Tag: subsidies

Clean Coal Subsidies

The federal government has been subsidizing so-called clean coal for decades, and the hand-outs have resulted in one bipartisan boondoggle after another. 

Under Presidents Jimmy Carter and Ronald Reagan, for example, the government pumped $2 billion into the Synthetic Fuels Corporation, which supported efforts to convert coal into a gas fuel. The SFC collapsed in the mid-1980s in a spasm of gross mismanagement, conflicts of interest, and changing market conditions. 

Unfortunately, the government never seems to learn any lessons from the silliness of its energy subsidies. The latest installment of the long-running clean coal scam was highlighted by the Wall Street Journal yesterday: 

For decades, the federal government has touted a bright future for nonpolluting power plants fueled by coal. But in this rural corner of eastern Mississippi, the reality of so-called clean coal isn’t pretty. 

Mississippi Power Co.’s Kemper County plant here, meant to showcase technology for generating clean electricity from low-quality coal, ranks as one of the most expensive U.S. fossil-fuel projects ever—at $4.7 billion and rising. Mississippi Power’s 186,000 customers, who live in one of the poorest regions of the country, are reeling at double-digit rate increases. And even Mississippi Power’s parent, Atlanta-based Southern Co., has said Kemper shouldn’t be used as a nationwide model. 

One of just three clean-coal plants moving ahead in the U.S., Kemper has been such a calamity for Southern that the power industry and Wall Street analysts say other utilities aren’t likely to take on similar projects, even though the federal government plans to offer financial incentives.

Southern recently took $990 million in charges for cost overruns approaching $2 billion.

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Through various subsidies, the federal government had committed nearly $700 million for the Mississippi Power plant, though part of that was the $133 million that the utility will forfeit because of delays.

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Kemper’s cost, previously projected at around $2.9 billion, soon began to soar. Southern recently estimated the price tag at $4.7 billion.

For more on clean coal and energy subsidies, see Downsizing Government.

Breaking: The (Possible) End of the Agri-Nutritional Complex

The Roll Call blog has just broken news that the GOP House leadership has decided to drop food stamps from the farm bill, in an attempt to get the farm subsidies passed by the House, presumably with Republican votes alone. Nutrition is quite an “appendage” to jettison, by the way: it usually accounts for about 80 percent of all “farm bill” spending. Here’s a great infographic on food stamp usage from the Wall Street Journal online.

I think this development could be very good news: I have long called for splitting the food welfare (or “nutrition”, as it is euphemistically called) portion of the farm bill from the subsidies part. Legislators should be forced to vote on all of these programs on their individual merits, not as part of some logrolling extravaganza. The costs and benefits of programs to feed poor people deserve to be considered separately from farm subsidies, and ideally belong at the state or, even better, local community level anyway. Do we really need the federal government specifying that our kids eat greek yogurt? But I digress.

The problem is that farmers just don’t have the political or demographic clout that they used to (and in any case are starting to squabble amongst themselves) so it has long been believed that you need to load up farm subsidies with other, somewhat related programs more palatable in urban and suburban districts. That’s why energy, environmental, and food stamps are included in the “farm bill”. If you include enough goodies for diverse special interests, you’ll cobble together the votes.

That cynicism was turned on its head, though, when the farm bill failed last month because the Republicans thought food stamp spending was too high (even after some cuts and tightening of eligibility criteria). The Democrats, on the other hand, thought the cuts were too severe. Votes were lost on both sides of the aisle.

So, by dropping food stamps, GOP leaders think that enough Republicans will vote for this new bill to pass, even without Democrats’ support. They might be correct: clearly, powerful people in Congress think that all of these hippy issues are distracting attention from more deserving welfare programs, like farm subsidies. But I am not too sure: without sufficient Democratic votes on a subsidies-alone bill, they would need every R vote they could get, and some of the Republicans aren’t too keen on farm subsidies, either.

Another, promising development in this new farm bill is the repeal of the 1949 Agriculture Act. I said in a blog post a few weeks ago (and, indeed, on many other occasions before) that the key to reforming U.S. agricultural policy is to repeal the permanent legislative infrastructure—of which the 1949 Act is an important part—that lies behind the deplorable farm bill circus to which the American body politic is subjected every five years. By taking this law off of the books, farmers and their political supporters couldn’t threaten us with dairy cliffs and other elements of farmageddon if we don’t pass farm bills.

A huge, important caveat to all of this hopeful thinking: the GOP leadership may be splitting the bills only so they can pass them piecemeal with the hope of rejoining farm subsidies and food stamps in conference with Senate Democrats (the Senate passed their bill, logrolling intact, already), then have the conference report pass the House with Democrats’ support. Certainly Majority Leader Eric Cantor (R-VA) is by all accounts disappointed that the farm bill failed to pass and is looking for another vehicle, or several vehicles, to push this puppy through. That’s not something to get excited about: death by a thousand drips of poison is still death.

The other problem, which is theoretically fixable, is that the new GOP bill doesn’t repeal the 1938 Act, which includes several commodity titles that aren’t covered by the Agricultural Act of 1949, including price supports and marketing quotas, and the establishment of the Federal Crop Insurance Corporation. So the 1938 Act has to go, too, if we are to be fully threat-free.

I am sure that others will disagree with my analysis of how the votes will break down, and my analysis of parliamentary procedure regarding conference, etc. I’m really not too interested in that, anyway. My main concern is to get American agricultural policy on the road to reform/elimination, and in my eyes these two developments could be helpful toward that end.

The Federal Government’s “Rural” Industrial Complex

David Fahrenthold has another excellent article on waste in government in Sunday’s Washington Post. This time he finds a truly comic example of waste, duplication, and confusion:

[T]he U.S. government has at least 15 official definitions of the word “rural,” two of which apply only to Puerto Rico and parts of Hawaii.

All of these definitions matter; they’re used by various agencies to parcel out $37 billion-plus in federal money for “rural development.” And each one is different….

There are 11 definitions of “rural” in use within the U.S. Department of Agriculture alone.

It’s laughable. But the real question is, Why does the federal government even need to define “rural”? Well, of course the answer comes back to the real purpose of our modern tax-and-transfer state: The definitions define who gets the subsidies.

Every year, there are billions available to fund projects in rural communities. Money for housing. Community centers. Sewer plants. Broadband connections.

In a sidebar to the story, we get some details. The Census Bureau has one definition of “rural” so it can tell us how many Americans live in rural areas. Here are the purposes of the other 14 definitions:

Used for a variety of loan and grant programs, all meant to foster rural development…for loans and grants for “community facilities” in rural areas… for aid for water and waste-disposal systems… for aid for improvements in telecommunications systems…by farm-credit associations making housing loans… for certain lending programs for rural community development…to determine areas served by Office of Rural Health…by the National Rural Development Partnership…for grants to rural institutions of higher education…to determine what areas of Hawaii are eligible for rural-aid programs…to determine what areas of Puerto Rico are eligible for rural-aid programs…by various rural development loan and grant programs.

So let’s see. People in rural areas pay federal taxes. People in urban areas pay federal taxes. All that money goes to Washington – where a great deal of it stays – and then some of it is used to provide programs and services in rural and urban areas. Maybe both rural and urban Americans would be better off keeping their money at home and paying for whatever services they think are actually worth the cost. And then the federal government wouldn’t have to pay handsome salaries to well-educated people to form task forces to determine 15 different definitions of “rural.” And states, cities, and rural areas wouldn’t have to hire expensive lobbyists to get a piece of that federal pie.

Subsidizing the Security of Wealthy Allies

How much does the United States spend on the military relative to our allies? A lot. 

A new Cato video, produced by Cato multimedia gurus Caleb Brown and Austin Bragg, puts this comparison in perspective. The data jumps out of the Cato infographic from last week, and shows how we are subsidizing the security of our wealthy allies who can and should defend themselves. Instead, we provide for their security while they free-ride and spend their money on everything else (including bloated welfare states). Your tax dollars at work. 

Check out the video below.

On ObamaCare’s Discriminatory Subsidies, Brewer Bows When Arizona Should Keep Slugging

Arizona Gov. Jan Brewer (R) recently set aside her vociferous opposition to ObamaCare’s costly Medicaid expansion by announcing she will support implementing that expansion in Arizona. A significant factor in her reversal, she claimed, was that if Arizona did not expand its Medicaid program, then some legal immigrants would receive government subsidies while U.S. citizens would get nothing.

Brewer’s analysis of this “immigration glitch,” and her remedy for it, are faulty. Fortunately, she, Arizona’s legislature, and its attorney general have better options for stopping it.

An odd and unforeseen result of the Supreme Court’s decision upholding ObamaCare is that, in certain circumstances, the law will now subsidize legal immigrants but not citizens. What triggers this inequity is a state’s decision to implement an Exchange – not the decision to opt out of the Medicaid expansion. (Even if a state implements both provisions, legal immigrants would still receive more valuable subsidies than citizens.) The good news is that states can therefore prevent this inequity simply by not establishing an Exchange. If Brewer wants to avoid this “immigration glitch,” there is no need to expand Medicaid. She already blocked it when she refused to establish an Exchange.

The bad news is that the Obama administration is trying to take away the power Congress granted states to block those discriminatory subsidies, and the punitive taxes that accompany them. Contrary to both the statute and congressional intent, the IRS has announced it will impose that witch’s brew in all states, even in the 32 that have refused to establish an Exchange.

Oklahoma attorney general Scott Pruitt has filed suit to stop that stunning power grab. If Brewer is serious about stopping the “immigration glitch,” the way to do it is by filing a lawsuit similar to Oklahoma’s, while adding a complaint that the Obama administration’s illegal subsidies also violate the Equal Protection clause.

If the Auto Bailout Was a Success, I’d Hate to See What a Failure Looks Like

Sometimes it’s no fun to be an economist. Or, to be more specific, it’s rather frustrating to understand Bastiat’s insight about the “seen” and the “unseen” and to always be asking “at what cost?” and “to what effect?” when politicians make inane statements.

The GM bailout is a good example. Politicians want us to believe that it was a success because the company is still in business. Heck, the Vice President’s favorite campaign statement is that “Osama bin Laden is dead and General Motors is alive

But if you’re the type of person who recognizes the importance of tradeoffs and incentives, then it’s easy to see how a political success can be an economic failure. Which is the message of this new video from the Center for Freedom and Prosperity Foundation.

This is music to my ears. I’ve been saying for years that any company can be kept afloat indefinitely with taxpayers subsidies. So if that’s the definition of success, we can party until we hit the fiscal brick wall. But that wall won’t feel good, as we can see from the fiscal chaos in Greece and other European welfare states.

But this issue involves more than just inefficient subsidies. I’m also concerned about the corruption that inevitably exists when cronyism replaces capitalism.

It’s quite likely, after all, that GM is spending lots of money on the Chevy Volt because of pressure from Washington rather than demand from consumers. And when you have a car company executive endorsing higher gas taxes, it’s reasonable to think that he’s currying favor with the political masters in DC rather than looking out for the best interests of drivers.

The GM bailout may be a win-win situation for politicians and lobbyists, but it’s a lose-lose proposition for taxpayers and the economy.

P.S. If you want some auto bailout humor, here’s a spoof on the Chevy Volt, an advertisement for the new GM Obummer, a couple of good political cartoons, and a very funny video on the Pelosi GTxi SS/RT.

Trade Problems May Not Always Call for Trade Answers

The federal system of government in the United States has the invaluable consequence of enabling policy experimentation.  If a state legislature is considering adopting a particular policy, it can often look at the experiences of other states that have tried that policy before.  A recent study from the Milken Institute in California tries to take advantage of such potential comparisons to offer ways that California could increase its dwindling share of U.S. exports.  It is a valiant effort, but California’s decline is not the consequence of inadequate trade policy and no amount of export promotion is going to fix it.

The study begins by comparing California’s decline in export share to the dramatic rise in cross-border trade originating from Texas, the nation’s leader in goods exports. After using Texas’s success as an example of how California is lagging behind, the study decides not to use Texas as a model for reform and instead focuses on other states that have used export promotion (subsidy) agencies as case studies for how California can improve its bureaucracy to reverse the current trend.

If the success of Texas is what California should seek, then why not look at Texas as a model for reform? The study says that Texas is “unique” because it 1) has no export promotion agency, 2) has a low cost of doing business, and 3) has benefited from increased trade with the growing economy of Mexico by virtue of NAFTA-enabled integration. These differences seem to point to clear policy choices: don’t worry about export promotion (easy), improve your state’s business environment, and be close to Mexico (done!).

If it becomes more business-friendly, your state will have more business, export-oriented business included.  Since we’re looking at Texas as a model, may I suggest improving the business environment by lowering taxes and reducing regulation.

Now, I realize that the Overton Window for politically feasible reform proposals in California may not include lowering the cost of doing business. It makes a lot of sense for the authors of the study to point out the root causes of different outcomes in Texas and California but still seek a different solution more palatable to Californian sensibilities. I think their specific proposals for enhancing the capacity and quality of the export promotion process are insightful and well-supported.

There is a larger lesson in all of this for national economic policy. Increasing exports through the National Export Initiative has been a major goal of the Obama Administration’s economic recovery plan, and subsidizing loans through the Export-Import Bank has been a primary tool in that endeavor. But the people of the United States don’t need more bureaucracy to engage in more trade. They need policies that remove artificial barriers and decrease the cost of doing business—international and otherwise.