Although there is a lot of talk in Washington DC about the national debt and deficit spending, the President and some in Congress persist in promoting alternative energy sources with subsidies. These proponents talk about investing federal dollars and recapturing some from oil companies by limiting tax credits that are available to all business.
What is strange about this rhetoric is the notion that the government has money of its own. The federal government doesn’t have “federal dollars”. It has taxes collected from individuals and businesses and borrowed money. So, the question is, is it a legitimate role of government to take somebody’s else’s money and attempt to invest it in energy?
The history of government spending on energy is not one of success. From the creation of the Synfuels Corporation up until today the record has been dismal. Billions of dollars have been wasting and instead of creating new energy, the government has created a large number of rent seekers who are addicted to the federal dole.
Corn farmers are addicted to the ethanol tax credit which wastes over $5 billion annually to produce a gasoline additive that has no environmental or energy benefits. Billions are wasted inducing manufacturers and consumers to produce and deploy solar and wind systems that are uneconomic for large scale use but lead to the misallocation of resources and to schemes to avoid taxes as re net articles about GE demonstrated.
This history demonstrates what Frederic Hayek documented in his book The Fatal Conceit– central planning from the top is a very poor substitute for the creative forces of the market. Members of Congress and federal bureaucrats do not have the knowledge, incentives, or feedback mechanisms to develop alternatives to conventional.
While rent seekers and elected officials have been trying for decades to promote so called “clean energy” like wind and solar, to replace coal fired power, market driven technology and private investment has found ways to unlock enough natural gas to meet our needs for over a century. The government continues to attempt to reduce oil imports by forcing more ethanol into the gasoline pool while steadfastly refusing to encourage more domestic production. Gasoline continues to be the consumers fuel of choice because it is abundant, has a higher energy content than alternatives, and even at almost $4 a gallon is more cost-effective than its alternatives.
The government should do two things. First, foster an open and honest debate about the legitimate role of government in energy markets. Second, recognize that with our debt ridden economy, energy subsidies among others should be ended, the quicker the better. The most daunting and important challenge confronting the federal government is not about energy, it is about how to reduce the national debt, reducing out of control federal spending, and promoting a level of growth that raise our standard of living and reduce unemployment below 6%.