Gingrich: Free Markets Are “Pious Hope’
If Obama wins and you had a line-item veto on his energy plan, what would you eliminate?
His energy plan is largely pious hope. He hopes they can make breakthroughs and do this or that.
It’s fascinating how when belief in the power of market capitalism clashes with belief in the need for public policy to advance the narrow interests of powerful corporations, conservative politicians invariably come down on the “advance narrow interests” side of the ledger. After all, the “pious hope” element of Obama’s energy and climate proposals is the belief that if we put an appropriate price on carbon emissions, the new market incentives this creates will lead to the development of a mix of affordable low-emissions power and energy efficient applications.
After all, we have the stuff we have — the power plants, the factories, the cars, the stores, the products, etc. — because right now that’s what it makes sense to build. There are significant negative externalities associated with carbon emissions. But right now, those externalities aren’t prices. Consequently, the market has worked to create an economy that functions well, but that involves emitting a lot of carbon. It would be odd, under the circumstances, for the market to have given us any other kind of economy. But if we change the structure of the market to ensure that emitters need to pay the true cost of their emissions, then the market will keep working and the economy will develop in a different direction. There’s nothing especially pious about the hope, it’s well-grounded in theory and in our experience with past environmental regulations. The real pious hope is the idea that if we do nothing to change incentives, a miracle solution will just emerge out of the ether for no reason. That could happen, but it’s not especially likely. And the combination of pessimism about the ability of the economy to adapt to a carbon price with extreme optimism about the ability of miracle answers (clean coal!) to emerge if we just kind of wait around and maybe throw a few tax breaks around is totally nonsensical. Nonsensical, but lucrative for executives at large energy firms. And, therefore, widely embraced by conservative politicians.
36 Responses to “Gingrich: Free Markets Are “Pious Hope’”
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November 3rd, 2008 at 12:38 pm
Newt Gingrich in 1941: “The belief that we can split the atom and harness nuclear power is largely a pious hope”.
Newt Gingrich in 1961: “The belief that we can land a person on the moon and bring them safely back–within 10 years, no less–is largely a pious hope.”
etc.
November 3rd, 2008 at 12:48 pm
“…after all, the “pious hope” element of Obama’s energy and climate proposals is the belief that if we put an appropriate price on carbon emissions, the new market incentives this creates will lead to the development of a mix of affordable low-emissions power and energy efficient applications…”
I sure hope this is what Obama has in mind (and it’s one of the reasons I’m voting for him tomorrow). Problem is it means making carbon fuels (gasoline, heating oil, coal, etc.) more expensive and that’s not going to be popular. Politically, low energy prices always seem to win out over anything else.
November 3rd, 2008 at 12:51 pm
I am astounded at the degree to which Newt Gingrich is viewed as a “thinker” instead of simply another right wing freakish hack.
November 3rd, 2008 at 12:59 pm
This is pretty elementary stuff but it’s powerful and needs to be trumpeted at every opportunity: conservatism isn’t the defense of a concept (economic freedom), it’s the defense of a specific group of people (those who are already wealthy and powerful). Since that specific group of people is quite small, conservatism falsely claims to be the defense of a concept. Shame on us for not laying bare the falseness of their claim.
November 3rd, 2008 at 1:06 pm
The real pious hope is the idea that if we do nothing to change incentives, a miracle solution will just emerge out of the ether for no reason.
The effects of changing incentives are unclear and may not be what you hope. Reducing the price difference between renewable energy and fossil fuel energy through government subsidies or a carbon tax/permit scheme would reduce the market incentive for cost-reducing advances in renewable energy technology.
November 3rd, 2008 at 1:14 pm
I think that a major point of this discussion needs to be the concept of “externalities”. Right now, polluters are free-loaders who aren’t paying all of the costs associated with their business operations (the effects of pollution on public health and greenhouse gases on the climate). All that a carbon tax does is ask them to help pay for the damage that they cause and the infrastructure to reduce that damage.
November 3rd, 2008 at 1:21 pm
I disagree. The incentive would still be there to decrease the cost of the technology since that would still improve the profit margin. The problem would come from companies not passing those savings on to their customers.
November 3rd, 2008 at 1:22 pm
I wonder if he knows that we’re about to pass Germany for the lead in wind power produced.
November 3rd, 2008 at 1:22 pm
“So, Newt… How’s the wife?”
November 3rd, 2008 at 1:27 pm
Note also that he’s slamming liberals for seeking tech fixes. Now, we’ve sometimes seen Matt prone to those, and I’ve myself been critical. But I think of the strategy really as a conservative one to rescue faith in the free market. I’d have thought of liberal strategies as regulation or funding of existing technologies, while conservatives figure we can muck up the future as much as we want, since the free market will bring innovation to save us in the end.
November 3rd, 2008 at 1:28 pm
Mixner,
You may be right but given the size of the alternative fuels industry today relative tot he fossil fuel industry, I don’t think this is a big concern. Further, carbon tax/permit would help renewable energy vis a vis fossil fuels but they would still need to compete with other forms of alternative energy – wind vs biofules vs nuclear, etc.
November 3rd, 2008 at 1:32 pm
I can’t think of anyone more full of shit than Newt Gingrich. The bafflement raised by El Cid has often crossed my mind. Only in a universe in which Bush is well-read and Palin is an energy expert is Newt valued for the opinions that spew from him.
November 3rd, 2008 at 1:35 pm
The incentive would still be there to decrease the cost of the technology since that would still improve the profit margin.
I said “reduce the incentive.” It’s a matter of the magnitude of the incentive, not whether there is one at all. The more competitive the government makes renewable energy in the marketplace through price subsidies or a carbon tax, the less incentive companies have to work on technological advances to reduce the cost of providing it.
November 3rd, 2008 at 1:46 pm
The more competitive the government makes renewable energy in the marketplace through price subsidies or a carbon tax, the less incentive companies have to work on technological advances to reduce the cost of providing it.
This would be the case if the size of the market for renewable energy stayed constant. But since we hope and expect that the market will grow, small efficiency improvements could potentially have very large benefits to those who develop them.
November 3rd, 2008 at 1:51 pm
The result of a carbon tax is pretty predictable – Its firstly:
Lots of nuclear power stations – because nuclear is the cheapest non-carbon-emitting power source, so thats what utilities will build in a situation where carbon is taxed. Windmills will happen in windy locations, but those are limited, so the total contribution will be in the single digit percents. Solar will not be used at all due to cost and enviormental impact. (landuse. Paving an area in solar receptors destroys it as surely as paving it in concrete)
On the transportation front, a carbon tax means more research into battery powered automotion, since a car running of a mainly nuclear grid would not be emitting any.
Both of the above are good things. Nuclear is orders of magnitude safer than coal is.
November 3rd, 2008 at 1:56 pm
The more competitive the government makes renewable energy in the marketplace through price subsidies or a carbon tax, the less incentive companies have to work on technological advances to reduce the cost of providing it.
Huh? Mixner may be correct about what “price subsidies or a carbon tax” would do, but not about what Obama’s energy plan would do. If I am understanding correctly, Mixner’s argument is that if government subsidizes clean energy by just giving clean energy companies money or taxing their competitors, the clean energy companies will have no incentive to do things more cheaply and become more competitive because they get the free money anyway. First of all, I disagree. Even if the government gives you free money, you can still increase your profits further by doing things more cheaply, and why wouldn’t companies want to increase their profits as much as possible?
Second of all, Obama’s energy plan is for a full auction of carbon permits. The more carbon emissions you produce, the more it will cost you at auction to purchase permits. So every reduction of carbon emissions increases profits, making carbon reducing technology valuable. The profits come not only from clean energy companies being able to set prices lower than dirty energy companies, but also from making carbon reducing tech valuable to everyone in the market.
Also, you can think of the carbon permits as a “tax,” or as ben pointed out earlier, as simply making companies pay for the negative externalities of pollution that were previously free.
November 3rd, 2008 at 2:06 pm
I could be wrong, but it sure looks to me like there are more areas in the US that have high wind activity than have Uranium deposits:
Wind Power Map
For instance, New York City is withing 100 miles of several areas that are very windy; keep in mind, also, that the vast majority of NYC’s water is pumped in from farther away than that.
November 3rd, 2008 at 2:12 pm
I seriously wish the next president, hopefully Obama, would spend five minutes during a speech announcing their energy policy to explain to the American public what an externality is. I think the single greatest hurdle to convincing the public that we should incentivize clean energy is the general ignorance of externalities, how they work, and how they affect our lives.
November 3rd, 2008 at 2:34 pm
dbeach,
This would be the case if the size of the market for renewable energy stayed constant.
It’s true regardless of the size of the market.
safron,
Mixner may be correct about what “price subsidies or a carbon tax” would do, but not about what Obama’s energy plan would do.
Er, as Matt correctly observed, Obama’s energy plan includes putting a price on carbon. That would make renewable energy more competitive in the enery market than it is now. And as I said, that would reduce the incentive of energy companies to pursue technological advances to lower the cost of providing renewable energy. At least part of the benefit they would get from such advances is being given to them for free through the pricing of carbon.
If I am understanding correctly, Mixner’s argument is that if government subsidizes clean energy by just giving clean energy companies money or taxing their competitors, the clean energy companies will have no incentive to do things more cheaply and become more competitive because they get the free money anyway.
You’re not understanding correctly. Like DaveNYC, for some strange reason you don’t seem to be able to understand that reducing an incentive is the not the same thing as eliminating the incentive altogether.
November 3rd, 2008 at 3:03 pm
Mixner,
You completely ignored the second half of my post, in fact the main part of my post, where I point out that the cheapness of clean energy relative to dirty is not the only incentive from Obama’s plan. His plan also creates a new incentive to create profitable carbon reducing technology. Currently, the only point of a company purchasing and using carbon reducing technology is to say that “we’re green,” which might improve their brand or good will if consumers believe it but is hard to quantify. With full auction of carbon permits, this carbon reducing technology will now have an explicit monetary benefit. This monetary benefit only applies if the carbon reducing technology is cheaper than the cost of permits. I think that overall, therefore, the incentive for cost-reducing advances in clean technology is greatly increased.
November 3rd, 2008 at 3:15 pm
Huh?!?!? I don’t think you understand the meaning of some of the words you are using, like “incentive” or “competitive”.
If clean energy becomes more competitive, that will *raise* the likelihood of clean power plants, not lower it. Because being “competitive” is good.
November 3rd, 2008 at 3:26 pm
“Lots of nuclear power stations – because nuclear is the cheapest non-carbon-emitting power source, so thats what utilities will build in a situation where carbon is taxed. Windmills will happen in windy locations, but those are limited, so the total contribution will be in the single digit percents. Solar will not be used at all due to cost and enviormental impact. (landuse. Paving an area in solar receptors destroys it as surely as paving it in concrete)”
Wrong. On the latest estimates I’ve seen, nuclear power has
capital costs about equal to solar thermal; and then it has
higher running costs, and it needs fuel, and there’s also a
big negative externality in spent fuel disposal, and uninsured
catastrophic risk (yes, the risk is low, but it isn’t zero:
and if the nuclear reactor upwind of your house melts down,
the corporation running it goes bankrupt and you get squat).
The sunny arid Southwest of the USA is just about perfect for
solar power: high insolation, cheap land, much of it with not
enough water for agriculture. They’re building big solar
plants in the Mojave Desert right now. And if you look at the
cost trends, the future is clear: nuclear plants are very expensive and keep getting *more* expensive; solar plants are
already comparable in capital cost, cheaper in running cost,
and are getting cheaper with time as the technology develops.
The only real problem is getting the power to the customers,
and a modest investment ($10B/year for 10 years) can give us
a decent electricity grid to support that.
We also have a lot of good sites for wind power, and that
technology has been improving rapidly.
Further into the future, combined concentrated solar + gas
plants, or solar + molten salt heat storage, can help spread
solar generation through the nighttime hours (though since
peak load is for air conditioning on sunny afternoons, that’s
not an immediate problem).
There’s also huge scope for energy conservation measures:
we use energy for heat, cooling, lighting, and motors.
Heat and cooling usage can be reduced with insulation, more
efficient furnaces and air conditioners, and “green building”
techniques. Lighting usage can be reduced right now with CFL
bulbs and occupancy sensors; in the next 5 years solid-state
LED lighting is likely to become competitive – right now it’s
about $40 for an LED bulb and the light output is low, but
those products are evolving rapidly. Motor efficiency can
be greatly improved using DSP microcontrollers and power
MOSFETs, technologies which are just getting cheap enough to
spread widely.
So a lot of the technologies we need are already very close.
A carbon tax (or cap-and-trade) will do much to accelerate
development and adoption of all this good stuff.
November 3rd, 2008 at 3:26 pm
You completely ignored the second half of my post, in fact the main part of my post, where I point out that the cheapness of clean energy relative to dirty is not the only incentive from Obama’s plan.
I ignored that assertion because it is irrelevant to the point I was making about technological incentives that you were challenging.
The broader point, as I said in my first post, is that the effects of changing incentives are unclear and may not be what you hope. A good illustration of this is Germany’s incentives for solar power. The hope was that they would make solar energy cheaper by expanding the market and creating economies of scale. What has actually happened is that the increase in demand in Germany caused a massive increase in the global price of silicon, which has discouraged other countries from pursuing solar power in places where it makes more sense, like southern Europe and the southwestern U.S. This doesn’t mean Germany’s solar policy won’t ultimately produce a net benefit. Maybe it will. But the issue is complicated and the overall effects unclear. Big Government environmentalists need to take off their rose-colored glasses and pay more attention to the Law of Unintended Consequences.
November 3rd, 2008 at 3:34 pm
“What has actually happened is that the increase in demand in Germany caused a massive increase in the global price of silicon, which has discouraged other countries from pursuing solar power”
True, if you add the word “temporarily” before “discouraged”.
Yes, demand for solar cells has risen, and prices have gone
up a little. But also that demand for solar cells has led to a
huge amount of investment in capacity for making solar cells,
with big companies like Intel getting into the game.
The market is growing rapidly, which is good, even if the way
the cells are used so far is not optimal. And when all that
investment takes effect, supply will increase dramatically and
prices will surely drop again.
The development of this market is not completely orderly, and
the way the solar cells are used is not completely optimal.
But that’s just capitalism for you, it gets things done, just
in an ugly way sometimes. The eventual outcome will be a lot
of solar-cell factories producing a lot of cells at a low
price, and that’s a good omelette to be cooking even if a few
eggs get broken along the way.
November 3rd, 2008 at 3:58 pm
True, if you add the word “temporarily” before “discouraged”.
You obviously don’t know that it’s only temporary, and even if it is, it’s still a cost that must be taken into account in evaluating the overall effect of the policy.
Yes, demand for solar cells has risen, and prices have gone
up a little.
“A little?” The price of high-grade silicon increased from $25 per kilogram in 2003 to around $400 in 2008.
But also that demand for solar cells has led to a
huge amount of investment in capacity for making solar cells,
with big companies like Intel getting into the game.
How much investment would that be? And how much investment did it inhibit elsewhere by making solar power more expensive? How much more solar power would there be today in sunny places where it makes more sense, like Spain or Arizona, if cloudy Germany hadn’t distorted the market so much?
November 3rd, 2008 at 6:25 pm
Point the first: Nuclear waste storage is not an externality. nuclear utilities pay for it via a small surcharge on every KWH the reactors produce, so its an internalised cost. The entire point of taxing CO2 emissions is to make coal pay for its pollution in the same way a nuclear plant does. (for true equivalence the tax should be used to sequester CO2..)
Point the second; Existing us nuclear power has had extremely high construction costs because each and every reactor has been a unique design, and, usually, extensive and expensive legal harrasment during construction. Combined constuction + operating licences and type approval eliminate the second, and the first isnt going to do anything to deter oh, EDF from entering the us electricity market with a standard design. Note that france has much cheaper nuclear electricity than the US does – mostly because its reactors were built under a superior regulatory regime, which the US congress has now essentially copied in full
Point the third: I’ve yet to see any solar electricty plants that generate power at anything close to a reasonable price – and even where it is possible, its still extremely destructive of landscape, and intermittent. Destroying death valley to get power during the day only doesnt strike me as a good bargain, or very green.
Point the fourth: Power savings has its place, but it is not a viable alternative to nuclear – but rather a supplement. I am not interested in solutions that will cut our emmissions by 20% – that is, quite simply, no enough. For long term viability, our carbon emissions need to be reduced to to 20% or less of what they currently are. And nuclear can get us there. I dont see any other options on the table that can do it in a reasonable timeframe.
November 4th, 2008 at 12:25 am
People who can’t talk confidently about the following concepts:
1. externalities
2. adverse selection
3. natural monopolies
4. moral hazard
should probably pretty much STFU about economic issues (unless of course they’re just asking questions).
There’s more, but those should be the basics.
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