Find It

Government Winners Are Often Losers

By Kennedy Maize

Washington, D.C., April 19, 2011 – An article in the Washington Post last week highlights why it is folly for government to try to pick winners in complex, technological markets. In this case, it is the market for cars, where the Obama administration is betting – with your money and mine – on the success of electric vehicles. Several other recent articles reinforce that opinion about the wisdom of governments picking winners and losers.

The Post article reports on whines from the auto industry, the beneficiary of Obama’s fixation on electric cars, about the government dropping support for hydrogen as the answer to hydrocarbon vehicle fuels. Hydrogen was George W. Bush’s fave. The carmakers complain that after Uncle Sam has put great gobs of money into hydrogen fuel cell powerplants, Washington is now abandoning the technology.

What the car folks want, of course, is more money for both approaches to build vehicles that consumers have shown no inclination toward buying on their own. This is the “heads, we win; tails, you lose” strategy. The article quotes a Hyundai official claiming, “We feel like the technology is virtually ready to go.” Read “virtually” carefully. That means, “It just might work if the government puts a few billion dollars more into it.”

The article by Post auto writer Peter Whoriskey notes that energy secretary Steven Chu is skeptical about hydrogen as a vehicle fuel. Did you know that Chu has a Nobel Prize in physics? The Obama administration never utters his name without dropping that fact, as if that makes him infallible, a technology Pope. But there’s as good a chance that Chu is wrong as there is that he is right. All the knowledge of physics he possesses doesn’t equip him to be able to discern what scores of millions of U.S. drivers really will buy in the years ahead.

Who knows what will succeed? The market knows, and I say that as someone who is often scornful of the free market religious zealots who claim all governmental decisions should be left to market forces (particularly when they often mean monopoly forces). So far, as I’ve written elsewhere, electric vehicles are unlikely to win much market share anytime soon. Even if Obama’s goal of a million EVs on the road by 2015 is achieved, which I doubt, that’s not much penetration.

In a recent issue of The Growth Stock Wire, analyst Larsen Kusick notes, “Despite the big hype campaign, investing in electric cars is turning out to be a dud.” Investors are shunning the next big thing because consumers aren’t buying. The article presents month-by-month sales results for Chevy’s Volt and Nissan’s Leaf. The plug-in hybrid Volt sold 326 cars in December, 321 in January, 281 in February, and 608 in March. Not exactly hot cakes. The fully-electric Leaf has been even shakier: 19 sold in December, 87 in January, 67 in February and 298 in March. Of course, these figures will improve as the vehicles gain market traction. But they surely do not appear to be game changers.

The government should not be putting money into development of new consumer goods and services, and not just on theoretical grounds. The government’s record in picking winners and losers is lousy. We all know the whoppers the government has backed over the years in energy technology. Fusion. Breeders. Synfuels. Magnetohydrodynamics. The list is long and a little depressing.

Government-supported technology development almost always involves political intervention, usually with untoward consequences. Remember the big push for alcohol fuels? That was driven more by a desire by farm state legislators to prop up the agricultural economy than any sound ideas about displacing conventional oil. When the result was higher food prices that beggar our Mexican neighbors, the attention switched to switchgrass. George W. Bush was going to push ethanol from cellulose on us through the force of his personality alone, since there still is no commercial technology to accomplish the chemical transformation. If alcohol fuels really had anything significant to do with reducing oil imports or cleaning the air, why would we continue trade barriers keeping cheap alcohol from Brazil out of the U.S.?

But the farm state solons aren’t embarrassed by their dangerous and costly experiment in industrial and social engineering. The Wall Street Journal reported this month that the U.S. Department of Agriculture is set to offer grants and loan guarantees for new pumps at gas stations to deliver E85 fuel. That’s a blend of 85% gasoline and 15% booze. According to USDA, only about 2,500 U.S. fueling stations, out of 110,000, now accommodate the latest blend. Congress in the 2008 farm bill gave USDA $60 million for FY 2010, $70 million for FY 2011, and another $70 million for FY 2013 for the new pumps, which come in at about $120,000 a pop. Naturally, that money wasn’t touched by the born-again budget cutters and the new crowd in Washington during the recent budget frenzy. Apparently, some Republicans like a bit of alcohol in their tea cups.

The Reagan administration had it right on the proper role of government in technology. Early in the Reagan years, the administration said its policy at the Department of Energy would be to support basic research, the things that the private sector couldn’t and wouldn’t justify on economic grounds. But the “D” part of R&D would no longer be part of the government’s job. Unfortunately, that wise policy quickly fell victim to politics; the Reagan years saw as many funding follies at its predecessors and successors.

Should government fund hydrogen cars, electric cars, or both? How about neither? And they should take the pledge and give up the politically intoxicating ethanol at the same time.

Don’t Close the Government, Abolish DOE

By Kennedy Maize

Washington, D.C., April 11, 2011 – Now that the children of all ages have stopped holding their breath until the government turns blue, we can get back to more important subjects, such as what the federal government should look like, how it should relate to the states, how much should it spend, and where. These, of course, are themes that run through the entire history of our nation and our government.

I must confess that only one thing really troubled me during the debate about “shutting down” the government. That was a small detail: it would not have shut down the U.S. Department of Energy. DOE had enough “no year” money to keep going for a while. Darn! Spoiled the whole adventure.

What the heck, it gives me a chance to resurrect my occasional rant about why we don’t need an energy department, and would be better without it. I know full well that this is futile windmill tilting, but it at least gets the subject out in the public from time to time. So, Sancho, let’s go again, starting with a little history.

Creating the Department of Energy in 1977 was a bad idea to begin with, part of the hangover from the World War II Manhattan Project, which built the bombs that brought Japan to its knees. The success of the Manhattan Project led to a belief that big, government-funded and government-managed, science can solve all or most of society’s problems. The Manhattan Project begat the Atomic Energy Commission, which in turn begat the U.S. Nuclear Regulatory Commission and the Energy Research and Development Administration. ERDA was transmogrified into the core of DOE in 1977. Ironically, the next-to-last AEC chairman, Jim Schlesinger, was also the first secretary of energy (and a leading figure in the Carter administration in creating the bureaucratic Frankenstein).

The concept of a central federal energy agency got traction in the Nixon administration during the first Arab oil crisis. Nixon established a federal energy office and it became the Federal Energy Administration in 1974. Unlike Nixon’s energy office in the White House, the FEA was established by law. I was working at the National Institutes of Health when the FEA was created. We, as was the case with most other federal agencies, were asked to come up with a number of people to shift over to the new energy administration. We welcomed that opportunity, viewing the FEA as a new federal turkey farm where we could unload all of our turkeys. And we did. We sent our tired, our poor, our muddled asses as pilgrims to the new agency.

Jimmy Carter in his 1976 campaign (and Nixon and Ford before him) complained that the U.S. was not enough like Europe when it came to responding to the world’s changing energy landscape. When the Euros held an energy meeting, usually at some hell hole like Geneva or Vienna, they sent “energy ministers.” We didn’t have an energy minister, just a bunch of rubes who didn’t even speak French. So Congress is its infinite wisdom, anxious to do anything that looked like it was responding to high gasoline prices, passed the law creating the U.S. Department of Energy, which went into business on October 2, 1977.

DOE was made up of a conglomeration of used and useless parts, cobbled together and given a fancy home in the Forrestal Building on one of Washington’s signature boulevards, Independence Avenue. Bits and pieces from the National Science Foundation, the Interior Department (including the research program of the U.S. Bureau of Mines, which employed my father for over 30 years), the Federal Power Commission, and so forth were tacked onto the ERDA bureaucratic bulletin board.

And how has that worked out? DOE, I would argue, has been, by turns, irrelevant and an impediment. In the early years, a lot of DOE effort went into regulation, attempting to keep those nasty oil companies from making money by selling gasoline to Americans. That’s where Hazel Rollins (she wasn’t an O’Leary then) got her introduction to energy, which she later parlayed into a job as energy secretary in the Clinton administration. Remember “windfall profits?” That was part of DOE’s responsibilities. In the late 1970s, the summer softball team made up of oil industry lobbyists called itself, aptly, the “Obscene Prophets.” All that fuss and muss, of course, had no appreciable effect on gasoline prices. Nor did the Nixon administration’s heedless pursuit of nuclear power plants on every street corner. It turned out, to the surprise of many in Washington, that cars did not run on electricity.

During the Reagan years, the attention of DOE shifted to making more and better bombs, warheads, and weapons of mass destruction. I got a former boss into big trouble during this period when I wrote in the Energy Daily that DOE would be better named “the U.S. Department of Nuclear Warheads.” Former energy secretary Don Hodel (a very nice man, most of the time) woke up my boss in the middle of the night in a fancy hotel in Riyadh to give him a tongue lashing. Never mind.

DOE in the Clinton years had no real focus. It was a pudding without a theme, focused on pushing a lot of money out of the door, largely unsupervised, through a thoroughly dubious device known as a CRADA, or “cooperative research and development agreement.” This is another way of saying “blank check.” During Bush II, it was more of the same, with even less focus. Both administrations spent a lot of time and money cleaning up the weapons mess left from the Manhattan Project and the subsequent bomb-building binges. that work continues, apparently endlessly.

Has anything DOE has done over the years had a fundamental impact on today’s energy world? I don’t believe so and I’ll challenge you, my reader, to come up with some examples of game changers that resulted from DOE as either regulator or engine of innovation. Remember the “clean coal technology” program and the certain arrival of coal gasification and combined-cycle generation? Fizzle. Breeder reactors? Where? Fusion? Forgetaboutit.

Then there was DOE’s role in the shale gas revolution. The agency wasn’t even backstage. It wasn’t in the same city or the same state. It was AWOL.

Finally, how about those gasoline prices?

About

Find It

Recently Written

Archives

Government Winners Are Often Losers

Don’t Close the Government, Abolish DOE

Subscribe to POWERnews