Are Subsidies a legitimate use of Tax Dollars?
Here is one of the arguments posted by a media publication, Intelligent Utility, which was submitted by a reader explaining why there should be government subsidies for renewables.
“Without subsidies, the wind farms would not have been built, one wrote. On the other hand, without subsidies, there would be no national railroad network, no national defense highway (interstate system), no sewage treatment plants, few hospitals of any size, no drinking water systems, [and] no large hydro-electric dams to speak of. In short, the country has invested (and that is the key here) in almost every large infrastructure project in history … this is one of the reasons we have governments and taxes, to move the ball forward where large infrastructure investments need to be made.”
While this is the argument used to support government subsidies for renewables, and to have government force renewables onto the public with renewable portfolio standards (RPS or RES), it is specious. The argument also claims there is a “need” for government subsidies to build large infrastructure projects.
It’s specious because it ignores the reasons why these infrastructure projects were built with government support. The argument’s claim that there is a “need” for wind etc. is also fallacious.
Taking the later point first; renewables would be built with private money if they were efficient. Unfortunately, wind and solar are both very inefficient. Investors couldn’t earn a return on their investment without subsidies because they would not be able to sell the electricity generated by wind and solar because it costs more than electricity produced by natural gas or coal-fired power plants. There is no “need” for renewables because there are huge reserves of natural gas and coal and they can generate electricity very efficiently.
I suspect that the person making the comment was referring to a “need” to cut CO2 emissions, but for reasons covered in earlier articles, this is a false premise.
Giving free land to companies so that railroads could be built across the United States was a subsidy, but there was a genuine need for transportation to carry goods and services across the continent. Without railroads it would have been impossible to develop the vast expanse of the United States. There was a genuine need, there was no alternative to railroads and the risks were too great for private investment alone.
The New York Subway system was originally built with private money because the investors could charge a fare and earn a return on their investment.
Dams were largely built as a flood control measure, which also incorporated power generation that produced cheap electricity. There was a need for flood control, which is a legitimate function of government. Whether the dams could have been built as public private partnerships is, at this late date, an imponderable.
The issue of drinking water is interesting since many environmentalists object to privatization of drinking water supplies.
The Interstate system was built by government as a national defense measure, with defense clearly a government responsibility. Even if that rationale is suspect, private builders would have had to charge tolls in order to obtain a return on their investment. At the time, it was thought that the use of highways should be free, ergo, the term Freeway. Times have changed, and tolls are now collected by the government. When private companies have tried to build toll roads, people have objected, saying it was a function of government.
I don’t believe it was really a subsidy, but the U.S. postal service paid airlines to carry mail. The airlines, and mail carriers, were private entities that did benefit from their contracts with the postal service.
An interesting event that demonstrates how the free market system is constantly developing new products and services, often with the demise of existing companies, is what happened to the Pony Express, a glamorized, historic icon of American history.
The Pony Express lasted for only about one year, and was put out of business by the telegraph.
There are a number of statues idolizing the Pony Express scattered around the West, but I have seen none extolling a telegraph operator.
The tax code is replete with subsidies of all kinds. For example, there is the mortgage deduction that subsidizes home ownership.
While it’s not possible to argue about every subsidy, there should be agreement that government subsidies are inappropriate when they are used to compete with private investment, or produce products or services that are inherently uneconomic and for which there is no need.
Wind and solar, for which there is no need, are both inherently uneconomic.
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