Free-Market Capitalism and Energy Policy: What's the Proper Role of Government?
The proper role of government in our lives is the biggest single issue confronting politically involved Americans today. Want to rile up an audience about healthcare, for instance? Just tell them either:
a) The government with its bloated bureaucracies, inefficiencies, and corrupt catering to special interests is taking over healthcare and doling it out, at your expense, to people who haven’t earned it, or
b) Healthcare should continue to be run by profit-motivated corporations whose goal is to minimize costs by denying medical coverage (especially to those who need it most) — and government has no business interfering in this cruel and inhuman process.
The same polar arguments could be made for financial regulation, labor and unemployment, economic stimulus, and almost every other major area of debate we face as a society.
I bring this up because it arose in an interview I conducted the other day in preparation for my next book, in which I’ll be focusing on the macroeconomics of renewable energy. This was my second in a two-part conversation with Dr. Robert Pollin, of the University of Massachusetts-Amherst’s Department of Economics and Political Economy Research Institute.
One of the many great concepts 
I took away from these talks is insight into the spirit of American free-market capitalism, and the notion of the role of government within that framework.
“What do free markets do well, and what do they do poorly?” Bob asked rhetorically. “(Scottish economist and moral philosopher) Adam Smith himself, writing the capitalism ‘bible,’ first published in 1776 (The Wealth of Nations) understood that government was necessary to perform tasks that markets simply could not be rationally expected to achieve. For instance, it would be foolish to think that free markets are likely to do a good job in environmental protection. Thus, we need subsidies, incentives, and regulation that push the private sector in a direction that it might not otherwise go.”
But as I see it it, the problem isn’t that we need more subsidies; in fact, we have them in spades. “It seems to me that the subsidies we have in place — and have had for the last 80 years — provide incentives for the precise opposite private sector investments versus where we need to go. Don’t the fossil fuel industries receive $12 in subsidies for ever $1 given to renewables?” I asked. “And doesn’t this artificially inexpensive oil directly block investment in clean energy?”
Bob disputes the accuracy of these numbers, though he acknowleges that the precise number is impossible to pin down, as it’s an amalgam of many different components — some of them hidden. Having said that, he agrees that there is no question that I’ve pointed to a problem that needs a solution. In particular, he concurs that we as an electorate have a great deal of work to do in this space, i.e., bringing our leaders to the point where they put the proper policies into place, rather than acting at the behest of the traditional energy industry.
But how do we get there from here? I’d be interested in readers’ perspectives on this.
Maybe the answer lies in looking at this in terms other than money. Question: is it worth even one Amercian soldier’s life to defend MidEast oil fields when we have all the (renewable) resources we need here at home?
Right, Bill. It’s only a matter of time until we lose our appetite for the nonstop wars that are based on protecting the flow of oil. Of course, I’ve been saying that for several decades, so maybe I’m wrong.
Two things.
First, we have a complete change out of all elected Federal personnel and their appointees except the Supreme Court. Fiefdoms survive partial house cleanings.
Second we accept that the role of government is not to provide all things to all people. I’m not willing to pay for the so called health care “reform”. My backside was sold to an insurance company without my consent in secret long before the legislation as piss poor as it is was crammed through the system. I refuse to pay for piss-poor performance and that include legislators who are traitors to the American people and way of life.
I couldn’t agree with you more Bill.
Make the practice of lobbying illegal and well defined, then get rid of subsidies to everyone over a period of 4 years. The government and taxpayers might find a use for the savings.
Unbridled free market capitalism is not supported in its purest form by anyone on the public stage today. Even libertarians believe is some role for government. The problem is where to draw the line. I believe that the line should be drawn based on the constitution of the U.S.
Envirnmental protection falls nicely under the protection clause.
The problem comes to what is a threat and what is a perceived threat. Environmentalist like to react to perceived threats and conservative politicians prefer to wait for the “clear and present danger” before rushing to drain the public coffers. Obviously the winners in the last few decades have been the environmentalists. We may have been saved from air pollution but we are now about to drown in the red ink.
I hear you Larry, but from what I’ve come to understand, clean energy is the bargain of the century when all the factors (even the most obvious, noncontroversional factors) are taken into consideration.
We, both as a society and as individuals, are not good at thinking in life cycle terms. We react to immediate problems when the problem becomes sufficiently onerous as to attract our limited attention spans. However, even after we have been attracted to the flame, we infrequently think past step 1. This nets us solutions that become progressively inappropriate with time, and little to no consideration of sun setting. Combine this human characteristic with the inherent immediacy of capitalism, and you end up with situations such as a fundamental inability to cope with climate change, a TSA that can’t see past the next pair of explosive boxer shorts, peak oil that has us boiling Canadian bitumens, etc.
I do not propose any solution herein, but I suggest that all hard problems must be continuously managed rather than “solved”.
Wow, that’s insightful, and beautifully articulated as always, Arlene.
I agree that government plays a large role in the free market however I think that role has and is being mishandled, the issue of subsidies is getting more attention than it deserves, I think all subsidies for all energy should be removed then with a level playing field either GhG legislation or clean air and water mandates be put in place that would incite free enterprise to act. If a renewable developer can see that the dirtier side of energy needs renewable energy in its portfolio and the combustion side sees the need to include clean energy the catalyst is formed. Though that catalyst is dollars its no different than a subsidy except its not doled out by the government spending tax dollars. In either case the cost of energy goes up but the consumer isn’t being doubled up by paying the government who’s spending tax dollars on subsides, the alternate will raise the cost of energy but that’s where the competitive market comes into play plus the consumer can install home solar and wind if possible to offset the cost increase. Regulation and some legislation is unavoidable but if they are applied in the right context with consideration for the consumer and renewable energy it would work.
Example: Take Pacificorp a mostly combustion generation generator; put a cost on the emissions, but remove all subsides, sure Pacificorp will raise its price but will also start contracting with renewables to lessen their portfolio costs. The consumer will be rewarded with less government spending which could result in incentives for installing home grown renewable energy and Pacificorp would have to take unused energy. The consumer pays less; the government spends less, free market enterprise would work, win/win for everyone. renewable energy could pay its own way which would incentivise more development. Its all about dollars but the government has to realize some day that using tax dollars to subsidize energy companies is just double taxation in a round about way.
There is a one word answer: externalities. They’re the costs that are not accounted for in the creation of a product or a service but that are instead borne by some external entity. A good example is air pollution. Before regulations, companies could put anything they wanted into the air. Regulations help keep dioxins and other extremely toxic emissions to levels deemed safe. Another example is end-of-life disposal. Why should a company care that its products contain high levels of toxic e-waste if they can put that cost of their proper disposal off onto someone else? The end result is often predictable–no one else wants to foot that tab either.
Subsidies for solar and wind power (or any other clean technology for that matter) basically help level the playing field with unsustainable products like coal and other polluting industries. Coal is not paying a fair market price for its externalities like emissions of carbon, mountaintop removal, or miner safety, let alone many other byproducts, including mercury vapors, which work their way through the food chain making much of our fish unsafe to consume for women of child-bearing age.
Anyone who argues against subsidies for clean technologies needs to then grapple with how they can justify the externalization of these costs onto innocent bystanders. They can’t have their cake and eat it too.
I completely agree — in fact, I’ve written a bunch of posts on this precise subject over the past year or two. Here’s an example: http://2greenenergy.com/pay-it-now/5208/#more-5208.
Energy subsidies are one small slice of the subsidy pie. When it comes to any subsidy, the following rule applies: “expect more of whatever you subsidize”. That is true for unwed mothers who are paid financial benefits on a per-child basis …, as well as energy subsidies. Without renewable energy subsidies, we would have far less renewable energy capacity than currently exists. Without petroleum subsidies, the price of refined products would be greater and we would use smaller quantities of refined products. Working is a subsidy. I get paid for certain expected behaviors. If I don’t get paid, I discontinue the behaviors. I FAVOR AN ENERGY SUBSIDY STRUCTURE THAT WOULD EFFECTIVELY ELIMINATE IMPORTED ENERGY IN ANY FORM. We should become “energy protectionists”. I also favor a diverse energy portfolio. In nature, diversity contributes to good health. True for the human diet as well as ecosystems. Same is true for an energy portfolio … A % from Atomic (Nuclear), B % from Biofuels, … F % from Fossil Fuels …H % from Hydroelectric … P % from Petrolem (liquid fossil-fuel feedstock) … W % from Windpower and so on … but ALL DOMESTIC SOURCES. This would serve to make us more responsible consumers, and at the same time deny some governments/countries the economic gain they have enjoyed for far too long. Many of whom may not genuinely have the best interests of our nation at heart. And about “grain alcohol produced for fuel” (fuel ethanol) … which is routinely criticized for a number of reasons … could it be this is merely a “technology stepping stone” to utilization of feedstocks critics might regard as more appropriate? Or could established big oil, grocers, animal feed industry magnates and others merely be protecting their turf because they have a good thing going? Bottom line is “whether through pure capitalism or subsidies, STOP ALL ENERGY IMPORTS” … purely for the sake of our sovereignty and national security. As individuals or nations, it is much easier to maintain genuine friendships if neither is dependent on the other.
for your consideration, close the gulf oil wars, use the funding on renewable energy systems, If our President doesn’t know how tell him to look to Richard Millhouse Nixon. His legacy was trade with China and the end of the Viet-Nam conflict. Internalize all the budget now going offshore make economic war on imported fuel, a humbee and a tank cost so much we could have a field full of wind or solar units for the funding.
Craig, i am repeatedly expressing that, this is a created crisis. Food, Clothing & Shelter in one dimension and Power, Water & Sanitation are the two dimensions which should have been a De-centralized one with a complimentary centralised system.
Public participation is a must, Craig.
Natural resources are fast depleting but, the demand is ever increasing, which is widening the gap of the demand and supply. This crisis should be addressed rightly.
that is why i emphasize about de-centralised approach and a complimentary centralised system.
vasan
I agree with a couple of the commenters here that the government should not be subsidizing anyone at all. Unfortunately, that pandora’s box has been opened. Bastiat’s “The Law” warned us that when government starts playing favorites with one industry or corporation or any group for that matter, that it would force other entities to have to push for government dollars all at the expense of the overall economy.
I think with the predicament we’re in, the first thing to curtail is subsidies to the fossil fuel industries. You’ll get Libertarians and Progressives on the same page on that one. So you can start there. The other area as Bill pointed out is to……END THE WARS!! Again, libertarians and progressives can agree to this.
I would also suggest that we phase out the private banking cartel known as the Federal Reserve system. We always argue where money should go but never take a good look at THE MONEY ITSELF. The only reason the U.S has not gone the way of the Weimer Republic yet is because the dollar has been the reserve currency of the world. Well, those days are ending no thanks to Bernanke’s “quantitative easing” (following Obama’s stimulus and the Bush bailouts) Hyperinflation is a very likely scenario now as China, Germany, Brazil and others have openly announced their disapproval of this move and are actively moving away from our dollar. For me, the Federal Reserve is the biggest issue here. It enables the perpetual funding of BOTH sides of a war via fiat currency.
All this being said, WILL SOMEONE PLEASE JUST FIGURE OUT THE WHOLE COLD FUSION THING AND PUT THIS ENTIRE DEBATE TO REST!!! Cheers all!
Utilities are the biggest monopoly in the world. It is time to break it up and let the free market take its course, just as we did in the breakup of Ma Bell. We need a national Feedin-Tariff program that we can generate our own electricity and sell it to the grid.
The breakup of Ma Bell to many Baby Bells created my cell and a whole lot of innovations as well as jobs. Look how the cell phones were quickly adopted by China, Africa and India. The transition from the mainframe computer to the laptop to the IPad to Blackberrys facilitated the information revolution.
The Green Internet Revolution is the convergence of the IT (information technology and GT (green technology) that will “bridge the digital divide” between the rich and the poor countries. We are living in the Age of Empowerment and Entrepreneurialism.
The incremental breakup of the utility monopoly will begin to move America from the gray economy built on coal and oil to a green economy powered with renewable energy resources in order to create a sustainable future.
I truly have no desire to sound as though I’m belaboring a point. Nonetheless, there is a single challenge that lies at the root of the issue of getting to a responsible and responsive government (of, for and by We the People as the founders are so often said to have intended).
That single challenge lies at the root of every plaguing crisis and practiced cruelty now preying upon our population – from health-denial-for-profit at home, mass-murder-for-dollars abroad and the ultra rich cannibalizing the former middle classes, to the end of nutritious food, the fattening of a malnourished America, and the passing into history of our last hope for a genuinely free press with the coming death of net neutrality.
What is this challenge, you ask? Here’s a couple of hints… It’s the very challenge before which a recent SCOTUS decision laid yet another major hurdle, and the same challenge that for resolution we must convince the gluttonous foxes to leave hold of the bloody remains of our democratic republic and exit the henhouse of their own free will.
Have you guessed what the challenge is? At the moment, we have what amounts to a ‘One Dollar = One Vote’ system, where honest people are prevented from becoming candidates and an honest candidate can’t get elected. We need a wholly public-financed campaign system that eliminates bribery and deals non-human entities out of the game – you know, ‘One Human = One Vote’. Until we get there, abandon all hope, ye who enter here.
I’m afraid you’re exactly right, Cameron, as I’ve tried to convey in posts like this one: http://2greenenergy.com/clean-energy-job-creation/6848/.
The biggest subsidy of all is the $500+ billion a year of military costs used to secure the world’s imported oil supply. This does not appear at the pump and is paid for by the American taxpayers. If, because we have not made a timely effort to reduce oil consumption, Iran has enough income to go nuclear, how much will that cost?
Government intervention is needed when micro concerns cause the macro situation to go unstable. For example, it may make sense to a bank to stop lending in order to protect themselves but when most of the banks do it, the economy collapses and their balance sheets get worse. The proper regulations protect not only the public at large but even those who are regulated
This is really brilliant stuff, Dr. Bob. I’ll hope you’ll post more insights like this.
Coincidentally, in the early part of 2011 I’m going to be doing a series of radio and TV interviews to promote my book. The overall theme: Clean energy is the bargain of the century. I.e., we don’t have to look too far to see the outrageous costs of our current energy policy (or lack thereof).
Again, I hope you’ll be more active here at 2GreenEnergy; we’ve missed you recently.
Craig, I too have posted many comments on this subject or how to make alt energy work. Most subsidies are misplaced. Subsidies should be call Taxpayer handouts by our Government. We the American public are paying for these, directly. We pay either today, or our children and grandchildren pay them tomorrow. So now that we realize we are paying for this, then my solution to directly tax oil at the pump and coal gernerated electricity really are not different. The exception is a direct tax is something a consumer can see and adjust their wasteful habits to avoid. As long as status quo in energy remains, alternative energy will never happen. Unfortunately, even if the tax were passed unaminously by Congress, we, the people, would still not reelect them.
Our society has become reactionary. We wait until it is almost too late before we do something. Jimmy Carter back in the 70’s said we will never increase of dependence on foreign oil and created DOE with the sole mission to reduce our dependence. In 1974 we were about 25% dependent, now we are 66% dependent – Good job Washington.
A National Energy Policy is what Washington should be creating. We need to reduce our dependence on foreign oil and a direct tax is necessary (see my “JEDI Find” for details) – why is gas so expensive elsewhere in the World? Because Nation’s tax it to restrict its use and keep money in their own economies. We blindly wait until the next oil crisis which will shut this Nation down, 10x as bad as in the 70’s. That is how reactionary Washington works. Good Luck America!
Well, there is the mindset that holds those who are to represent our interests in a completely illusory light (or darkness). In your last (initial post) paragraph, Craig, you mentioned “leaders”. What or whom could you possibly be refering to? Last time I checked, a democratic government has a set of elected representatives to carry out the public requests of the majority.
The release of government oversights on energy, banking, stocks, etc., is traitorous. Isn’t that governments job? Should we be praising the elected in hopes they will own up to it? How’s that workin?
I agree with a former post about abolishing PAC’s and lobbiests for a start.
Then, the equality of perc’s between any government official and the general public sounds good. (No laws passed for one that does not apply to the other.)
And, how can any court rule that corporations have the rights of citizens with respect to political contributions? How does the citizenry get its country back?
Put this subject under the scrutiny of an international view can give us some inspirations. Some developing countries such as China have a central government that to some extent directly designs, plans and implements the renewable future. Some developed countries such as Spain and Germany use tools such as feed-in tariff to achieve aggressive renewable goals. These countries are all very successful in renewables no matter what role the governments played and no matter what forms they adopted, because their governments are determined to do something in renewables, not just talking and talking.