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Saturday, November 12, 2011

The Obama Corporate Welfare Giveaways

The New York Times published an article under the headline "A Gold Rush of Subsidies In Clean Energy Search" in which the reporters point out that the federal government under Obama and the states have given out subsidies to solar and wind projects that in many cases are larger than the entire cost of those projects. Obama used the stimulus to shovel cash to big corporate investors in these project so as to take essentially all of the risk out of the investment. In addition to these tens of billions of dollars that went to companies like Obama's big supporters at General Electric, various states have also required local utilities to buy part of their power from these "clean" projects with the result that consumers will pay higher rates for the next 25 years. It is truly amusing to see the NY Times finally realize the scandalous nature of these programs.

There is nothing wrong with federal subsidies judiciously used to promote new technologies that will benefit the country in the long run. The problem, however, is that it never makes sense to 1) overspend the level of subsidy that would adequately support the new technology; 2) use the subsidies to reward supporters and cronies; or 3) to promote technologies that cannot survive on their own in the long run. Unfortunately, Obama and the Obamacrats have violated all three of these principles. First, it makes no sense to subsidize projects to such a great extent that the investors are insured a profit no matter how well the project performs. Investors need to have some risk so that they do not go ahead with highly questionable projects just to make money from the government. Second, rewarding political supporters like GE is basically looting the Treasury. The government has to, at least, attempt to be even handed, an effort that the Obamacrats have not made. Third, the subsidized projects have to be able to continue in place once the subsidies are gone. When the government helped railroads while they constructed the nationwide network in the 19th century, it was with the knowledge that after that network was built, it could operate on its own without any subsidies. The problem faced by power from solar and wind energy is that for the foreseeable future it will cost much more than power generated from domestic natural gas. The huge new domestic gas fields that have been discovered should keep the price of gas low for decades into the future. That means that over the next 25 years, solar and wind will never be able to compete without subsidies. By forcing the solar and wind projects onto the American people, government is raising the cost of energy, making American products more expensive than those manufactured elsewhere, lowering the growth of employment, raising the tax burden on the public, slowing the growth of GDP and basically undermining the economic future. It is just bad policy.

We have seen this before and we should all recognize what happens in the future. In 1973, president Nixon started the Synfuels Corporation, a subsidize public entity that was tasked with making fuel from renewable sources like sunflower seeds. Synfuel built demonstration project plants in North Dakota and elsewhere, and it plodded on for nearly a decade continually losing money and living off of subsidies. In the early 1980's when it was clear that the Synfuel projects would never be able to support themselves particularly since the cost of oil had declined, the government finally withdrew support and the Synfuel Corporation closed down. The net effect of that effort was wasting billions of dollars.

I can understand that, perhaps, Obama and the Obamacrats were not aware of the enormity of the natural gas discoveries in the USA when the stimulus was passed. They should have known, but things were rushed through and maybe this was overlooked. Nevertheless, between a third and a half of all the solar and wind subsidies from the federal government were only granted in September of 2011. By that time less than two months ago, there was no question that America is in the midst of a natural gas boom. A competent administration would have stopped new solar and wind subsidies and instead promoted natural gas projects so that future energy costs would be substantially lower for American industry and the public. Somehow, Obama decided that it was better to give the billions in subsidies to his cronies than to do what made the most sense for the country's future.

If even the NY Times is realizing this to be the case, Obama may be about to pay a price for this giveaway of the public treasury.

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