Alex Biles / Uncategorized

A Note on Government Subsidies (Alex Biles)

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Any of you who perused through my rant about Van Jones’ ignorance read about the “synchronicity” between that piece and the piece I was already going to write, this one. Jones just happens to be a spokesman for the state subsidizing industries that will supposedly spur clean energy initiatives and make America’s cars more fuel efficient.

And you know what? There’s a lot of anecdotal inertia behind Jones’ motivations. In the face of adversity, General Motors is slated to earn a handsome $10 billion this year after being bailed out by the federal government.

In another example, America was one of the few nations that subsidized their superconductor industries in the 20th century. When our European counterparts tried to start space programs of their own, they found out that the Soviets and us were the only ones who produced quality superconductors, and that they were pretty damn expensive.

Government contracts to IBM and others in the 1960s doubtlessly assuaged the industry’s aversion to risk, easing in the development of the Internet’s predecessors. In this sense, government contributed greatly to moving certain sectors of the economy forward. An alternative approach to a purely consumerist model prevailed.

Of course, the counterargument to these accomplishments are the Solyndras of the world. Or, the Obama-approved Chevy Volt that managed the neat trick of having to recall more cars than have actually been sold.

However you dice it, government should never be able to possess a monopoly on failure.

The inventor of the steam engine, Thomas Savery, never enjoyed the fruits of his labor, as his crappy steam engines could nary lift a pint of water and resulted in mass boiler explosions, not unlike the battery explosions of the Chevy Volt.

It took nearly a hundred years of miserable failures before James Watt was able to perfect the steam engine, releasing a more inexpensive and powerful version to the public for general use.

There’s a necessary creative process that markets must go through to improve upon our innovations.

The moral hazard that subsidies create is a credit to the success of managed capitalism, as well as the reason for why that success is limited. The only difference is that today’s stakes are higher than those of yesteryear, and the failures weigh heavier. Subsidies are a much riskier foray into private enterprise in 2012 than they were in 1955. And my next piece will explain why.

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