Green tech: doubling down on a losing bet
- Ivo Vegter
- 31 Jan 2012 02:24 (South Africa)
The tales of woe keep piling up. Barack Obama's ambitious “stimulus” plan was based on the Keynesian notion that when times are bad, government should incur debt to sustain “aggregate demand”.
It doesn't work, because in the end, someone has to pay for it. Either they get to pay more direct taxes, or they suffer indirect and invisible taxation because their currency gets devalued by printing money, or what the government euphemistically calls “quantitative easing”.
Demand stimulus during a crash slows down the process of repricing assets that turned out to be overvalued. It does this by keeping capital employed in unprofitable boom-time production, instead of allowing people's natural response to increase saving and reduce risk exposure do its job, namely to let unprofitable production fail in favour of production that does satisfy real demand. The health of an economy depends on what and how much it actually produces, not on how much it consumes.
This distortion of the market lays the foundation of future booms, which will simply go bust again. Deficit spending, far from alleviating economy downturns, is a major cause of the modern business cycle of booms and busts.
But enough of the economic theory against stimulus spending. There's another reason why it is a bad idea. It offers politicians an opportunity to support favoured industries and companies, many of whose executives are regularly spotted in political capitals, lobbying legislators for handouts.
Pigs at the trough. Cronyism. Pork barrel spending. Call it what you will, it is ultimately a waste of taxpayer money, and unfair competition against the companies (and countries) that do try to be productive even in the face of tough economic conditions, and even without political favouritism.
How do we know it's a waste? Well, look at the “green technology” initiatives that the Obama administration loves so dearly.
According to the Washington Post, a loan guarantee program worth over $35-billion has produced only 5% of the 65,000 jobs it was expected to create, and only half of it was allocated in the first two years of operation, because of capacity constraints in the bureaucracies that were supposed to dole out the largesse.
Wrote the paper: “President Obama has made 'green jobs' a showcase of his recovery plan, vowing to foster new jobs, new technologies and more competitive American industries.”
If that sounds familiar, it's because our own government has been saying exactly the same about the South African Renewables Initiative: “[It] aims to establish the financing arrangements needed to enable a critical mass of renewables to be developed, while optimising job creation and expansion of our manufacturing base.”
The most high-profile failure in the US involves Solyndra. On its website, you'll read, “Solyndra’s solar power solutions offer strong return on investment and make great business sense.”
If you read a little further, you'll discover: “Solyndra suspends operations to evaluate reorganisation options”.
Great business sense, indeed. You see, it went bankrupt in September last year. It laid off 1,100 people. That's almost a third of the measly 5% of jobs that green-tech stimulus money supposedly created, which demonstrates that even the few jobs government spending does “create” are usually illusory and transient in nature, and unsustainable in the long run. They're the artefacts of inefficiency, if you will.
Not only did Solyndra go spectacularly bust, but politicians were warned, in advance, that it was a very risky business. They knew it was a disaster waiting to happen when they arranged for president Obama to tour the plant and hold it up as a marvellous showcase of his green economy ambitions.
Solyndra blames a global oversupply of solar panels and foreign competition. Some bigots might be swayed by the notion that slant-eyed barbarian hordes steal jobs from God-fearing Americans, but in the real world, factories that produce stuff nobody wants are supposed to go under.
The Washington Post story notes that, “Obama’s efforts to create green jobs are lagging behind expectations at a time of persistently high unemployment. Many economists say that because alternative energy projects are so expensive and slow to ramp up, they are not the most efficient way to stimulate the economy.”
“[It is] 'terrifying' to consider that some of DOE's next projects would make Solyndra look 'better',” said a Wall Street Journal source at the White House Office of Management and Budget, which oversees government spending.
Stimulus-funded green energy projects are hitting the wall with almost monotonous regularity. Beacon Power filed for bankruptcy in October last year. Just last week, two more companies that received stimulus money closed their doors: Ener1 and Evergreen Energy.
Like Solyndra, Ener1 was the subject of high praise from high powers. On 26 January 2011, exactly one year before its bankruptcy filing, US vice president Joe Biden toured the company and declared that the stimulus was: “not just creating new jobs, but sparking whole new industries that will ensure our competitiveness for decades to come...”
It gets worse. In Congressional hearing documents provocatively headlined, “The Green Energy Debacle: Where Has All the Taxpayer Money Gone?”, testimony revealed over 100 criminal investigations, widespread capacity problems with spending budgeted funds, poor quality delivered by the projects that did get funded, and millions of dollars of overspending.
Coming from one of the most sophisticated economies in the world, it makes for stunning reading. South Africa's record of capacity constraints and crony corruption doesn't fill one with confidence that our own green energy subsidies will be any more successful.
The politicians that doled out all this money aren't the only ones with stars in their eyes.
“We're broke, but we're no Solyndra,” said the CEO of Beacon Power.
“Ener1 Is No Solyndra... This is no failure,” wrote die-hard green-energy boosters.
The sole reason for this Pollyanna syndrome is that it remained possible for the companies to come out of bankruptcy protection and continue operating. It takes true believers to spin the last sip of warm beer as a glass half full.
Does all this failure, even in the richest economy on the planet, not make one a little sceptical of South Africa's New Growth Path, which identified the “green economy” as one of five key “jobs drivers”?
Here's the grandiose promise: “Technological innovation opens the opportunity for substantial employment creation. The New Growth Path targets 300,000 additional direct jobs by 2020 to green the economy, with 80,000 in manufacturing and the rest in construction, operations and maintenance of new environmentally friendly infrastructure. The potential for job creation rises to well over 400,000 by 2030. ”
Yeah, right. If you have a problem delivering on promises, dear ANC policy-makers, stop promising the moon and stars. It's one thing to be ambitious and optimistic. It's quite another to be delusional. (Or cynical, to be less kind.)
If the US failed to create the jobs politicians were promising in return for their massive investment of public money, why would SA do any better?
Why are our politicians so keen to repeat the obvious failure in the US to establish a globally competitive “green technology” industry? If the US doesn't have the capacity to spend budgeted stimulus money, will our own “capacity-building” institutions succeed? Why, if the best minds at the US Treasury and the US Department of Energy can't distinguish a promising green venture from a corrupt dud that exists only to pay executives and consultants large wads of risk-free taxpayer money, should South Africans expect their own politicians to prove better at picking winners?
When economists say that government should not be in the business of picking winners, they don't mean to say that government should pick losers, instead. They mean that government should not allocate capital at all. If companies can't make money on the open market, subsidising them through grants, discount-rated loans, or loan guarantees only doubles down on a losing bet.
In his State of the Union address last week, US President Obama said he intends to do exactly that: “double down” on a losing bet. “It's time to end the taxpayer giveaways to an industry that rarely has been more profitable, and double down on a clean energy industry that never has been more promising.”
The smart thing is not to move subsidies from successful, productive industries and giving it to wasteful, unproductive companies. The smart thing is to stop wasting public money on corrupt cronyism altogether.
After all, even in the event that subsidies help a “green energy” company survive (or go to a productive oil and gas firm instead), it only serves to enrich the company's executive and shareholders. It diverts capital from productive uses to unproductive waste. A company that is profitable is a boon to the economy. But even if it makes a profit, if it also receives subsidies it is a white elephant that costs the economy more than the benefits it produces.
South Africa's energy (and jobs) policy should be much simpler, much cheaper, and much less risky.
Let green energy companies offer buyers a price. (“Buyers” will usually mean the Eskom distribution monopoly, but could also be large industrial users of electricity, or even independent municipalities.)
If the buyer agrees to a contract at a given price, let those companies use that commitment to raise private funding from shareholder equity or bank loans to fund the development of the energy to supply the contract. Let private investors try to pick the winners and bear the risk of failure, rather than expecting bureaucrats to do so and forcing powerless taxpayers to take the inevitable losses.
Energy producers that compete among each other on a level playing field will quickly weed out badly run companies and inefficient technology. This will avoid expensive boondoggles that drain South Africa's limited economic resources. It will reduce the price of electricity to consumers, whether they're poor households, or commercial users trying to compete for local or international business.
If inefficient technologies and business failures are protected, by contrast, they can only raise the ultimate cost of energy.
Who's side is the government on? Ordinary citizens and consumers of energy, or rich cronies who gorge themselves at the trough of subsidies and loan guarantees, while producing neither green energy nor profit?
Let's learn lessons from the failures of others, rather than repeating them ourselves. The sooner the South African Renewables Initiative is scrapped, the less harm it will do to our struggling economy. DM
- Fear-mongering – unhelpful in the fight against cancer
- Uber permits as protectionist central planning
- Design your own genetically modified freak show
- 13 ways the media tries to scare you
- Star Trek 50 years on: A vision of hegemony
- The toothless climate change agenda
- Apartheid’s censors ride again
- Only Big Tobacco and Big Pharma want e-cig regulation
- Since when do we believe the tobacco industry?
- The blockchain: How Atlas will shrug
- The mafia bosses and the gambling cartel
- The planet is getting greener
- The tinfoil hat loonies were right all along
- ‘The cheque is in the mail’
- WWF report proves the sustainability of growth
- WWF alarmism raises even green eyebrows
- Chernodeal: Shopping for discount nukes
- Star Trek, 50 years on: A study in sexism
- Let me mansplain statistics to you
- Free the hippies! Don’t ban their drugs!
- Which principle: precaution or progress?
- How to kill a baby, naturally!
- Miserere mei, the Ebocalypse is here!
- Advanced technology or magic?
- Tourism: Still doing okay? Let’s fix that!
- Green-left messiah desperately seeking spin-doctor
- The gun genie and its bottle
- On energy, environment, and regulatory independence
- South Africa’s schools of witchcraft and wizardry
- Grab shale gas opportunity, but avoid opportunism
- It’s about who you don’t vote for
- Free markets as a moderate position
- Voting: there’s still time to change your mind
- Green tech is cool, but not because it’s green
- How Mmusi Maimane swindled a vote out of me
- The case to elect Malema to Parliament
- The intellectual gnome, Chomsky
- If Malema isn’t Pol Pot, is he still dangerous?
- Do Malema's followers understand ‘agrarian reform’?
- Look ma, I'm defending Shell's record in Nigeria!
- Any weather is evidence for global warming
- U-turn prof finds his fracking fears are avoidable
- Ramphele et al: The world according to angry feminists
- On HIV/Aids and scary-big numbers
- Cherry-picking ‘grey literature’ on rhino horn
- 350,000 reasons to kill a black rhino
- Eight myths about libertarians
- New Year’s resolutions for other people
- All I want for Christmas is a fire pool
- In defence of Donald Trump
- My old South African flag
- Fearful Fukushima fiction fatigue
- Do we tolerate private sector corruption?
- In defence of a lion killer
- Save the rare wine and endangered craft beer
- Forever blowing bubbles: shale gas economics
- Promotion and Protection of Investment Bill: When “certainty” means “wait and see”
- This land is my land: a revolution
- The launch of SA's Libertarian Party: herding cats in time for 2014
- The African case against the ICC
- The fossil fuel subsidy myth
- Think of the little fishies!
- The hilariously misunderstood libertarian
- The sickly history of sweeteners
- Pants on fire, but they’re not mine
- The obstructionism of shale gas activists
- How mind-numbing numbers whip up fear
- Why pick on Khanyi Dhlomo?
- Half-measures will fail the rhino
- Malema’s righteous anger... and naïve confusion
- Lottery licence to go to one lucky winner
- Vaccinations: when the state stabs the people
- Do reusable shopping bags kill people?
- The long walk to serfdom
- The Karoo desperately needs development
- The trials of Samson Shuttleworth
- The girl who kicked the hornet’s nest
- Raping the discourse about rape
- Who is the reasonable man?
- Fracking: Debating a big deal
- Who needs the Queen’s English?
- Electric cars: Taking from the poor to give to the rich
- Business Licensing Bill: An indefensible defence
- Red-tape tourism
- The Big Business Bribery Bill
- On Thatcher and society, Vavi and the market
- Extinction: Let’s make up numbers and panic!
- Feeding the world is getting easier
- Stop talking shit: Build your own toilet
- Climate change is pseudo-science
- Anti-competitive competition law
- The Department of Less Government
- An open letter to President Zuma
- In defence of Kim Kardashian
- The world’s weirdest wildlife sanctuary
- Boycott calls are simple-minded
- In defence of vegans
- The population explosion implodes
- Environmental backpedalling picks up pace
- How Mangaung can help and hinder entrepreneurs
- The elusive libertarian enclave
- The Gathering: Ivo Vegter
- The hidden overemployment crisis
- The case for constructive environmentalism
- Privatise the Western Cape's shacks
- Tenders: Not open to employees or their families
- Hurricanes fuel climate sensationalism
- Next: Gross-out warnings on food
- No new deal: The failure of Zumanomics
- Benoni has a bright idea
- Was I wrong about acid rain?
- Public food gardens: Where dumb ideas thrive
- Rethinking the costly food label madness
- Give hunting a chance
- Fracking gets green light, but here's the risk
- Socialists, bless 'em, visit Cape Town
- Buy a 1Time ticket now
- Give the ANC credit where credit is due
- The myth of the competent apartheid government
- It's a disaster that 'peak oil' is not a disaster
- No Gravy: a label for sustainable business
- This lightbulb's going to blow
- Smokers? Get 'em up against the wall!
- Inflating the obesity scare
- Bring a Shotgun to School Day
- GMOs: Hacking genes to feed the world
- The hidden dangers of charity
- Fracking: the unread paper debated
- Fracking: The “U-turn” paper nobody has read
- Eco-cronyism is as dangerous as any other
- SKA: Be grateful Karoo residents didn't object
- Energy: Get cracking on fracking
- Fair trade, unfair trade-off
- Casual labour is only bad for Vavi's unions
- 'Externalities', the catch-all justification for regulation
- 'Externalities', the catch-all justification for regulation
- How do we fix our dismal education?
- Barter: the rebirth of sound money
- Rights are not entitlements
- Debunking 'limits to growth' inanities
- Tax: Why align with "most other countries"?
- Newspaper sensationalism doesn't help rhinos
- Rolling Stone reprises Gasland's fracking fantasies
- Cosatu's manipulative march move
- Why do 16 million people not constitute an economy?
- The age of smear politics
- Does fracking cause earthquakes?
- The Chinese model is morbidly obese
- Green tech: doubling down on a losing bet
- Rape, pornography, and hell's grannies
- Petrol taxes won't hurt the poor
- Jailtime mooted for bad weather warnings
- Let's ban bans, and start with CITES
- In defence of overpaid sport stars
- On the death of Kim Jong-Il
- COP17: Let's ban fire
- Cancer gets you when nothing else can
- COP17: The 'party on' agenda
- COP17: The Blue Line of Death
- New seven natural inanities
- Occupiers' anger is all that makes sense
- The Luddites and Technocrats live on
- Malema marches for economic slavery
- Profitable purveyors of pudendal prettiness
- Sense? Us?
- If they want rhino horn, let's sell them some
- "Stimulate" economy by ending telco abuses
- Executive pay makes nobody poorer
- Malema's real persecution
- Mogoeng: Lock up your daughters
- Don't mandate insurance, deregulate healthcare
- I sympathise with Malema's persecution complex
- Short selling: panicked pols ban proof of failure
- Don't blame those who saw it coming
- What's obscene about profit?
- In defence of Bombela
- Dear president Zuma, you are not above the law
- The economics of love
- Treasure the Karoo? Ban the SKA!
- Malema is right, you know
- Gautrain's PPP: political patronage profiteering
- Kumi Naidoo is no hero
- LeadSA fails to lead when it matters
- No logo means carte blanche
- The drug war: dopey but dangerous
- A response to fracking critics
- Don't vote. It's your right.
- Welcome Walmart
- If you're happy and you know it clap your hands
- Buy local, support poverty
- Ubuntu, the free-market way
- Karoo fracking scandal exposed!
- I'm ashamed for my profession
- The bill of bunkum
- Being gay: a brand new concept!
- Who's afraid of the nuclear wolf?
- The nationalisation canard
- Ogilvy should grow a spine
- The new robber barons
- A classy revolution: Why we cared
- Bombastic Bombela balks
- Liberty is more than mere democracy
- Gautrain has a law unto itself
- The irony of 'services for all'
- How to hire a hitman in SA
- Arrive alive and neurotic
- The oppression of taxis
- Protection of Information Bill and why WikiLeaks is so dangerous
- Fifa, Russia and Qatar deserve each other
- One day, we'll all hate WikiLeaks
- The cycling mafia strikes again
- What Julius got for Christmas
- Let's return the beads
- Away with fascist seat belt laws
- Tintin Mbeki in the Sudan
- How the ANC can make everyone happy
- Currency: the race to the bottom.
- Hurrah for national healthcare!
- Give Zimbabweans citizenship
- Carte Blanche has no carte blanche
- That finger-licking, lip-smacking taste
- Bomb the barbaric lot already
- Green tax: another raid is coming
- Do strikers deserve anything?
- The media will lose this battle
- Global warmism needs a fisking
- A glass half-full
- Go ahead, have a baby
- Stop the handouts - end xenophobia
- The right to fire
- FIFA's heart of darkness
- Have some self-respect
- I ordered an orange skirt
- Secretly, Match blames South Africa
- The stupendous Gautrain: a rare marvel!
- The Fifa conquistadors are coming!
- What's wrong with everyone?
- Leave poor BP alone
- The destructive power of government
- The bonsai economy
- The darkness of Africa
- Who is ripping off whom?
- Anatomy of a whitewash
- While FIFA takes over, we fight
- The pointless pretence of Earth Hour
- Ten reasons to reject climate alarmism
- Really, boycott the FIFA farce
- The climate dominoes fall
- Lessons in ethics from Dick Cheney
- Screw the consumer
- In defence of bankers
- Break the banking cartel
- Julius Malema, the walking contradiction
- Boycott FIFA
- Climate clarity
- In defence of Boney M
- Pray Copenhagen fails
- Capitalism is not unkind
- Climate fraud kills people
- Pop goes the hot air balloon
- Peace, love and schadenfreude
- The irony of the left
- Too late to cool it?
- Going cold turkey