Tuesday, August 19, 2008

Two Bad Ideas

In the August 11 WSJ, Newt Gingrich & Jerry Brown proposed their ideas for how they could or would spend $10b. in public funds. One thing both authors ignore is how pitifully small the sum of $10b. is for tackling any truly problem confronting the public good.

In the Gingrich corner, there were some very good and well-focused goals that he hoped to accomplish with the money, but they were ultimately based on a bad idea: an "innovation lottery." He also ignores the fact that $10b. couldn't possibly resolve all 7 of his issues, and if it could, at least 5 of them would already be solved. For instance, "6) A method for reusing nuclear waste to make Yucca Mountain, Nevada unnecessary as a repository," would probably benefit the nuclear power industry by at least the amounts that Mr. Gingrich would award the winner of said lottery. Also, while lotteries have been shown to actually be a pretty good way for the government to meet its goals financially, they are horribly distortive of behavior. People will over-invest in trying to accomplish goals, and may reap zero payoff for their investments of personal resources. Basically, a lot of time effort and capital will go wasted.

From Brown's corner we actually see a little bit more reality by focusing on one goal, but that goal is simply too big for $10b. "Curbing our energy appetite with efficiency programs incentives," cannot be done for such a paltry amount. In fact, "incentives" may not even be the best way to do it. While incentives for producing more energy sources (even cleaner ones) may be usefull for stimulating research, they don't do the job of "curbing our energy appetite" because subsidies mean lower prices, and lower prices mean more output and use of energy. On the other hand, applying the carbon tax prescribed by the UN on coal power would stimulate wind and solar energy output AND curb consumption. Coal is now about $0.05 per kilowatt; wind is about $0.08. The UN's proposed carbon tax of about $30 a tonne would bring coals cost up to par, and energy producers, comparing the 2 sources will naturally invest in the latter. Also, it wouldn't cost the man a dime! In fact the government would generate revenues from the deal, which it could distribute as a tax rebate or use to bomb (bomb bomb, bomb bomb) Iran.

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