

Russell Nelson November 18, 2011 at 9:22 am

The thing I like about you, muirgeo, is that you’re always wrong. Not just wrong some of the time — but always wrong. That’s a very useful attribute to have, because we know that, just like on opposite day, we can always follow the reverse of anything you suggest, and we know it will work.

muirgeo November 16, 2011 at 5:56 pm

Here is a better question not well addressed in the debate. Who here if given the option would prefer to have their own independent energy source and a car that could be run from energy you produced yourself and who here would prefer to continue to get their energy from a large monopoly and have a transportation system that also requires you to purchase a vehicle that can only be powered via a fuel source only available from a large heavily subsidized monopoly.
I see not too far away a day when I can produce ALL my own energy and power my own vehicle independent of the large fossil fuel monopolies.
Now who here believes some how the magic of the market will allow us to transform from our energy-dependence that assures trillions of easy profits for large corporations to a system of decentralized power plants and personal energy creation that will in effect destroy the potential profits of the entrenched fossil fuel industry.
Our energy dependence on fossil fuels is a clear example of a massive failure of markets and guys like Mr Bradley are just unthinking dupes for the entrenched power structure.

Greg Webb November 16, 2011 at 6:02 pm

I see not too far away a day when I can produce ALL my own energy and power my own vehicle independent of the large fossil fuel monopolies.

Jimmy Carter, 1978

Stupid is as stupid says.

EG November 16, 2011 at 7:27 pm

That’s called a bicycle, Mr. President.

muirgeo November 16, 2011 at 8:10 pm

Jimmy Carter was brilliant,

We ignored his advice and then decided to subsidize the oil and fossil fuel industry. You are only making a case FOR the current status quo to subsidize the entrenched political elite. And some how you think you made a good point.

I consider our wars in the middle east a subsidy to the oil industry along the lines of trillions of dollars.

http://www.youtube.com/watch?v=ldgbOxDX6DE

Any one who thinks the price of oil and gas represents some market price is a GD idiot. Claiming we have no alternative to oil is like screaming , ” I’M AN UNTHINKING DOLT AND MY MIND AND MY CHOICE IN ENERGY SOURCES ARE CONTROLLED BY OTHERS BUT I HAVE BEEN BRAINWASHED TO SUPPORT THEM AS THE RESULT OF FREE MARKETS…. something like that Greg. It’s idiotic.

rbd November 16, 2011 at 9:08 pm

I’m sorry – did you say Jimmy Carter was brilliant?! LMAO!

El Diablo November 16, 2011 at 10:22 pm

Jimmy Carter was brilliant

George, bravo! You have exceeded yourself. That is the stupidest thing that you have ever written.

Greg Webb November 17, 2011 at 10:30 am

Nope. He followed up with a comment even more stupid than, “Jimmy Carter was brilliant.”. I know it’s hard to believe, but George is clearly number 1 in stupid comments. He easily surpasses Greg G, Irritable Bowel, Little Nikki Luzha, etc.

Jon Murphy November 17, 2011 at 10:37 am

I’m not sure he surpassed Nik.

Whereas George just won’t admit he’s wrong, Nik just constantly displays amazing ignorance.

And I now have serious doubts about “ignorance is bliss” as they both seem to be very angry people.

Invisible Backhand November 17, 2011 at 12:47 pm

George is clearly number 1 in stupid comments. He easily surpasses Greg G, Irritable Bowel, Little Nikki Luzha, etc.

You hurt me, Greg Webb. You really hurt me.

I’m unsurpassed in stupid comments, and everyone here knows it.

That was the unkindest cut of all. Shame on you.

Greg Webb November 17, 2011 at 1:23 pm

Invisible Backhand, keep trying. But, muirgeo is in a league of his own.

Greg Webb November 16, 2011 at 10:32 pm

Jimmy Carter was brilliant

You’re spooky crazy!

muirgeo November 17, 2011 at 1:25 am

What’s funny is that if I ask you all to name the most destructive policy passed by Carter NONE of you would be able to come up with anything significant off the top of your heads. You’d point to stagflation but couldn’t explain what Mr Carter did to cause that. So call my claim stupid but you haven’t a rebuttal.

Greg Webb November 17, 2011 at 10:25 am

Muirgeo, where do you want me to start? Jimmy Carter was an embarrassment from start to finish. He was a clown, an ass, and a fool. Just like he he is now.

He continued silly Keynesian policies that resulted in wasteful subsidies for synfuels that did not work.

He was the worst of the Democrat appeasers. He blamed the US and said that the Soviets, ruthless totalitarians, were are friends and the US was helpless to stop the advance of communism.

He monetized the debt to make the deficits that the federal government was running were not so high and created double digit inflation. His anti-business rethoric cause business investment to go on hold for years. That’s where the stagflation came from.

His administration was filled with petty jealous corrupt cronies like Bert Lance.

He tried to blame America for the effects of his stupid economic policies by saying it was “an economic malaise.”

Now, Carter is just a mean hateful old bastard who advocates for big government and terrorist thugs like Hamas.

Why would you try to rewrite history? Oh, sorry, I forgot who I was talking to. You always try to rewrite history to support your Marxist beliefs. As they say at Jon’s company, “what muirgeo!”

khodge November 17, 2011 at 11:13 am

Let’s start with what he said: This job (president) is too big for one person, therein admitting that he was not competent to be “chief” executive. (also, there was that attack bunny thing.)

vikingvista November 17, 2011 at 2:04 am

“Jimmy Carter was brilliant”

You mean…like an idiot savant…or…? I’m just not getting you here.

Greg Webb November 17, 2011 at 10:33 am

George, your hatred and vitriol toward the oil and gas industry is stupid at best and at worst is done to support your silly Marxist agenda. That industry has made the world a wealthier and cleaner place that it was before and would be now if we could somehow give it up completely.

Dan J November 17, 2011 at 7:34 pm

Jimmy Carter is an ideological dolt.

Dan J November 17, 2011 at 7:37 pm

Unicorns, rainbows, and puppy dogs….. Jimmy Carters brain activity….. Lollipop, lollipop… Oh, lolli-lollipop…Lollipop!

GrizzlyAdam November 16, 2011 at 6:10 pm

Let’s imagine for a moment that you are able to become an energy producer. Then what? How much of your time will be spent producing that energy?

There were others who were also produced all of their own energy. We call them cavemen. And while they were not “dependent” on corporations for fuel and electricity, they did have a rather inadequate standard of living.

muirgeo November 16, 2011 at 8:35 pm

None of my time is spent producing energy. The wind and the sun do it while I pursue other activities. And I have even more free time because I rarely have to go for car maintenance or fill ups.

Methinks1776 November 16, 2011 at 10:08 pm

You may not produce any energy (or much of anything useful), but you sure produce gas at an unnatural rate.

muirgeo November 17, 2011 at 1:27 am

This 5th grade flashback brought to you courtesy of methinks…

Dan J November 17, 2011 at 7:41 pm

Hahaha AHAHAHAHA…… Methane…… Then use any of his opinions written in hardcopy to fertilize the golf course.

GrizzlyAdam November 16, 2011 at 6:14 pm

And what is stopping you from detaching yourself from the “entrenched power structure”, and moving into a secluded cabin (where, I imagine, you will finally get around to writing your manifesto) powered exclusively by the fruits of your own labor?

muirgeo November 16, 2011 at 8:39 pm

That’s a better question for misanthropic libertarians who feel they have a gun held to their head because we ask that they too stop at red lights. The libertarian manifesto is the most bizarre thing anyone could imagine. It considers a person who indeed lives in complete liberty able to sustain himself without the need for any other person in the world the poorest of people. And the person with the most narrow of skills reliant on thousands of strangers to make ever thing imaginable for him a “liberated person”… weird as heck!.

GrizzlyAdam November 16, 2011 at 8:44 pm

I’d like to see a copy of that manifesto.

rbd November 16, 2011 at 6:44 pm

I’m willing to wager that even you, Muirgeo, believe that the net social benefits of fossil fuels FAR outweigh the net social costs.

Leftist dream of a fantasy world where we’re all driving around in sun powered cars, lighting our home with pure solar energy, and eating fresh veggies from our gardens – all at the same costs as now.

Gil November 16, 2011 at 8:25 pm

Yeah nuclear fusion power is a hoax.

Dan J November 17, 2011 at 7:45 pm

Rather than be incentivized (by means of compensation) to produce or complete a service for his fellow man, progressive liberals would have a means of compulsory production out of fear of loss of life or liberty. Give half of your apple to the lazy street bum, or we will imprison you…. Says the progressive.

Randy November 16, 2011 at 7:22 pm

Muirgeo,

It would be great if there were an energy source available equivalent to what I have now but that I didn’t have to pay for. But that’s not the question. The question is, do I want politicians to take money from me now to give to their friends to maybe find a way to come up with an energy source that is maybe possibly someday somewhat cheaper than what is currently available? And the answer is an unqualified no I do not. I have higher and more immediate priorities for the money I have earned. I have no problem with the politicians taking up a collection to pursue these efforts – maybe have a bake sale or something – but I do have a problem with taxes for that purpose.

muirgeo November 16, 2011 at 8:13 pm

Randy… you are paying ALL sorts of subsidies to the entrenched fossil fuel interest but you prefer just to look at the price at the pump. And that sort of thinking allows the political class to own you.

I am not to far away from having energy independence. I see it as a real possibility with solar panels on my sunny California home, an electric commuter car and a diesel long range vehicle running on vegetable oil.

That will be the day I say FU to the asses controlling us with the monopoly on our energy policy that so many zombie people just accept as the only way.

khodge November 17, 2011 at 11:09 am

M, take a minute to read what you just wrote. Yes, we are all glad that you are “independent:” you have a very expensive car; you’re using an extremely limited fuel source (how much used vegetable oil is actually available?); you have a house that is large enough to have useable solar panels. The net effect of your comment is “screw the little people who pay my bills,” which, incidently, says absolutely nothing about government funding further alternative research.

Darren November 17, 2011 at 2:37 pm

I am not to far away from having energy independence.

And how much is that subsidized by the state government? How independent will you be when the subsidies cease?

Andrew_M_Garland November 16, 2011 at 8:18 pm

Muirgeo: “I see not too far away a day when I can produce ALL my own energy and power my own vehicle independent of the large fossil fuel monopolies.”

What is stopping you from joining with others, by mutual investment, to accomplish that? How far in the future is “not too far away”.

JWH November 16, 2011 at 7:29 pm

The Amish produce their own energy independent of an energy company, have non fossil fuel vehicles, grow their own food, etc. The technology is here(has been for a long time) to get by without the cooperation of millions of others engaged in commerce and in free markets. But I don’t believe that living standard will be catching on anytime soon. Growing a garden, chopping wood, cutting hay for the horses, cooking on a wood stove, riding a wagon to town, requires sacrifices that the modern consumer may not be in the mood to make. But if someone wants to, no need to wait to save the planet and stick it to the man.

Jon Murphy November 16, 2011 at 7:43 pm

The problem with subsidies is not that they are chasing some pipe dream. The problem is they try to force a winner. I am all for renewable energy. But we can’t just force it along.

Right now, the current renewable energies we have are just not viable. I know I’ve cited this quote before, but the energy returns on coal and oil are amazingly high compared to other energies. For every unit of energy spent drilling and refining oil, you get 6 units of energy back, a 600% return on investment! Ethanol, on the other hand, for every unit of energy used in processing and refining, you get 0.71 units back. That’s a 29% loss. I’m not talking about money, I’m talking about energy.

This is not to say we should halt all research into renewable energy. Rather, we should let private investors and researchers look into it (eg We the people). Government is not directing money based on merit but based on connections. This does not mean the money is going where it should. Conversely, it is a lot harder to buy private sector financing.

James Strong November 16, 2011 at 8:06 pm

To be perfectly frank, I think this post illustrates one of the problems with debates over at The Economist. The turn-over in percentage is supposed to be caused by the effective debating of debaters, but in reality the crowd that votes at the end of the debate is a completely different crowd from the one that voted at the beginning of the debate, making it impossible to measure who was the more persuasive debater.

Trey November 16, 2011 at 10:35 pm

Rob Bradley’s MasterResource blog is a jewel. One of my favorites is the power density series by energy guru Vaclav Smil

http://www.masterresource.org/2010/05/smil-density-definitions-i/

(BTW, Smil is a progressive in his political leanings.) High power density is the main reason that fossil fuels (say natural gas) have fewer negative externalities than renewables.

kyle8 November 17, 2011 at 7:08 am

Ok, look this is real simple. Some government funding to Universities for basic science research? I vote yes. That is a judgement call.

Subsidies to private firms for applied research? DEFINITE NO! Because unlike the basic science research, if there is a profit motive then the private sector will supply the funding. And they will likely back better ideas and be more accountable for the money.

John Dewey November 17, 2011 at 9:37 am

From Article 1, Section 8 of the U.S. Constitution:

“The Congress shall have Power …

to provide for the common Defence and general Welfare of the United States
.
To promote the Progress of Science and useful Arts

As I see it, this could be interpreted to mean that the Congress as the responsibility to fund basic research and to fund defense-related applied research.

Don Boudreaux November 17, 2011 at 9:43 am

John: The full clause that you quote is here:

“To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”.

Read in full, I see nothing here that gives Congress the constitutional authority to fund basic research.

John Dewey November 17, 2011 at 9:55 am

I beg your pardon. You are correct, Don.

On the other hand, I can see how defense-related applied research could be considered a power of the federal government. Of course, I think our government funds way too much defense-related research than is required to defend our nation.

Don Boudreaux November 17, 2011 at 9:57 am

Agreed, on both counts re the defense-research issue.

Greg Webb November 17, 2011 at 9:59 am

And, that reveals that the federal government exceeds its Constitutional powers in making any non-defense related research and spending too much on defense.

Greg Webb November 17, 2011 at 9:57 am

Exactly right!

Ubiquitous November 17, 2011 at 12:34 pm

On a related note to subsidies:

http://www.detnews.com/article/20111114/AUTO01/111140434/1361/U.S.-boosts-estimate-of-auto-bailout-losses-to-$23.6B

<b<U.S. boosts estimate of auto bailout losses to $23.6B
David Shepardson/ Detroit News Washington Bureau

The Treasury Department dramatically boosted its estimate of losses from its $85 billion auto industry bailout by more than $9 billion in the face of General Motors Co.’s steep stock decline.

In its monthly report to Congress, the Treasury Department now says it expects to lose $23.6 billion, up from its previous estimate of $14.33 billion.
The Treasury now pegs the cost of the bailout of GM, Chrysler Group LLC and the auto finance companies at $79.6 billion. It no longer includes $5 billion it set aside to guarantee payments to auto suppliers in 2009.

The big increase is a reflection of the sharp decline in the value of GM’s share price.

The current estimate of losses is based on GM’s Sept. 30 closing price of $20.18, down one-third over the previous quarterly price.

(See above link for full article.)

Russell Nelson November 18, 2011 at 10:01 am

The problem with subsidies is that they’re meant to be temporary, until the industry gets on its feet. But the trouble is that they distort the cost structure of the business, so that it mis-allocates resources. So either the subsidies go on forever (e.g. Amtrak), or else when the subsidies are withdrawn, the industry collapses (e.g. Solyndra).

You can see this with the intercontinental railroads. The ones which accepted subsidies went bankrupt. The one which didn’t, didn’t.

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