Government Control and Subsidy of Energy vs. Private Sector Investment Essay

Published: 2020-04-22 15:24:05
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A subsidy is a payment from the government to a business to encourage the continual use or development of a technology or product that is considered to be useful or beneficial to the society. Most often, the money (or subsidies) is coming directly from taxpayers. This is where Milton Friedmans signature phrase, theres no such thing as a free lunch comes in to play. A unit of a product or service may be free for one person, someone or something is enduring an opportunity cost. Currently, renewable energy sources such as wind and solar power are being subsidized by roughly $24 billion a year because of the perceived environmental benefits that go along with green technologies. However, renewable energy companies such as Solyndra have gone bankrupt and the government has supported them to keep them running via subsidies. The argument for continuing these subsidies is that wind and solar are still in the start-up phase in the industrial world and have not yet reached large scale markets. Unfortunately, it is highly unlikely that these companies will ever be largely profitable because renewable energy, with a few exclusions, are unable to reach the profitable market margin that generating plants fueled by coal, natural gas or nuclear can.

While the government tries to focus their support on said renewable energies, only providing limited tax breaks for the private oil companies, the US private sector has produced a substantial increase in oil. 2011 was the third consecutive year of higher domestic oil production and, at the same time, natural gas output reached an all-time high. Over the past five years, about two thousand new jobs have been created in the oil and gas industry while employment growth for renewable energies has been limited at best. With many of the recent failures of several renewable energy companies, employment has declined in this area during several periods. The renewable industry will also struggle to prosper because they rely too heavily on the government for support. The government has taken billions of dollars and will place it in this industry with little to no return for the enrichment of the economy and society. Friedman makes a rather sarcastic comment on activities like this by saying, If you put the federal government in charge of the Sahara Desert, in 5 years thered be a shortage of sand. This is an example of rent-seeking.

Rent-seeking is a term, used by economists, to describe actions that involve a political process of taking wealth of others and getting essentially a loss of wealth. Without the incentive to compete to raise and gain money, the renewable energy industry doesnt feel the need to produce more efficient and cost effective products or services. On the flip side of that, since most companies in the oil industry are in the private sector, the profit alone is a large enough incentive to supply valued goods and services at reasonable prices. If private sector companies do not continually improve or develop, they will quickly be weeded out. Since the private markets are decidedly competitive, they are continually searching for the sweet spot in the market that assures a large and readily available supply of energy and the cleanest yet practicable balance of the usage of our limited resources, all at the lowest price possible.

Despite the fact that for more than a decade, there has been a large amount direct taxpayer support, renewable energy still cannot meet the market demand and, therefore, the subsidies for these areas should be significantly reduced if not completely done away with. If politicians are truly concerned with cutting greenhouse gas emissions, a better allocation of federal spending would be to target subsidies and incentives towards natural gas and nuclear power plants. These clean-burning fuels can heat our homes, power our vehicles, and generate electricity for Americas households and industries a lot more cheaply and reliably than renewable energy can. If America is not careful, it will quickly fall into crony capitalism.

Crony capitalism, in layman terms, is where private businesses focus on doing political favors rather than the consumer market because the government uses spending, regulations, and subsidies to benefit businesses that provide political support. Instead of trying to pick winners and losers, the government should create a competitive marketplace with fair rules, no subsidies, and allow the private sector to prosper. One great aspect of America is the freedom to continuously change business strategies and marketing to adapt to change. Like Milton Friedman said, Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government.

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