ending corporate welfare

January 12, 2011 1:49 PM

Get the Energy Sector off the Dole - Why ending all government subsidies for fuel production will lead to a cleaner energy future—and why Obama has a rare chance to make it happen.
posted by kliuless (42 comments total)

I had a buddy in the wind turbine industry tell me that he doesn't think wind turbines are a good investment because "they require government support to be profitable."

I admit that I couldn't keep a straight face.
posted by muddgirl at 1:52 PM on January 12, 2011 [13 favorites]

From your lips to God's ear.

Frankly, we'll be lucky if the dinosaurs don't trample us all as they stampede to extinction.
posted by notyou at 1:55 PM on January 12, 2011

I support this cause and would like to subscribe to its newsletter.

Really, I think that eliminating all subsidies for fuel production would yield some interesting results and may do exactly as this article suggests. At the very least, it would level the market a bit when it comes to new energy sources, and that would be a good thing.
posted by hippybear at 2:10 PM on January 12, 2011 [1 favorite]

is it too simplistic to ask Obama end government subsidies on.... everything?
posted by dongolier at 2:17 PM on January 12, 2011 [6 favorites]

Is this writer ignorant, or does he think I am? BP's liabilities in the gulf are not capped. Tax breaks on royalties paid by oil companies are offset against revenues, not profits.

As an investor in clean and green energy...

Ah. After reading the rest of this, I thought it might be someone I know; it's not his byline, but it may as well be. Here's what I told him: you're in the wrong party. There is nothing left for you in the GOP now.
posted by anigbrowl at 2:20 PM on January 12, 2011

BP's liabilities in the gulf are not capped.

Perhaps I misunderstood what I heard on NPR yesterday, but isn't the cap on the fine they pay?
posted by griphus at 2:23 PM on January 12, 2011

Obviously we should do this; instead what we get are counter-subsidies for "alternative" fuels whose PR says they're "green."

Actually the purist streak represented by the Tea Party means we have a shot at a whole range of radical (and smart) tax ideas that would normally be politically impossible -- like tax-expenditure reform. But I'm not holding my breath.
posted by grobstein at 2:28 PM on January 12, 2011 [1 favorite]

If the government is going to subsidize ethanol production, do you think I can get a grant to make homebrewed beer?
posted by exogenous at 2:34 PM on January 12, 2011 [1 favorite]

I'm going to use this thread to mention how much I hate corn-based ethanol, and I'm sick of my tax money going into subsidizing it. Worse, they're now mixing it with gasoline which is going to reduce the life expectancy of my engine -- not everyone has a flex-fuel engine, and I'm tired of subsidizing the oil companies' profits.
posted by spiderskull at 2:38 PM on January 12, 2011 [1 favorite]

well, i'd be down with that as long as they DO NOT subsidize ethanol production either ---and do away with bigFARM welfare. we need to diversify and expand regional and local farming, not kill it with the strawman of "alternative fuel" crops.
posted by liza at 2:39 PM on January 12, 2011 [3 favorites]

Yep, time to get a new bicycle.
posted by Brandon Blatcher at 2:40 PM on January 12, 2011

Actually the purist streak represented by the Tea Party means we have a shot at a whole range of radical (and smart) tax ideas that would normally be politically impossible -- like tax-expenditure reform.

Wrong community blog; you're not allowed to anything positive about the Tea Party here.
posted by ZenMasterThis at 2:45 PM on January 12, 2011 [2 favorites]

say

dammit!
posted by ZenMasterThis at 2:48 PM on January 12, 2011

Why don't we let the community decide how they'll behave, rather than preemptively snark?

There are some ideas (such as ending subsidies) that resonate with more than one party affiliation.
posted by Hardcore Poser at 2:51 PM on January 12, 2011 [7 favorites]

Worse, they're now mixing it with gasoline which is going to reduce the life expectancy of my engine-- not everyone has a flex-fuel engine
They've been mixing it with your gasoline for many years. Decades, actually. Practically all gasoline sold in the US has long been a gas/ethanol mix. You've been driving with it for years. Regular gas has a maximum percentage of 10% ethanol.

There is also E85, which is an 85% ethanol mix. This is what flex-fuel cars run on.
posted by Thorzdad at 2:57 PM on January 12, 2011

Ending, or at least strictly curtailing, farm subsidies is one of those obvious and sensible ideas that has broad support across the political spectrum.

That it is an idea dead in the water tells you all you need to know about who's really in charge.

(Hint: it ain't us.)
posted by BitterOldPunk at 2:57 PM on January 12, 2011 [2 favorites]

the person writing this article is total idiot and shouldn't be investing in 'green energy' if he doesn't understand how government subsidies have created the current investments in wind and solar both directly through tax credits and indirectly through incentives for utilities to buy 'green energy.'

The good news is that this rationale no longer applies: the U.S. energy market, if left to its own devices, without distortions or subsidies, will continue to provide plentiful and affordable power while gradually evolving away from oil and coal as the primary energy sources. This changeover to what will be cleaner energy solutions will accelerate considerably in coming years...

His idea is that seems to be that somehow by destroying the nascent wind and solar industries in the process of removing direct government energy subsidies in alliance with the fucking TEA PARTY the free market will magically create an optimal environmentally friendly energy supply

So we find ourselves in a new political moment when for the first time it is possible to imagine an alliance of GOP libertarians, disaffected environmentalists, and budget hawks coming together for a grand deal that would sweep away sixty years of bad energy policy.

again, this person is a total fucking idiot.

Jeffrey Leonard is CEO of the Global Environment Fund, a growth-capital-oriented investment firm, and chairman of the Washington Monthly board of directors.

and that's how total fucking idiots get to publish their drooling idiocy and i get to read it on the internet.
posted by ennui.bz at 2:58 PM on January 12, 2011 [2 favorites]

is it too simplistic to ask Obama end government subsidies on.... everything?

It would be if you had previously supported health care reform, yes (or, really, supported any other kind of subsidy). It would be both too simplistic and ridiculously conservative.
posted by The World Famous at 2:59 PM on January 12, 2011

political economy in a nutshell: "We have two political parties, one of which says that the middle class is taxed too high and should get tax cuts (but the rich could easily pay more) and the other of which says that everybody is taxed too much and should get tax cuts. And both parties say that we should not enact major cutbacks to the rate of growth of any forms of federal spending except those that are 'waste, fraud, and abuse.' And those parts of federal spending that are actually waste, fraud, and abuse--ethanol anyone?--have very powerful political protectors, and are untouchable. What do people think is the most likely outcome from this situation?" (from brad delong's econ 1 lectures)
posted by kliuless at 3:14 PM on January 12, 2011 [3 favorites]

This is one of those ideas that only (and only barely) works in theory. David Roberts wrote a well-reasoned two-part retort at Grist:

1. It's dumb policy.
2. It's politically impossible.

posted by danblaker at 3:15 PM on January 12, 2011 [3 favorites]

If this includes taxing gasoline enough to cover externalities like current road maintenance, infrastructure build out (including bridges, airports, etc...), proportion of the military budget that supports our foreign fuel interests, fully funded regulatory agency overhead, EPA clean up funding, etc... then I might be barely for it. Not because I think we don't need clean energy subsidies, but rather because I think we desperately need disincentives for oil and coal.

While we're at it, we should stop subsidizing corn and tariffing foreign sugar. Then ethanol would probably be a lot cheaper even without subsidies.
posted by BrotherCaine at 3:21 PM on January 12, 2011

yes, The World Famous i supported health care reform, and, no i dont support the psuedo-governmental American Medical Association's doctor "subsidy" of limiting the numbers of med school spots available in order to keep doctors salaries among the highest in the world (and the "supply" of doctors artificially low), these two ideas are not at odds.
-------------
the above article at grist actually agrees with the OP but argues that $20bil is too low an estimate, then (lamely) says the subsidy beneficiaries are too powerful to be called out.

if the populist heroes on the right (teabaggers) and left (Obama) actually put their shared discontenment with politics-as-usual toward a common goal; reigning in subsidies might succeed.
posted by dongolier at 3:28 PM on January 12, 2011 [2 favorites]

yes, The World Famous i supported health care reform, and, no i dont support the psuedo-governmental American Medical Association's doctor "subsidy" of limiting the numbers of med school spots available in order to keep doctors salaries among the highest in the world (and the "supply" of doctors artificially low), these two ideas are not at odds.

Proposing an end to all subsidies is directly at odds with supporting anything that involves the government subsidizing anything. What model of health care reform do you support that does not involve any subsidy?
posted by The World Famous at 3:31 PM on January 12, 2011 [1 favorite]

Don't worry, you guys can still buy our heavily-subsidized oil at low, low prices

Yours Truly,

Canada
posted by Hoopo at 3:40 PM on January 12, 2011 [4 favorites]

The World Famous: the NHS in the UK works pretty well.

they actually just buy outright whatever it is 80 million people need to stay healthy---there is no private sector that lines their pockets with government subsidies. the NHS qualifies clinicians and nurses, they train managers, they negotiate bulk prices on drugs (often generic), they own and operate hospitals, they provide clinical oversight.

and, yes they do provide one massive subsidy (which i would eliminate): they pay private doctors practices (owned and operated by senior GPs) to provide primary care but this arrangement dates back to the 1940s, they needed the doctors to agree and so they made it favorable at taxpayer's expense.
posted by dongolier at 3:46 PM on January 12, 2011

I think you're using some definition of "subsidy" that I am unfamiliar with, dongolier.
posted by The World Famous at 3:48 PM on January 12, 2011

Perhaps I misunderstood what I heard on NPR yesterday, but isn't the cap on the fine they (BP) pay?

That cap only applies in cases of genuine accident, due to causes outside of a producer's control (as a result of an unrelated natural disaster, for example). The fact that the Deep Horizon disaster has been attributed to management failure in the clearest possible terms means that they will not be getting off the hook for that, and all the investors know this. You can see it in the company's stock price very clearly.
posted by anigbrowl at 3:54 PM on January 12, 2011 [2 favorites]

I had a buddy in the wind turbine industry tell me that he doesn't think wind turbines are a good investment because "they require government support to be profitable."

I have a cousin who's a very talented investment analyst at a fortune 500 firm. He's not a fool: he warned me about the subprime crash almost a year before it came down the pike. And yet I had to find him sound reports from a prestigious energy firm before I could convince him that wind is more economical than other sources that use fuel.

It's just deeply-ingrained dogma. With his wall-street visers whispering in his ears I'm sure Obama will just keep doing what we're doing.

_{Dude needs to get whitey out of his cabinet.}
posted by clarknova at 3:56 PM on January 12, 2011 [1 favorite]

The World Famous: im using this definition.

its when the government pays out in order to

i. raise supply for a good, or
ii. raise the demand for a good

(at the taxpayers expense).
posted by dongolier at 4:02 PM on January 12, 2011

they actually just buy outright whatever it is 80 million people need to stay healthy---there is no private sector that lines their pockets with government subsidies.

I'm a fan of the NHS, but there are at least 6 things wrong in that sentence alone:

purchase terms
budgetary scope
UK population
prophylactic v. critical care
existence of private care
subsidy thereto
posted by anigbrowl at 4:06 PM on January 12, 2011

its when the government pays out in order to

i. raise supply for a good, or
ii. raise the demand for a good

(at the taxpayers expense).

Do you not see how the NHS in the UK, which you describe as "just buy[ing] outright whatever it is 80 million people need to stay healthy" fits precisely within your definition of a subsidy?
posted by The World Famous at 4:07 PM on January 12, 2011

And yet I had to find him sound reports from a prestigious energy firm before I could convince him that wind is more economical than other sources that use fuel.

which is why the cape wind project off cape cod only got off the ground with big tax credits and a long term contract with utilities (themselves given incentives) that locks in above market rates.

in principle it may very well be the price of coal and gas powered electricity is higher than wind, but in the world we live in that isn't true.

and anyway, the fact is that there are enormous sunk costs/investment in the fossil fuel infrastructure. cutting off subsidies doesn't change that. eliminating subsidies for wind means eliminating wind power in the US, full stop, do not pass go.
posted by ennui.bz at 4:10 PM on January 12, 2011

the NHS pays market prices for land, labor, drugs, equipment: they dont say, "well, Pfizer youre helping people so we'll pay extra for your meds, keep up the good work, maybe run a few extra pills out next year, just dump em in the hudson, its on us, a extra little gift".

subsidies interfere in the marketplace in ways that few economists can stomach: you take a free market which has lots of neat optimality conditions ("buyers and sellers are both made better off", "prices adjust so all goods are sold off every market period") and then meddle with the market equilibrium by creating a clear winner and loser in what amounts to a zero sum game (and the loser is always the taxpayer, every dime extra you pay for milk, you lose and the diary farmer keeps, he can afford to dump any extra milk ....dont even get me started on milk supports, pure outdated evil from a time before we knew better).
posted by dongolier at 4:25 PM on January 12, 2011

Since American libertarian right-wingers can generate an endless supply of hot air and flaming rhetoric, they need only be hooked up to a turbine or boiler. Endless energy supply, as long as sufficient liberal straw men are supplied.
posted by bad grammar at 4:30 PM on January 12, 2011 [6 favorites]

the NHS pays market prices for land, labor, drugs, equipment

The NHS increases demand by purchasing health care for consumers who otherwise would not be in the market. Payment need not be in excess of "market prices" in order to constitute a subsidy.

they dont say, "well, Pfizer youre helping people so we'll pay extra for your meds, keep up the good work, maybe run a few extra pills out next year, just dump em in the hudson, its on us, a extra little gift".

They say "well, Pfizer, your product is necessary for the public good, so the government is going to buy it for people who otherwise would not or could not." That's a subsidy.

you take a free market which has lots of neat optimality conditions

An unregulated market in the real world can never have any optimality conditions. In order for any kind of optimality to exist, impossible conditions must be met (e.g. perfect information, zero transaction costs, no externalities, etc.). The whole point of government intervention should be to move the market as close as possible to operating as if those conditions were met. Without government intervention - including subsidies - there can never be anything even remotely resembling and "optimal" free market.

("buyers and sellers are both made better off", "prices adjust so all goods are sold off every market period")

Economics does not even theorize that those conditions could possibly ever exist unless the core assumptions, including zero transaction costs, perfect transparency of information, and the absence of externalities, are met. In the absence of those assumptions, what makes you think that, but for government meddling, buyers and sellers would always both be made better off in every transaction and prices would adjust so that all goods are sold off every market period?
posted by The World Famous at 4:51 PM on January 12, 2011

I'm mostly in favour of simplifying things... complexity just provides nooks and crannies for exceptions to fester and multiply. So... eliminating energy subsidies is theoretically an improvement. Except that we all know that when it got down to it, some token lopsided cuts will be made, showing a direct relationship with lobbying efforts. An across-the-board subsidy cut is politically undoable.

Also, the market isn't smart or trustworthy enough to take on the development and management of nuclear energy, and most alternative energy schemes are still at the fledgling stage. Would funding research at universities count as a subsidy?


* * *

The World Famous: given that all citizens of a country should have access to health care, what system is more efficient at delivering that health care?
posted by Artful Codger at 6:07 PM on January 12, 2011

The World Famous: given that all citizens of a country should have access to health care, what system is more efficient at delivering that health care?

I am strongly in favor of subsidized health care. An unregulated market is a very bad idea where health care is concerned, in part because I think the necessary conditions for optimal operation of the market in health care are so unlikely that even ideal regulation alone is unlikely to achieve anything close to them.
posted by The World Famous at 6:16 PM on January 12, 2011

The NHS increases demand by purchasing health care for consumers who otherwise would not be in the market. Payment need not be in excess of "market prices" in order to constitute a subsidy.

Ah, so a national health service is health care subsidy in just the same way as the US military is devoted to providing subsidies for the waging of wars, and the school system subsidizes the teaching of children.
posted by sfenders at 6:58 PM on January 12, 2011

Ah, so a national health service is health care subsidy in just the same way as the US military is devoted to providing subsidies for the waging of wars, and the school system subsidizes the teaching of children.

No, but sort of, to the former, yes to the latter. Is the definition really that hard to grasp?
posted by The World Famous at 7:14 PM on January 12, 2011

Is the definition really that hard to grasp?

Nope, and it's a perfectly useful one I guess, but it's somewhat different than the definition many people (including me) would think of. Maybe yours is more common in the US or something.
posted by sfenders at 7:23 PM on January 12, 2011

Somehow I knew I'd regret trying to read that linked article, but I did anyway.

In case anyone else was wondering how 40% of 1990 nuclear power generation could be less than installed wind power, the writer seems to be using "nameplate capacity" for the latter. In actual generation, nuclear is much larger.

Nearly half of all states now have renewable portfolio standards (RPS) requiring their utilities to procure a certain percentage of electricity from renewable sources in coming years, with California leading the way by requiring that 33 percent of electricity come from renewables by 2030. RPS mandates, along with consumer and industry demand for and local government procurement of green electricity, are gradually becoming more important drivers of the wind and solar industries than tax subsidies.

Yeah, this bit seemed slightly incongruous at first. So the idea is to eliminate subsidies for them all, but still mandate the use of renewables no matter the cost. Solar is still nowhere near being competitive on price, even if it's closer than it was ten years ago. Not quite so much about "free market competition" as we'd been led to believe.

I'm not particularly convinced that coal is subsidized more heavily than gas. Maybe it is, maybe not, there doesn't seem to be any particular evidence either way, so the argument that ending subsidies would help shut down coal-fired generation seems weak or non-existent.

If, as stated, 95% of existing subsidies go to everything else, we might guess that the "greenest renewables" (excluding oil, gas, coal, ethanol, hydro, and implicitly nuclear), get about 5% for "wind, solar, and geothermal". Sounds plausible. But those last three account for far less than 5% of energy use. 3.75% when counting only electrical generation, which excludes virtually all of the enormous amount of oil used. So they are already more subsidized per unit of energy, and would not be all that likely to benefit from removing all subsidies.

He calls research and development on nuclear a subsidy, but suggests the government "should invest heavily in long-term research and development to hasten the progress of new energy technologies." Elsewhere, that's contradicted. Depending which part you read then, not quite so strictly against the government spending money on this stuff as the title might imply.

All in all it's a rather confusing mess, like the subject it's covering.

End all the subsidies, prohibit coal burning, and tax the hell out of gasoline sounds about right to me though.
posted by sfenders at 7:59 PM on January 12, 2011

fwiw, brad delong also has a pretty good take on the political economy of health care in that link too :P

my take: from what i understand, long-term structural deficits are primarily a function of medicare and, more generally, out-of-control health care costs, but there are valid models out there that have successfully controlled health care costs (more or less, but demonstrably better than the US!) like everything from the UK's socialist NHS to singapore's practically libertarian health care system; anyway the good news i guess is that states are being allowed to experiment with different models, and at the federal level there's a variety of (watered down) see-what-sticks initiatives that probably aren't worth getting too excited over, tho one can hope (+ there's always the path of least resistance price rationing/let people die approach, which you'd hate to see, but would be/is ruthlessly effective with added bonus points for being free market laisser faire ;) it's a truism of course, but what can't go on, won't... the question, as always, is how do you manage? how do you align 'stakeholder' incentives with overall patient health? [and there's always the possibility, so don't count on it, of technological and medical break-thru's over the decades that might render all this hand-wringing moot!]

anyway...

What do people think is the most likely outcome from this situation?

increased federal spending until we have a full on debt crisis?

...that the best way to make politicians care about long-term problems is to collapse the long-term into the short-term. That is, have a crisis, in which that far-off fiscal doomsday is pushed forward to today.

And indeed, if you look at countries that have overhauled their political systems to promote long-term fiscal thinking, you'll see that they seem to have done so either because a crisis was imminent, or one was fresh in their minds.

like broadening that out to include environmental collapse, and while the hammer has yet to drop on either (optimistically, maybe trees are growing faster and the US is not about to lose its reserve currency status, for lack of a better 'emperor' even sans clothes), you do get the sense that the clock is ticking and that should be focusing minds except for, perhaps, the nightmare scenario for democracy:

• Elected officials have no sincere adherence to the public good; they pursue their own private and political interests through all the powers available to them.
• Elected officials are sometimes overtly corruptible, accepting significant gifts in exchange for official performance.
• Elected officials are intimidated by the power of private interests (corporations) to fund electoral opposition to their re-election. (The Supreme Court decision on corporate free speech makes this much more likely.)
• Regulatory agencies are dominated by the industries they regulate; independent commissioners are forced out of office; and regulations are toothless when it comes to environmental protection, wilderness protection, health and safety in the workplace, and food safety.
• Lobbyists for special interests and corporations have almost unrestricted access to legislators and regulators, and are generally able to achieve their goals.

have we entered a new age of monopolies where "the economic 'freedom' so beloved by the snake-flag set has actually yielded the opposite of freedom: a 'neofeudal' system of 'private corporate governments' answerable to no one"? ...and yet in government america must trust:

Over the coming decade, political leaders must convince Americans that the current fiscal [and environmental] course is unsustainable and that only unpleasant changes can rectify things. Trust is never more important than when citizens are asked to make sacrifices for a brighter future. Mistrust of the government making this request could be the harbinger – even the cause – of national decline.

with capitalism at a crossroads, like obama sed last nite, we need to actually exercise self-government (if not become a better people and nation worthy of our children's expectations) and to extend platitudes, yes that means leadership, but also holding our leaders accountable as well as those who would thwart the public good and general welfare.
posted by kliuless at 8:08 AM on January 13, 2011