Archives: January, 2007

Solar-Powered Welfare

In the “House & Home” section of yesterday’s New York Times, reporter Gregory Dicum tells what’s obviously intended to be a feel-good story about the rapid growth of roof-top solar energy systems in California homes. Ah-nold, you see, has decreed that 3,000 megawatts of the stuff be installed in California over the next decade — a 20-fold increase over the amount of solar power installed at present — and, gosh darn it, those Golden Staters are apparently on pace to do the governor proud. Interviews with enthusiastic manufacturers, installers, and homeowners follow, and not one discouraging word finds its way into a happy, by-golly feature piece that might as well have been written by Ned Flanders.

But there are plenty of facts that wander out of the mouths of these enthusiasts, and they should have given the reporter a reason to pause. For instance, a Mr. Nicky Gonzalez Yuen tells us that he spent $16,000 on his “modest, 3 kilowatt” solar energy system, but that it would have been $26,000 without a generous federal tax credit and state rebate check. A Dr. William Leininger tells the reporter that he spent $39,000 on a solar energy system for his 2,400 square foot home, but that it would have cost $63,000 without those federal and state rebates and tax credits. And then there’s a Mr. Robert Fenton, who tells the reporter that he spent $225,000 on a solar energy system to cut back on his $2,500 a month (!) electricity bills, but that federal and state taxpayer generously pitched in to relieve Mr. Fenton of the extra $134,000 that his system would have cost without government help.

Now, I have nothing against solar power or photovoltaic panels. But if they are such a great investment, why do we need to subsidize them? 

The decision a homeowner is asked to make when considering a residential solar energy system is a very common one in the business world; to whit, whether to invest an initial sum of money in a project that reduces annual costs over a long period of time. Take Mr. Fenton’s case, for example. He could invest $225,000 in a solar energy system that reduces his electricity costs (now at a staggering $2,500 a month) for the next 30 years, or he could invest the $225,000 somewhere else and use the principal and returns on that money over the same time period to pay his monthly electricity bills. 

Which is the better decision in strict financial terms? The amount of money he would need to invest now to pay electricity bills at the rate of $30,000 a year for the next 30 years is $434,571 [a calculation that assumes investment in a mixture of securities and bonds that earned 7% per year, but 5.53% after federal taxes (15%) and California state taxes (9%, reduced to 6% after the federal deduction for state tax payments)]. To achieve the same result through a residential solar energy system, Mr. Fenton only has to invest $359,000, of which taxpayers pay $134,000. Thus, the solar system makes financial sense for Mr. Fenton without the subsidies. The $134,000 subsidy is simply a gift from taxpayers to the obviously very wealthy Mr. Fenton.

Mr. Fenton’s result should not surprise. He noted in the article that because California has a tired rate system that charges large users more, his rates are triple the rates for modest residential use. If electricity rates are high enough and they reflect the real costs rather than a tax on large users to subsidize small users, then fine — alternatives to conventional sources of electricity might well make perfect economic sense.

In the case of Dr. Leininger, a more typical residential user, the economic case for the solar investment is doubtful even with the subsidy. His system, remember, cost $39,000 with the subsidy and $63,000 without. He is quoted in the article as saying it would “pay for itself in a dozen years.” I interpret that to mean a savings in electricity costs of $3,250 a year for 12 years. Again, what sum of money would someone have to invest today to yield $3,250 a year for the next 12 years? At an after-tax return of 5.53% (calculated as before), someone would need to invest just under $28,000. Because this is less than the alternative way of achieving the same result (investing $39,000 in a solar system), the solar investment doesn’t make strict financial sense even with the subsidy … and certainly doesn’t without.

If people want to spend their money foolishly — or, put another way, spend their money on environmental status symbols — then fine. But they don’t have a right to force other people to underwrite their extravagant indulgences. While I’m not aware of any data telling us what the average household income is for buyers of this stuff, I’ll bet you a roof-top solar energy system that it’s a heck of a lot more than the household income of the average or mean taxpayer. Simply put, federal and state solar energy subsidies amount to little more than welfare for the trendy well-to-do.

Of course, rich and trendy Californians have a million reasons for why some shmoe at Wal-Mart ought to be underwriting their killer solar energy panels. Mr. Felton, for instance, tells us that “solar is certainly a way to get off foreign oil,” a claim echoed by Dr. Leininger. But only about 3 percent of all the oil used in the United States goes toward generating electricity, heating homes, or what-not. And most of that consumption occurs in the Northeast, not the Pacific coast. So even if every house in America was plastered over with photovoltaic panels, foreign oil imports would continue to increase pretty much as they would under a business-as-usual scenario. Residential solar energy systems will displace domestic coal, natural gas, hydroelectric power, or nuclear energy — but not oil (foreign or otherwise).

But aren’t we reducing our “carbon footprint” and thus saving the planet from global warming? Maybe, maybe not. Manufacturing photovoltaic panels is a very energy intensive process and the materials necessary to put these things together are likewise products of heavy industry. Absent a comprehensive life-cycle analysis of the carbon energy involved, we can’t say for sure. I’m not aware of any such study in the literature.

What we can say for sure, however, is that there are far more cost-effective ways to go about reducing greenhouse gas emissions than putting solar panels on rooftops. If global warming is worth addressing, put a tax on carbon and let consumers decide for themselves how best to live under that regime. Having the government tell us exactly how to go about reducing greenhouse gas emissions is a bad idea.

This brings us back to the article. Did it ever occur to the reporter to ask whether taxpayers should foot the bill to light up, heat, and cool Mr. Fenton’s sprawling, high-tech mansion (the NYT’s picture of his house is really something to behold)? Or to double-check all of the wild claims made about how cost-effective these systems are? Or to double-check the ridiculous claim that solar energy will have any significant impact on foreign oil imports? Did it ever occur to Mr. Fenton’s editor? OK, this was a “House & Home” piece — not a place one might expect rigorous journalism — but the New York Times has a habit of parking stories about solar energy, energy efficiency, and related matters in that section. They deserve to be a cut above something out of People magazine.

Amazing: An Intelligent Article about Oil

As a general rule, don’t believe a word you read in the popular press about the oil market. With the exception of Matthew Wald at the New York Times, reporting on oil-related matters is so badly underinformed that it’s worse than useless to pay any attention to what the major newspapers and magazines are telling us.

That’s why it’s worth stopping for a moment and flagging one of the rare intelligent pieces on oil-related issues. Stop, right now, and go read Leonardo Maugeri’s “What Lies Below?” at Newsweek

Rich and Successful Flee France

Johnny Hallyday, the French singer and actor, has had enough of high taxes in France and decided to move to Switzerland.

According to Hallyday, “Like many people in France, I have had enough of paying these ridiculous taxes we are forced today. That’s it, I’ve made my decision.”

French politicians are reported to be shocked. Jean-François Copé, the Budget Minister, has even said that “Johnny Hallyday was not carrying out his patriotic duty of paying his taxes to his own country.” It appears that no prominent politician in France has even considered the possibility that Hallyday may be right to want to keep more of the money he has earned!

Of course this is not the first time that a French celebrity has opted to live in a country with lower income tax. Some years ago, Laetitia Casta, a French supermodel, got upset over high taxes in her home country and left for London.

There she joined tens of thousands of her compatriots, who find the French taxes too burdensome and job opportunities too scarce. Casta’s flight would have been unremarkable had it not been for the fact that she was cast as the model for the bust of Marianne, symbol of the French Republic, an honor formerly held by Bridgitte Bardot and Catherine Deneuve.

The above stories personify the conflict between the image of France purveyed by the governing elite and the reality. On the one hand, France is portrayed as a strong and confident country, whose people, unlike the Americans, are committed to “social solidarity.” On the other hand, there is the reality of high taxes, high unemployment, uncertainty, and a general feeling of malaise. As more of the young, educated, and successful French move abroad, the welfare state will grow more unsustainable.

The question is, do Nicolas Sarkozy and Segolene Royal recognize the need for deep reforms, or will the victor of this year’s presidential elections turn out to be the younger version of Jacques Chirac?

High-Tech Immigrants vs. Low-Tech Congress

Any scan of the business pages will reveal anecdotally that foreign-born scientists, engineers, and entrepreneurs are playing an important role in our high-technology economy. A Duke University study released yesterday on ”America’s New Immigrant Entrepreneurs” confirms that fact.

Conducted by a team of researchers at Duke’s Pratt School of Engineering, the study surveyed thousands of U.S. high-tech companies and examined a decade of patent records. The study found that:

  • One-quarter of all engineering and technology companies launched between 1995 and 2005 had at least one key founder who was foreign-born. Those companies with at least one immigrant co-founder produced $52 billion in sales and employed 450,000 workers in 2005.
  • India was the most common home country among the foreign-born entrepreneurs, followed by the United Kingdom, China, Taiwan, and Japan. Most of the immigrant-founded companies were in the software and innovation/manufacturing services sectors.  
  • Foreign nationals living in the United States were listed as inventors or co-inventors on almost a quarter of the patents filed from the United States in 2005.

Many members of Congress worry that the United States may be losing its edge in high technology industries. Yet the same Congress maintains a cap of 65,000 on H1-B visas that allow highly skilled immigrants to live and work in the United States, a cap that falls far below the actual needs of our nation’s resurgent high-tech sector.

The Duke study shows clearly why Congress should raise the cap — unless congressional leaders believe America already has too many high-tech companies and patents too many new inventions. 

Should the U.S. Use its Soldiers to Spread Democracy around the Globe?

For a very interesting exchange of views on the tension between limited government and the idea of spreading democracy abroad, go here and listen to a panel discussion from a Federalist Society conference. 

My colleague Tom Palmer takes on Bill Kristol of the Weekly Standard, who has argued that American troops should occupy Iraq until democracy is in place there, and perhaps beyond. 

This panel discussion was actually held last November, but the audio has just recently been made available for web surfers. Mr. Francois-Henri Briard of the Federalist Society’s Paris Chapter is also on the panel and starts it off. Federal Judge Raymond Randolph moderates. Good stuff here.

Dear Oprah: You Just Visited the Wrong Schools

Oprah Winfrey has plunked down $40 million on a private school in South Africa to offer poor kids there a better education than can be had in their local government schools. When asked why she was investing in students from South Africa rather than, say, South Chicago, Oprah shot back that:

I became so frustrated with visiting inner-city [U.S.] schools that I just stopped going…. The sense that you need to learn just isn’t there. If you ask the kids what they want or need, they will say an iPod or some sneakers. In South Africa, they don’t ask for money or toys. They ask for uniforms so they can go to school.

Clearly, Oprah has not been visiting the Milwaukee private schools serving low income black and Hispanic students. Having done so recently myself, I can report first hand that those students are so ambitious, motivated, curious, and hungry for learning that they bring joy to the hardest heart and water to the driest eye.

The modern belief that poor urban kids don’t want to learn completely misunderstands the problem. It isn’t the kids. It’s the schools.

Visit independent, parent-chosen schools in America’s inner cities and you will seldom find the disaffection Oprah has apparently seen so often in (presumably) government-run schools. 

And when I say the it’s the schools, what I really mean is: “it’s us.” It’s our fault. If we would only realize that the ideals of public education can best be advanced by a system of universal parental choice, rather than a centrally planned government factory system, we’d see a lot more engaged, energized kids who not only want to go on to college and successful jobs and lives, but who have the educational foundation to do it.

I’ve collected some of the evidence on this point here, for those unfamiliar with it.


There’s a mini-buzz in the blogosphere over the concept of isolationism today, since Jonah Goldberg is using the term in the LA Times and Jacob Weisberg is at Slate.

When the President kept referring to the specter of isolationism around this time last year, I wrote this piece in response, noting that

The term “isolationist” didn’t arise until the late nineteenth century, when it was made popular by Alfred Thayer Mahan, an ardent militarist, who used the term to slur opponents of American imperialism. As historian Walter McDougall has pointed out, America’s “vaunted tradition of ‘isolationism’ is no tradition at all, but a dirty word that interventionists, especially since Pearl Harbor, hurl at anyone who questions their policies.”

Bizarrely, libertarians, even given our support for unrestricted trade and extremely liberal immigration policies, have been victimized by the epithet.  So in some ways I think Jim Henley put it best when he pointed out that in many contexts today,

“isolationism” means a reluctance to travel a long distance to kill foreigners at great expense. I say, let’s have some of that.