If These Stories Are a Surprise to You, You’re Probably an Idiot
Or you’ve been working to devise US energy policy over the last couple of decades. But I repeat myself: the latter group is a proper subset of the former.
I am referring to articles running in the official house organs of the conventional liberal wisdom, the WaPo and the NYT, which confirm the obvious: government subsidies for energy, and particularly “alternative” energy and renewables, have proved to be a dreary litany of failure after expensive failure.
These failures were predictable–and in fact predicted. But the predictions have been ignored. For decades, as the WaPo article points out in excruciating detail. Good money has been thrown after bad which had been thrown after worse. These decisions have been driven by political economy rather than economic calculation. If something needs a subsidy, that means it costs too much for the value it produces. Yes, there can be circumstances in which there is some value that is not internalized by the producer, in which a subsidy may theoretically be justified. But as the historical record makes abundantly clear, that’s not what drives how subsidies are allocated: they come out of the political sausage grinder, and it is politics and political connections that turn the crank.
Whatever you think about ExxonMobil, they deserve credit for not buying into the “beyond petroleum” moonshinery of BP and some other supermajors in the last decade. During the Bush years, XOM CEOs Lee Raymond and Rex Tillerson steadfastly refused to commit capital into renewables and alternative energy, and resisted playing the subsidy game: they were unabashedly an oil company, and didn’t pretend otherwise. They had seen the boondoggles of the 1970s–remember Synfuels?–and didn’t want to squander valuable capital on similar boondoggles in the new millennium. Unfortunately, Congress and two administrations–particularly the current one–haven’t been quite so perceptive. As a result tens of billions of dollars have been wasted, and wasted predictably.
Just checking in to make sure you know I’m not an idiot. 😉
And BTW, I thought an economy runs better on cheap energy. When will green technology get cheap? After this 20-25 year price lock that these companies have on their customer base? Yeah, we’ll see. Where there’s no risk, there is no reward.
Comment by Howard Roark — November 14, 2011 @ 12:36 am
No worries, Howard–thought never crossed my mind 🙂 Re when will it get cheap . . . not anytime soon.
Subsidies are stupid. X-Prizes for the development of improved technologies, and Pigovian taxes on most standard energy (trying to cover the military and other expenses spent on the Middle East to secure the oil supplies there plus pollution control costs) would encourage development of alternative energy at little cost to the government. To compensate for higher consumption taxes, we can reduce tax rates on the lowest tax brackets and increase the Earned Income Tax Credit.
Of course, subsidies encourage corruption and back scratching is why we have the policy we do have.
Comment by Chris Durnell — November 14, 2011 @ 11:58 am
Well clearly if the Obama Administration hadn’t pursued the Reset with Russia we’d all be so much better off. Think of how many more supplies to our troops would have been blown sky high by the Taliban along the Khyber Pass, hence creating more orders and jobs for the MIC.
Comment by Mr. X — November 14, 2011 @ 3:12 pm
http://www.zerohedge.com/news/meet-feds-latest-advisor-cobra
Cobra Commander takes control of The Fed!
Comment by Mr. X — November 14, 2011 @ 3:28 pm
Hey Professor!
Those ‘conspiracy theories’ The UK Independent recently denounced, including that Gaddafi was overthrown because he was promoting an African gold dinar, don’t look so crazy now, do they???
Now you begin to see the real game. You and your ‘I don’t dun like them Rooskies’ Jacksonians are getting PLAYED by the banksters! Hey Phobie, got gold?
I love Bloomberg, even if the Boss wanted his best terminal customers the TBTFs bailed out. They’re the only ones who did much actual reporting on Ron Paul’s limited Fed audit which showed trillions printed up and sent to the ECB.
Comment by Mr. X — November 15, 2011 @ 1:01 pm
The UK Independent recently denounced, including that Gaddafi was overthrown because he was promoting an African gold dinar, don’t look so crazy now, do they???
No, they’re still batshit mad. Rather than pay dollars for oil, the US would pay dollars for gold dinar and then gold dinar for oil (assuming they wanted Libyan oil in particular). How would this bring about the demise of the US?
The same argument was going about over Iraq, only the rumours were that Saddam Hussein was going to insist on being paid for oil in Euros instead of USD. Given that the value of dollars traded daily on the ForEx markets render the value of oil traded insignificant, it is quite obvious that it is the dollar which sets the oil price, not the other way around. So if somebody wanted to sell his oil in Euros he could only get the dollar equivalent anyway. So anyone with dollars wanting to buy the oil would just buy Euros and then the oil.
I saw this put to several people who were dim enough to think the US goes to war over the currency in which oil is traded, and I never once saw a satisfactory response to it.
Comment by Tim Newman — November 15, 2011 @ 2:08 pm
Except that gold’s a bit different animal than the euro. They can always print more euros but they can’t mine so much more gold, Tim. I agree trading Iraqi oil in euros as a causus belli the theory made no sense with respect to Saddam, because the euro is just another fiat, but it makes more sense with Gaddafi.
If their is a finite amount of gold in the world and the major oil producers demand gold instead of fiat in payment for their oil, then the oil producers end up with most if not all of the gold. Certainly they’ll still have to spend some of their stockpiles to buy food since neither Libya nor Saudi Arabia can grow their own and Russia would spend its gold on Bumeri and Chinese televisions. Still…the point is that enormous amounts of gold reserves would simply sit in vaults around the world (presuming that unlike Hugo Chavez these guys would trust some foreigners, say Singapore, or Hong Kong with safekeeping of the stockpiles). That means unlike the enormous amount of fiat petrodollars that have been recycled back into the West, the gold would largely stay put. Which means a hell of a lot less buyers for Treasuries, Euro bonds etc. crappy Citibank shares and SWF billions like Gaddafi’s for banksters to lose on cocaine and hookers before Gaddafi is conveniently overthrown…do you see where I’m going with this now?
I’ll let this guy explain it ‘the immutable rules of business’ to you, since he does a much better job and he was talking about the exact same thing almost 40 years ago:
http://www.youtube.com/watch?v=zI5hrcwU7Dk
“You have meddled with the primal forces of nature Mr. Gaddafi, and we won’t have it!”
Comment by Mr. X — November 15, 2011 @ 8:11 pm
As I wrote after an acquaintance in Moscow cast doubt on the notion that Russia could ever demand gold instead of fiat for oil (since Bloomberg quoted from the new book Currency Wars in which The Pentagon ‘war gamed’ exactly that scenario) — yes it’s indeed doubtful (though Russia as a major grain producer cannot be starved out exactly like the Saudis or Libyans could if their leadership made such demands). Nonetheless this all to miss the forest for the trees. How fragile do our elites believe the current fiat dollar order is, that just a few nasty Kremlins could upset the entire apple cart?
We’ve seen it first in the Hank Paulson ‘the Russians tried to get the Chinese to dump their Treasuries’ story, which was swept under the rug since the whole Fannie/Freddie thing was embarassing to BOTH sides. And now we see it in this story, which is basically being ignored. Now I understand the Pentagon probably has war plans to invade Brazil or still has one lying around for France, but the point remains: why is the Pentagon war gaming such economic scenarios? And is the focus of our military planning on the ‘threats’ we keep hearing about such as Iran or North Korea, or is it to hold up the dollar’s reserve status by maintaining this massive Military Industrial Complex, in much the same way that in the end the US always sold grain to the USSR lest we have starvation in a country with the world’s largest nuclear stockpile? I think you catch my drift.
Obviously if the Russians and Chinese could they would have dumped more dollars by now. But they aren’t buying our debt anymore either so that leaves the question of how quickly they can break for the exits when things start to cascade downward very rapidly.
And lastly (damn Senor Equis is on a roll today), pertaining to gold — here’s a Gerald Celente rant about those good honest folks at the CME who wouldn’t let Gerald Celente take physical delivery of his bulleon futures:
http://www.infowars.com/gerald-celentes-gold-account-was-emptied-by-mf-global/
Comment by Mr. X — November 15, 2011 @ 8:19 pm
Free sunshine and free wind are such attractive…well freebies..to add to the litany of promised give aways to the electorate.
Comment by paul — November 15, 2011 @ 9:32 pm
Which means a hell of a lot less buyers for Treasuries, Euro bonds etc. crappy Citibank shares and SWF billions like Gaddafi’s for banksters to lose on cocaine and hookers before Gaddafi is conveniently overthrown…do you see where I’m going with this now?
No, I don’t. You’re basically saying that the portion of the revenues from oil which does not need to be spent will not get spent, but will lie in a vault. I think students saving 50% of their grant money to be a more likely scenario.
Comment by Tim Newman — November 15, 2011 @ 11:26 pm
Tim, Mr X is a bit of an idiot.
Comment by Andrew — November 16, 2011 @ 3:11 am
Thanks for trolling Andrew. Tim, that wasn’t really a rebuttal. I didn’t say the oil money would not get spent if valued in gold or other in a truly commodity-backed currency. I said it would get spent on cars, TVs, and for the Arabs, food. The key to the argument that we went to war in Libya with financially oligarchic-backing motives is that if the African gold dinar became really effectively traded, far less of Libya’s SWF and other money would get recycled through the ‘five families’ or TBTF megabanks and their equivalents in Europe.
Comment by Mr. X — November 16, 2011 @ 12:56 pm
Mr. X, I think you left your tinfoil hat in the closet again.
You are an ubertroll…
Comment by Andrew — November 16, 2011 @ 1:32 pm
I said it would get spent on cars, TVs, and for the Arabs, food.
I know. You’re basically saying that the portion of the revenues from oil which does not *need* to be spent will not get spent, but will lie in a vault.
Comment by Tim Newman — November 16, 2011 @ 1:50 pm
Tim, yes.
Andrew, go back to worshipping Iosef Dzughashvili while sucking on the U.S./UK taxpayer teet in Georgia’s NGOistan.
Comment by Mr. X — November 16, 2011 @ 5:38 pm
Tim, yes.
Snigger.
Comment by Tim Newman — November 16, 2011 @ 11:29 pm
Green Energy is the nexus of revenue seeking statist governments and rent seeking crony capitalists! The expression “a fool and his money are soon departed” comes to mind.
Comment by Bob — November 19, 2011 @ 7:33 pm