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May 2, 2013

Investing in New Technology

Cabinet Secretary:  We will assure a bright energy future by investing in exciting, new technology on an impressive scale.
Mike:  Have you evaluated the business plans?
Secretary:  They are new and have no real comparison.
Mike:  How do you know they will work?
Secretary:  We have the best and the brightest. The government has deep pockets. We must explore the future. We can't just do nothing. Think of how wonderful it will be if it works.

Partisan Thinking About Energy
04/30/13 - CoyoteBlog by Warren Meyer  [edited]

[edited]  Kevin DrumAt Mother Jones:  The Right does not use empirical data [facts] to discuss climate change and global limits on oil production. This is weird as hell. I mean, why would they disparage development of renewable energy?

Statists like Drum believe that support for renewable energy requires support for government subsidies and interventions. Few people, even conservatives, oppose renewables per se. This is a straw man. They oppose the subsidies and government mandates for renewable energy.

Conservatves criticize the incentives of politicians, their weak oversight over spending, and the typical wasteful results from political incentives. Money is almost always directed toward supporters who provided campaign contributions. These supporters mysteriously increase their contributions after winning contracts.

New technologies are particularly ripe for graft and manipulation. The government always "invests" (spends) for technology that private investors will not voluntarily pursue on a large scale. These projects by definition have no comparison to private projects. There is no way to compare a government investment in "new technology" to similar investments, until the disaster at the end.

Politicians proudly announce along the way that the new technology is more expensive than current alternatives. That is why "the government must do it", because no one else is going to invest into a product which starts out more expensive (wasteful of resources) than the competition.

The politicians announce that the price will come down after a few years of experience. They don't consider that the price of the alterntives is also likely to come down during those years.

The result has been obvious and awful. Massive "green energy" projects regularly go bankrupt when they produce an unreliable product which is more costly than the already existing alternatives. Politicians excuse the huge expense and waste of these failures by saying "Private projects also fail. Don't blame us."

What do you expect?

Consider this business plan. I will sell candy bars, drinks, and sandwiches for far less than the competition. You can examine my spreadsheets. This is a winner. I will lower my costs through a revolutionary idea. I will place the goods on shelves in the morning, and people will pay for the goods on the honor system, leaving the money in a small box. I will collect the money in the evening, and will save on overhead by not employing any staff or cash register clerks.

I hear the shouting now. "You're nuts. Some people will steal your goods, and the money too. You will be broke in 5 days." I might object that most people are honest and will follow the rules. But, I would have to agree that some immoral people would ruin this plan. Oh well.

The Process of Government

Consider this business plan. I will empower politicians to select the best and the brightest to subsidize the best energy plans for a glorious future. Naturally, the investments will be huge and somewhat risky. That is why the fraidy-cat private markets won't do this necessary work.

I hear the shouting now. "You're nuts. The contracts will go to cronies who will bend the projects to their private benefit. These government plans are proposed by groups that expect to benefit. Most of the money will disappear with no viable project remaining. You will be broke in 5 years." I might object that most poltiicians are honest, patriotic, and will follow the rules. But, I would have to agree that some immoral politicians and businessmen would ruin this plan. Oh well.

Faith in Government

Here is the funny thing. An even louder shouting arises that "Government is good. Let's plan for a glorious energy future. Don't let a few immoral people spoil what can be a great plan and a better society. Don't be so pessimistic. You have an irrational hatred for government."

Both of these plans must entirely fail for the same reason. They must both work on trust. Even if most people and politicians are honest and good, it only takes a minority to steal all of the money. Each plan can only work in a world of angels. So, they can't possibly work.

Why do most people immediately see the problems with the sandwich plan, but can't see the problems with the energy plan?

This mystifies me.