When I hear the word subsidy, I can’t help but think of that Coors beer commercial featuring clips of Coach Jim Mora. You know the one I’m talking about. “Playoffs? Playoffs! Are you kidding me? Playoffs?”
Just replace the word “playoffs” with “subsidies” and you get my basic view on this form of government intervention.
Subsidy. Policymakers and politicians utter the word with a tonality of hope; they hope the mere sound of the word will win them brownie points and votes from the industry receiving the aid.
For the taxpayer that eventually pays for the subsidy, the policymaker and politician try to sell the electorate on what the it may mean for the economy. They toss around buzz words like “robust”, “good for the economy”, and “global competitiveness.” If we’re talking farm subsidies, you are bound to see at least one picture of that old, unsmiling couple. You know the one, with the bespectacled grandpa holding a pitchfork, and the equally bespectacled grandma standing next to him. Neither ever looked like they were having a good time.
In the world of solar energy, Europe doesn’t look like it’s having a good time either. Both Spain and Germany have curtailed their subsidy funded renewable energy projects. The projects are allegedly leading to huge deficits. For example, in Spain, there is a $31 billion dollar deficit as a result of renewable energy subsidies. Consequently, Spain intends to eliminate all renewable energy subsidies by 2017.
The Partnership for Affordable Clean Energy observes that:
“Spanish taxpayers have paid dearly to make their nation a global leader in renewable energy, at a time when Spain’s unemployment rate is nearly 23%. Germany, long known for its commitment to solar power, has also generated some of the highest electricity rates in the world.”
The same observations may hold true for Americans in general and minorities in particular. First, a subsidy can represent a misallocation of very scarce resources, namely money. When the federal government plays venture capitalist, it takes on risks that are best left to risk takers in the private sector.
Taxpayer funds that could have been made available for projects in greater demand like infrastructure have a reduced chance of getting off the ground. The opportunities to hire unemployed minorities are also reduced when funds are shifted to riskier projects like Solyndra.
Secondly, subsidies encourage a movement of capital to projects that may not result in the best prices for consumers. Renewable energy, in particular solar, cannot currently provide Americans with the energy needed to power residential, commercial, and industrial buildings. Currently it takes both coal and nuclear energy to adequately supply our energy needs.
Solar and other renewable energies are relatively more expensive as a source of electricity, and recovering those costs would require minority communities pay higher electricity rates.
In addition, reactivating or completing the construction of a number of nuclear plants may open additional job opportunities. For example, according to the U.S. Energy Information Administration, construction has been renewed on the Watts Bar 2 in Tennessee and 28 applications were received in 2011 to construct new nuclear reactors.
Lastly, with all the cheap money laying around thanks in part to actions by the Federal Reserve, why should the U.S. even consider subsidizing any renewable energy companies. Deficits created by subsidies means that the U.S. has to go out and borrow money to pay for these programs. Capital becomes scarce for individuals and other businesses, resulting in higher interest rates.
Instead, we should be getting the most out of our coal and nuclear industries. Abandoning them now in exchange for promoting a renewable energy industry that not only is years away from replacing the sources for our current energy needs, but that will also cost us too much in the long run leads me to say,
“Subsidies? Subsidies! Are you kidding me? Subsidies?”