Disconnect on subsidies

Why is it bad to subsidize an industry such as wind or solar but it is all right to subsidize a company for locating in a particular spot?

There are many who call for an end to subsidies for alternative energy, but do they complain about subsidies for fossil fuel companies?  For example, Sasol is getting a $2 billion subsidy from Louisiana to build a gas-to-liquid plant.  See "Sasol Betting Big on Gas-to-Liquid Technology",  John M. Broder and Clifford Krauss, New York Times, 2012-12-17.

I wonder if any economist has ever done a long-term study on the value of subsidies.  I know there have been subsidies to get companies to locate in a particular city or state, and many companies abandon that city or state before the locality has even recouped its investment.  I also know that government subsidies have transformed the economy mostly for the benefit of many.  Lincoln called for subsidies to the transcontinental railroad which greatly improved the U.S. economy.  Would we have computers and the Internet without many other government subsidies?

What we really need are some metrics that show whether a government subsidy will provide a huge social benefit or will only be a drain that lines the pockets of a few.

Solyndra loan, just the facts, ma'am

The Republicans have been jumping all over the Obama administration for the collapse of Solyndra; Paul Ryan accusing the Obama administration of "crony capitalism".  Guess which administration actually approved the loan?  The Bush administration!  The loan was not actually made until Obama was in office.  See "Clean Energy: Obama Says It's the Future, Paul Ryan Calls It a Fad", Stacy Curtin, Daily Ticker, 2012-08-16.

Meanwhile, the Republicans don't seem to notice the subsidies to oil, gas, coal, and nuclear.

Ryan also said, "We want to get Washington out of the business of picking winners and losers."  He seems to forget that the last great Republican President, Abraham Lincoln, was very much in the business of picking winners and losers and providing subsidies.  What would this country be like if he hadn't pushed the Transcontinental Railroad with "subsidies" of bonds and free land?

BTW: one of the commenters asked where Paul Ryan called clean energy a fad.  Given how quotes of any kind get distorted and go viral, it is hard to find sources for a supposed quote.  What Ryan said was "fads like Solyndra" on "60 minutes" with Bob Schieffer.  I can't find a direct quote from 60 minutes, but dozens of repeats by many sites, each with its own particular bias.

Whatever, the fact is the Bush administration approved the loan.  Now the Republican Party has morphed to promote only fossil fuels and nuclear energy and to disparage any alternate sources of energy.

Abraham Lincoln was a liberal!!

Take out a five-dollar bill. Fold it in half. Which side is Abraham Lincoln's picture on?

Our greatest Republican president was left of center!!!

Can you imagine any recent Republican president spending so much tax money to invest on railroads (Lincoln), parks (Theodore Roosevelt), or highways (Dwight Eisenhower)?

Republicans used to invest

Once upon a time Republican politicians invested in the infrastructure of our country. Lincoln was very instrumental in building the transcontinental railroad. Eisenhower was instrumental in building the interstate highway system. Both of these transportation systems transformed the United States, saved millions of dollars in transportation costs, and increased investment in other areas.

Now it seems the only "investment" Republican politicians want to make is in destruction, a so-called strong defense.

Everything else Republicans look upon as costs and taxes. Opportunity costs are not part of their accounting. They just don't see the costs that can be saved by investing in schools and colleges, in health care, and alternative energy. And they ignore the opportunities that these investments will create.

Don't knock government, it is a stimulus itself

Business needs government, people need government, we all need government. We don't need to drown government in the bathtub and we don't need a know-it-all, do it-all government. We need a government that helps business and people achieve their legitimate goals.

From the earliest days of this country we needed town governments to stop criminals and build roads. The U.S. Constitution calls for the federal government to establish post offices and post roads. Business needed a postal system that will cover the country; it was much more efficient than sending every message by your own courier. Business needed the post roads to move goods beyond the local towns. Farmers needed good roads to get their produce to market.

The national economy took a quantum leap with the building of the railroads. They would have been delayed many years without various government concessions and subsidies.

Flying would be a nightmare without government provided airports and traffic control.

The Interstate highway system changed the economy in many ways. The downside is all the locally taxable property that disappeared. The upside is the greater easy of moving people and goods around the country. A business could send a truckload of goods to a specific destination without having to wait for a boxcar to be attached and detached to various trains.

The Defense Department financed some of the development of the Web through research grants to develop ARPANet. How many businesses have been created and fortunes made because of the Internet? Are you old enough to remember CompuServe and similar services that were only accessible to subscribers at costs that could accumulate very rapidly? I remember having to have at least three email accounts so that customers could reach me.

GPS was a military system that was used by individuals but only with distorted signals. President Clinton began relaxing these controls. This spawned "a $6 billion ecosystem of location-based companies." See Wired link below. And some accuse the Democrats of being business-unfriendly.

Have you used Google Earth? Would this be possible without all the government provided pictures?

Now President Obama is ready to open up government data that, if it wasn't kept buried in some obscure government office, was in some overwhelming form that made it hard for many people to understand. As the government moves to standard formats for much of its data, private companies will reformat it in forms that their customers can use. The formation of these companies or the new business for existing companies will be a stimulus in itself.

See "Wired-o-Nomics: Transparency as a Stimulus" for more.

Was the United States built on free enterprise and capitalism?

Many argue that the United States was built on free enterprise and capitalism. But that is only part of the picture; many other factors contributed to the development of the United States.

I just finished Nothing Like It in the World, The Men Who Built the Transcontinental Railroad 1863-1869 by Stephen E. Ambrose. He paints a very complex picture of all the ideas and efforts that went into building the transcontinental railroad from Omaha to Sacramento. The two companies were the Central Pacific based in California and the Union Pacific based in New York.

Ambrose doesn't use the word, but I would say that the first part of the picture was imperialism. One group of people decided they had control of the land already inhabited by others. The expected result was that some of the inhabitants resisted and some worked with the outsiders. See pages 265-266 on how the Pawnees thought they had a better life as hired guards.

A second important part was government grants. Because the land was considered "unoccupied", the railroads were able to choose their routes based mostly on the terrain and the government generally let them have their choice. Further, the government granted the railroads portions of the land along the right-of-way for use or sale. Finally the government issued bonds based on the miles of track laid. This was necessary in part because the railroads could not raise sufficient funds through their own stock and bond offerings. One CP official complained "that the government subsidy had been more a detriment than a boost to the companies, because of all the conditions attached to the bonds." A UP official responded, "Mr. President of the Central Pacific: If this subsidy has been such a detriment to the building of these roads, I move you say that it be returned to the United States Government with our compliments." p. 367

Nothing would have happened without a third important part: labor. Thousands of Chinese, Irish, and Mormons built the railroad with hand tools, often without being paid on time. They were aided by black powder and nitroglycerin, sometimes with deadly results. Many died of cold, avalanches, accidents, disease, and murder. Nobody knows the exact death toll of workers.

A fourth important part was corruption, probably unavoidable in an enterprise as large as this. Congressmen were given stock in the railroads; shareholders voted themselves huge dividends while not paying the workers. Congress had six months of hearings "featuring for the most part acrimony and sensationalism, although most charges were true and would be proven." p. 373

But the most important part was vision. A transcontinental railroad was discussed by Congress before the Civil War to unite the east and west coasts. Railroads were seen as important by both sides in the war to move troops and material. Railroads were seen as a more economical and faster way of moving goods and people over animal-drawn vehicles. Railroads were necessary to supply the forts across the country as more and more people moved west. The vision of the importance of a transcontinental railroad was shared by politicians and soldiers, by businessmen and laborers, and by journalists and scholars.

Without all of these parts, the United States would not have become a unified country "from sea to shining sea".