Subsidizing The White House’s Solar Panels

Mike Mandel commenting on the Obama administration’s decision to install solar panels on the White House posted this chart(click for larger view).

He noted that there was a lack of logic in the move and then went on to suggest a rationale for the move:

So the government is borrowing this money from overseas, basically,  to increase its net energy costs.

That needn’t be a bad thing. Government spending is often necessary to get economies of scale for manufacturing and improving new technologies.  But if we want our borrowing to be worthwhile,  those benefits of government spending have to stay in the U.S.  We  have to make sure that our net trade gap in photovoltaic cells and modules decreases, not increases, and that our domestic PV manufacturing continues to grow.  One possibility: More subsidies for domestic PV manufacturing.  Does that violate WTO rules?

His argument reminded me of what I thought was a particularly well worded post on the subject of subsidies for green technologies. It’s by Ryan Avent and appeared in the Economist Free Exchange. Talking about electric cars he offers these thoughts:

It seems plausible to me that electric cars will play some role in reducing oil dependence and carbon emissions, but no one knows how significant a role it will be. Meanwhile, resources deployed towards electric car subsidies are resources that aren’t used on other things. Perhaps other green technologies are more promising. Perhaps it would be best of all to invest in education, which would increase national educational attainment and economic growth, given that a richer, better educated population might have a higher demand for green technologies.

I wouldn’t begin to argue that there is no role for government in shaping the market for environmentally-friendly goods. I would price carbon and increase petrol taxes and invest in basic research and infrastructure. I might even offer financial prizes for certain innovative achievements—a low cost way to bring significant resources to bear on difficult engineering projects.

But systematically favouring some technologies over others is a recipe for waste and missed opportunities. If China wishes to go down that road, then that is certainly their right. Americans should focus on the basics and be glad that its capital has more freedom to flow toward innovation wherever it develops.

If you read this blog regularly you have probably already guessed that I come down on Avent’s side, except I would go much further.

The history of subsidies in this country is one sad tale. Our tax code and budget are riddled with subsidies the cost of which runs into the hundreds of billions if not trillions of dollars. They started out with the best of intentions and over time morphed into entitlements that are well nigh impossible to unwind.

One need only look to the disasters that are ethanol, housing and agriculture to see the pernicious effects of well intentioned government favoritism. These programs are bad enough in and of themselves and cost the taxpayers several kings’ ransoms. We could probably live with the monetary waste but the distortions that politically protected and funded programs cause throughout the economy multiplies their cost by several orders of magnitude.

Imagining that the political class or rent seekers are going to forgo subsidies is foolish. They are simply too ingrained in the system and new ones create their own new constituencies. Maybe some sort of sunset provision could be instituted. Periodically lawmakers who created new subsidy programs would be required to affirmatively approve their continuance. At least that would provide for some semblance of review of any given programs efficacy as well as force those who favor them to live with the consequences of their votes.

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