Freedom Line Blog

In my commentary last week — focusing on the economic weaknesses of the Republican presidential candidates — I spent some time looking at Newt Gingrich’s enthusiasm for various energy subsidies, a pathology that he’s shared with much of the bipartisan establishment of the last decade or so. I noted in conclusion:

The Speaker is smart enough to know that the virtues of a free market apply to the energy industry just as much as any other. Fuel markets work best when consumers are making decisions based on price and quality, not when politicians are hand-picking energy sources to please favored constituencies.

This is just as true of conventional fuel sources like coal and oil as it is of boutique alternatives like hydrogen, wind, or solar. And it’s just as true whether it’s Democrats or Republicans giving the handouts. That’s why it’s so refreshing to see a group of Tea Party conservatives on Capitol Hill attempting to strip the crony capitalism from the energy industry. As Timothy P. Carney reports in the Washington Examiner:

Freshmen Rep. Mike Pompeo of Kansas has proposed the loftily titled “Energy Freedom and Economic Prosperity Act,” while the Senate’s Tea Party heroes, Jim DeMint (S.C.) and Mike Lee (Utah), have introduced the companion bill in the upper chamber.

The bill, which Pompeo hopes to insert into legislation extending the payroll-tax credit, would take a huge bite out of energy subsidies by eliminating tax credits for everything from solar panels and wind turbines to oil drilling and nuclear power generation. At the same time, the measure would cut tax rates.

…”This is the model,” Americans for Tax Reform President Grover Norquist told me Friday. It gets rid of the hodgepodge of distorting credits that steer money away from productive energy investments and toward politically favored activities, and it also lowers everyone’s rates. Neutral, low taxes, conservatives have long argued, are the formula for prosperity and economic growth, not to mention fairness.

On this, Norquist is precisely right. By taking the federal government’s hand off the scales, this bill would allow energy providers to flourish or falter on the merits, rather than according to the size of their lobbying budgets. And by lowering tax rates, it would ensure that providing Americans with the energy they rely on to do everything from heating their homes to driving their cars would be both more profitable for producers and more affordable for consumers.

Pompeo is to be saluted for his courage. Now it falls to the American people to push for this bill’s passage. A wide array of energy industry lobbyists will be hell-bent on killing it. That’s just one more testimony in its favor.

Senik’s Law of Subsidies: Subsidizing any industry into existence requires destroying its more efficient competitors. And that, ladies and gentlemen, is the story of green jobs.

Luckily, the Obama Administration hasn’t been able to get its hands on the noose with which it intends to strangle the energy industry (I’m sorry … the industry that produces energy that actually works): that would be cap and trade. Thus, it’s had to settle for the silver medal of plowing money into “green jobs” that can’t balance the books without a chunk of your paycheck to stem the tide of red ink. The problem, of course, is that since conventional fuel sources like coal and petroleum are still the most feasible energy sources, the government is underwriting jobs that serve no discernible demand in the consumer market. Consider this passage from a story in today’s Washington Post:

With nearly 15 million Americans out of work and the unemployment rate hovering above 9 percent for 18 consecutive months, policymakers desperate to stoke job creation have bet heavily on green energy. The Obama administration channeled more than $90 billion from the $814 billion economic stimulus bill into clean energy technology, confident that the investment would grow into the economy’s next big thing.

What could go wrong? After all, if the administration is “confident”, there’s no reason to doubt, right? The Obama White House is know for nothing if not its clairvoyance (we’ll leave aside the question of why the “next big thing” would require subsidies). Oh, Mr. President, we hate to interrupt your dance with delusion, but reality would like to cut in:

The industry’s growth has been undercut by the simple economic fact that fossil fuels remain cheaper than renewables. Both Obama administration officials and green energy executives say that the business needs not just government incentives, but also rules and regulations that force people and business to turn to renewable energy.

Without government mandates dictating how much renewable energy utilities must use to generate electricity, or placing a price on the polluting carbon emitted by fossil fuels, they say, green energy cannot begin to reach its job creation potential.

Forget Afghanistan. Energy policy is the administration’s real parallel to Vietnam. We must destroy our energy sources in order to save them.