The lousy track record of tax subsidies

Sen. Harry Reid, D-Nev., staged his fourth annual National Clean Energy Summit at CityCenter’s Aria hotel Aug. 30.

Tellingly, most of the featured speakers were not energy engineers or even entrepreneurs, but left-leaning politicians, including Vice President Joe Biden. (Most would consider Obama Energy Secretary Stephen Chu — a Nobel Prize winner who should certainly know his physics — an exception, though Chu is a believer in man-made global warming who has toiled most of his days on the government payroll.)

And the major theme of this dog and pony show (there’s no evidence any dissenting opinions were invited) was the necessity of ongoing government interventions in the energy market.

“What is needed is stimulus,” said California Gov. Jerry “Moonbeam” Brown, another politician masquerading as an economist at this conference. “Stimulus is money. If the consumer doesn’t provide it, then the federal government has to provide it.”

I didn’t attend, but newsmen who were there report consistent themes: fossil fuels are running out, and we get most of them from countries in unstable areas of the world, which creates national security problems. Furthermore, costs are not predictable, and the environmental consequences of using fossil fuels are bad (unlike nuclear energy, which we’re gonna need a whole lot more of if we stop using coal, gas and oil.)

In fact, this nation still has at least a 100-year and possibly a 200-year domestic supply of coal, a fossil fuel by definition that now can be burned much more cleanly. And while no price can long remain stable under an administration that’s purposely inflating the money supply, coal comes close. We also have plenty of natural gas and vast oil fields that are not being tapped, in part because Chu is using his political power to hold up permits for onshore oil, offshore oil, Alaskan oil, and even for a pipeline to bring plentiful new oil to this country from Canada, a country with as much political stability as West Virginia, the last time I checked.

Never mind. It’s all about subsidies for windmills and solar farms now. The emperor has spoken and it’s up to us to get with the program.

“We need incentives for these companies to be successful,” Sen. Reid said, referring to government subsidies.

In a slight embarrassment, Silicon Valley solar array manufacturer Solyndra, heavily touted by President Obama during a personal appearance there last year and the recipient of a $527 million direct federal loan that some analysts have characterized as an outright gift, chose the day of Sen. Reid’s little green energy carnival to follow equally touted Evergreen Solar and SpectraWatt in declaring bankruptcy and throwing 1,100 green-job employees out of work (

All three firms cited their inability to compete with the Chinese despite government subsidies.

Neither Solyndra nor any of the other companies that benefited from some $18 billion in “loans” assumed any risk, blogger Doug Mataconis notes. “All the risk was assumed by the American taxpayer, which makes the appallingly bad judgment that was apparently used here even more egregious.

“In the case of Solyndra … the company has never recorded a profit in its entire history, and earlier this year cancelled an expansion that was supposedly going to be financed in part by the loans received through the Obama administration program. Just a year ago, PriceWaterhouseCoopers issued a scathingly negative report on the company two months before President Obama went there to tout the company as an example of his investment in ‘Green Jobs.’ ”

But concentrating on Solyndra could make it sound like this is an isolated embarrassment. In fact, Burton Folsom, professor of history at Hillsdale College and author of “The Myth of the Robber Barons,” told me, also on Aug. 31, “Subsidies encourage bad investment behavior.”

Back at the clean energy summit, Chu and Biden asserted that government has always played a role in developing new technologies, from railroads to aviation to communications.

Provided with this list of “successful” government interventions cited by the participants in Sen. Reid’s little public relations tent show, Folsom commented: “In the case of the airplane, we subsidized Samuel Langley. He flew two airplanes into the Potomac River, and he did it in front of reporters. Langley’s mistake was he did it in front of people, so in the end all he could say was, ‘Well, I don’t have enough subsidy money.’ Nine days later two bicycle mechanics with $2,000 of their own capital flew their first airplane at Kitty Hawk, North Carolina.

“The subsidies encouraged inefficiencies. Langley didn’t have to be economical, he didn’t have to watch the weight of his plane, because he figured there would always be more subsidy money.”

But the best example, Folsom says, is to compare the subsidized transcontinental railroads with James J. Hill’s non-subsidized Great Northern Railway.

“Obama is trying to promote high-speed rail, but look at story of promoting the transcontinentals back in the 1860s and 1870s,” Folsom says. “They all went broke in the panic of 1893 and they cost a fortune. They cost the government hundreds of thousands of acres” given away as “checkerboard” subsidies.

“Then you have the Great Northern with zero subsidies. Not only was it a good railroad, it was better built, because the subsidies change the way you build. If you’re being paid by the mile then you build lots of mileage,” some over ground so poorly chosen that the subsidized rails later had to be torn up and relocated.

“Hill had to build an efficient line, so Hill tries to get the flattest grade he can through the Marias Pass, the same place the Lewis and Clark expedition went.”

In contrast, Folsom recalls, the subsidized railroads crossed the mountains on grades too steep for the engines of the day to haul freight, so for a time “freight had to be portaged across the passes and re-loaded on trains on the other side. …

“The historical record is the subsidized companies fail; it’s the non-subsidized companies that succeed.”

Vin Suprynowicz is assistant editorial page editor of the Las Vegas Review-Journal and author of the novel “The Black Arrow” and “Send in the Waco Killers.” See

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