Is the Tesla Debt Payback Vindication for Crony Energy Capitalism?

K. Lloyd Billingsley says no. He notes that anyone who sees a company merely doing what is normal for borrowers--paying off their debt--as validation of the economic efficacy of government subsidies for "green" companies cannot see the forest for the solitary tree.

As he says,

The real news on the clean-energy front is the number of stimulus recipients who have gone bankrupt. In 2009 Flabeg Solar U.S. Corp. got $10 million in stimulus funds and another $9 million in job creation money. By April 2013 Flabeg had shut down its plant, laid off workers and will likely seek Chapter 11 bankruptcy protection from workers suing over severance pay. Flabeg is hardly alone.

Solyndra got $535 million in federal loan guarantees but went bankrupt in 2011. Stimulus recipients Evergreen Solar and SpectraWatt, both in the alternative energy business, also went bankrupt. And of course, Fisker Automotive Inc, is heading south despite $529 in federal loans to produce luxury cars built in Finland and selling for nearly $100,000. Tesla did better and paid back its loan but on balance the $800 billion American Reinvestment and Recovery Act, also known as the stimulus, remains more of a bust than a boost.

In fact the entire "green job stimulus" is one more example why, if we want to promote economic prosperity, government spending is less desirable than entrepreneurial investment.

The main economic problem with bureaucratic spending is that it is not predicated on economic profit-and-loss calculation. This was regularly illustrated by the two most-heard phrases during my years at the U.S. Bureau of Labor Statistics: 1) “Good enough for government work;” and 2) “That’s okay. We don’t have to make a profit.” Both of which are true. Because the government does not have to make a profit, it has little if any incentive to direct investment toward those areas that are sustainably productive.

Additionally, government spending creates a distribution process separate from production. In the market economy, wealth and income is not redistributed, because it is not distributed in the first place. Income is earned by providing productive services. It is earned by serving other people. Government spending, however, wastes scarce resources. It distorts the allocation of income away from efficient service to customers, because subsidies prolong the life of inefficient firms at the expense of efficient ones. Government spending, therefore, hampers the flow of factors of production to uses more in demand by consumers.

The bottom line is that, whenever the state gets into the business act, we get more of whatever government bureaucrats subsidize and less of what people value the most. Scarce resources are wasted. Capital is consumed. We become less productive. Our standard of living declines. Prosperity? I think not.

Is President Obama Deliberately Trying to Drive Up Energy Prices?

Atmospheric physicist S. Fred Singer thinks so. In a blistering critique, he details many consequences of the President's energy policy and then concludes:

In his 2008 election campaign, Obama promised to make electricity prices “skyrocket.” He seems to be succeeding beyond all expectations, as a combination of White House policies is raising fuel prices. But as the cost of essential energy jumps upward, households are sliding into poverty; they can no longer afford to buy treats for the children; it’s more important to keep them from starving and freezing to death. “Skinning the cat” may be a neat way of getting around the express wishes of the Congress and the public, but it is sure to backfire against the Obama White House in the November elections.

Energy Policy and the Cost of Good Intentions

Timothy Terrell is one of the most insightful economists writing and lecturing on environmental economics today. He is to be commended for his outstanding new policy paper published by the Cornwall Alliance. The paper is entitled "The Cost of Good Intentions: The Ethics and Economics of the War on Conventional Energy" and is a tremendous exposition and critique of contemporary energy policy with the goal of helping Christians, and especially pastors, make sense of energy issues. Everyone interested in the stewardship of creation should read it.

The following is from the paper's Executive Summary:

The pastoral call requires shepherding a congregation through difficult circumstances, including challenges from the spiritual message and economic consequences of environmentalism. It is difficult to develop the knowledge and wisdom necessary to give biblical counsel on such issues, especially in light of complex scientific problems and intense policy debates. Yet the church must evaluate alarms raised about the environment and policies to address them. This paper is intended to assist ministry leaders, policy makers, regulators, and the public in understanding and applying biblical worldview, theology, and ethics, coupled with excellent science and economics, to promote a free, prosperous, and just society in a fruitful, beautiful, and safe environment.

How Ethanol Subsidies Make It Harder to Feed People

One fundamental economic fact of life is that we get more of whatever we subsidize. Since 2001 the U.S. Government has poured gobs (that is a technical term that means officially, a lot) of money into the production of ethanol as an alternative energy source. The Wall Street Journal has a brief, yet informative editorial explaining some of the consequences of such a policy. In 2009 the United States produced five times more ethanol than it did in 2000. To produce more ethanol, we use more corn. As the editorial documents:

In 2001, only 7% of U.S. corn went for ethanol, or about 707 million bushels. By 2010, the ethanol share was 39.4%, or nearly five billion bushels out of total U.S. production of 12.45 billion bushels. Four of every 10 rows of corn now go to produce fuel for American cars or trucks, not food or feed.

All of this for no net environmental benefit. Even Al Gore has admitted that he championed ethanol subsidies to get votes from farmers, not because ethanol really benefited the environment.
As the Wall Street Journal piece concludes:


Now if the demand for corn increases because more people are subsidized for producing ethanol, the price of corn will increase. Higher corn prices will raise costs of producing other goods like beef or tortillas that require corn as a factor of production. It would be one thing if ethanol was the use for corn people valued the most. Because this use is driving by subsidies, however, we know this is not the case.

At a time when the world will need more corn and grains, it makes no sense to devote scarce farmland to make a fuel that exists only because of taxpayer subsidies and mandates. If food supplies tighten and prices keep rising, such a policy will soon become immoral.

Stewardship and Wind Energy

Scripture recognizes that the earth is the Lord's (Exod. 9:29; Ps. 24:1,  1 Cor. 10:26). This implies that when we make use of property to achieve our ends we have the responsibility to be good stewards. Some Christians believe that good stewardship requies a government directed alternative energy program of which wind is a prominent component.

Tracy Miller, another good colleague of mine, has an excellent blog post on wind energy that makes a fine supplement to my piece on energy in a free market. Miller cites Robert Bryce's The Wrong Way to Get Green, which explains that, all the propaganda to the contrary, wind energy is just not generally efficient at the present time.

Miller argues that due to the cost of wind energy exceeding its benefits:

the government should stop subsidizing and pressuring utilities to use wind energy and let the market determine how viable it is. Wind might be cost effective in some locations, but it is not economically viable on a large scale. 

He also references the importance of market prices for guiding economic decision makers toward energy production that reflects the wisest stewardship.

Energy in a Free Market

To say that energy is extremely important for our society is a truism. It is so important that, whenever there is anything from a hiccup to a coughing fit (such as the BP oil spill) in energy production or consumption, it reveals how many people presume that the energy market is rife with "market failure" and many feel anxious and call on the state to "do something." That is a plea the state is always eager to placate. It seems that very few realize how regulated and, hence, unfree the energy market actually is. In fact, the energy is so regulated it is likely we don't even know what a free market in energy would look like. 

Robert Bradley Jr., CEO and founder of the Institute for Energy Research, has done research on the energy market since 1980. His book, co-authored with Richard Fulmer, Energy: The Master Resource, is a very useful primer on energy economics. Bradley speculates on what a free market in energy might look like in his piece, "A Free Market Energy Vision."

Bradley identifies four sustainability issues around which energy market debates revolve:

1. Future supply growth of carbon-based energy in light of "the fixity/depletion view of minerals."
2. Air and water pollution from carbon-based energy production.
3. Energy security, particularly oil imports to the U.S. from the Middle East.
4. Global warming due to the use of carbon-based fuels.

Bradley then makes his case for a free market in energy, summarizes it in four points:

1. Human ingenuity in market settings has and will continue to overcome nature's limits.
2. Statistics of air and water quality in the U.S. show dramatic environmental improvement.
3. Energy security in the electricity market is assured by abundant coal supplies and almost all U.S. gas imports are from Canada.
4. Global warming is still an open scientific question and the reality is at the present time carbon-based energy is necessary for economic growth.

Because the future is uncertain, no one knows exactly what a free market in energy will look like. We don't know how energy demand will change and we don't know how entrepreneurial ingenuity will respond to demand. Still, Bradley suggests important reasons why we shouldn't be afraid of a free energy market after all. We know it will not be perfect. No human institution ever is. However, we have reason to believe that a free energy market will provide the most energy for the longest time in the most efficient manner possible.

We also know that private entrepreneurial provision of energy will be much more efficient than it is now in our severely hampered energy market. In a free market private entrepreneurs are able to use market prices for both energy and the factors used to produce that energy in calculating profit or loss.  This serves as the best guide for wisely using scarce resources. If producing a certain type of energy in a certain way is profitable, it will be done. If it is not, entrepreneurs will not sink scarce land, labor, and capital goods producing energy that is not worth the cost. Additionally, in a free market entrepreneurs are able to keep their profits and must eat their losses, so they have every incentive to make only profitable energy investments.

Things are exactly the opposite when the state intervenes. Price controls, subsidies, and taxes distort the price system, so energy producers are led to misallocate resources from the perspective of people in society. They also do not have the same incentive to reap profits and avoid losses, because their income is not tied to their success.  Therefore, we have every reason to expect that the more state intervention in the energy market, the less efficient and more wasteful it will be. This is why Bradley argues that the real sustainability problem is statism, not "market failure."