Subsidies, good or bad?

No delusion is greater than the notion that method and industry can make up for lack of mother-wit, either in science or in practical life.
Thomas Huxley – scientist

Have you ever noticed that a good capitalistic idea can stand on its own. A good product can find private funding, customers and be sold at a profit. Think of all the home computer companies. People wanted computers, the factories made them and they were sold at a profit. Of course, not all computer companies that started up are still in business. Some just did not measure up, some did not adapt to the speed of advancement in the business. They failed. It is called survival of the fittest.

Or how about televisions? Many companies manufactured them over the years. Some could not remain competitive, so they dropped out, but the public wanted televisions and they bought them. No subsidies were needed.

Henry Ford made an automobile. The public wanted it; they bought it. I really do not know if there were government subsidies back then or not, but the company made it on the value of its product, not on subsidies.

A big portion of the stimulus package is being spent on subsidies to private industries. These subsidies are supposedly to create jobs, but have you noticed they are going to companies that are never going to be competitive in a level working field.

Take General Motors’ (61% owned by the government) battery powered car, the Volt. Over the next five years, the American government will supply 27 billion (with a b) of taxpayer money to develop a battery-powered, four-occupant car that will cost $41,000, have a range of 100 miles and has a dubious battery life.

Henry Ford’s car was successful because it could go almost anywhere, even in a time without many paved roads. An owner could put the family in the car and go coast to coast. Somehow a “modern vehicle” costing as much as a luxury vehicle, but with a range of 100 miles, does not seem to measure up. If no one wants it, it does not matter how politically correct it is, it will not succeed.

Of course, the actual cost of the Volt will probably not be $41,000. The government will subsidize the buyers. That means that an individual taxpayer will help pay for the development and construction of the car, and then pay part of the price for someone to buy it, even if that taxpayer has no intention of buying an electric car for himself. God help us if the thing actually becomes popular and sells millions of units. Taxes would have to be raised to subsidize the taxpayers . . . huh?

The correct way to market a car is to make what the buying public wants. Many things go into the buyer’s decision, things like cost, size, mileage, performance, durability, reliability, range, weight and passenger capacity, appearance, pride of ownership, insurance cost and cost of repairs. There are people who will buy a specific car only because it will help save the environment, if they can afford it, but those people are a small part of the overall population. The wisdom of subsidizing a car that has a small chance of success does not bode well for pork barrel politicians.

There are other major government subsidies. They can be found in all the energies sectors. Here is a quick comparison:

$0.25 per megawatt-hour for gas and oil generated electricity. This subsidy should be eliminated; gas and oil have always been able to compete without subsidies.
$0.44 per megawatt-hour for coal generated electricity. This subsidy should be eliminated; coal has always been able to compete without subsidies.
$0.60 per megawatt-hour for hydroelectric power. This subsidy should be eliminated; hydroelectric has always been able to compete without subsidies.
$1.60 per megawatt-hour for nuclear power. This subsidy should be eliminated; nuclear power has always been able to compete without subsidies.
$23.50 per megawatt-hour for wind power. This subsidy should be eliminated; wind power will never be able to compete without eternal subsidies.
$24.50 per megawatt hour for solar power. This subsidy should be eliminated; solar power will never be able to compete without eternal subsidies.

If someone has an idea on how to generate electricity on a competitive basis, there will be individuals and companies interested in investing in that technology. There will be no need for government subsidies. If all subsidies were discontinued today, would you invest in the GM Volt, wind power, and solar power? Would a high probability of never seeing a return on your investment bother you? If it would, you might consider that these enterprises are what your government sees as the best use of YOUR money. The government has no money of its own. Perhaps it should get out of the subsidy business.

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Published in: on August 6, 2010 at 2:33 pm  Leave a Comment  
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