ROMNEY: ... to oil, to tax breaks, then companies going overseas. So let's go through them one by one.
First of all, the Department of Energy has said the tax break for oil companies is $2.8 billion a year. And it's actually an accounting treatment, as you know, that's been in place for a hundred years. Now...
OBAMA: It's time to end it.
ROMNEY: And in one year, you provided $90 billion in breaks to the green energy world.
Now, I like green energy as well, but that's about 50 years' worth of what oil and gas receives. And you say Exxon and Mobil. Actually, this $2.8 billion goes largely to small companies, to drilling operators and so forth.
ROMNEY: But, you know, if we get that tax rate from 35 percent down to 25 percent, why that $2.8 billion is on the table. Of course it's on the table. That's probably not going to survive you get that rate down to 25 percent.
But don't forget, you put $90 billion, like 50 years' worth of breaks, into -- into solar and wind, to Solyndra and Fisker and Tester and Ener1. I mean, I had a friend who said you don't just pick the winners and losers, you pick the losers, all right? So this -- this is not -- this is not the kind of policy you want to have if you want to get America energy secure.
The second topic, which is you said you get a deduction for taking a plant overseas. Look, I've been in business for 25 years. I have no idea what you're talking about. I maybe need to get a new accountant.
ROMNEY: But -- but the idea that you get a break for shipping jobs overseas is simply not the case.
Regardless, I won't comment on this myself since I can't imagine any thread on this article staying clean...
He may (or may not) have implied it. But then again, this is in they eye of the beholder.
Excluding the may, not, and implied are material defects, for example.
He pretty clearly is rattling off a list and then naming them as (a) Obama/gov't picks and (b) losers. Really, the best defense you can get of his comment is "well, that's what Romney said his friend said, not what he personally said."
> He was basically saying that Obama was trying to pick the winners in green but that it wasn't working because the market isn't ready (basically claiming he is failing because government can't make an industry a winner through policy).
Is he correct? Over in a parallel discussion, someone pointed at this piece:
which seems to indicate that the DOE loan program is actually pretty good at loaning to if not outright producing successes.
Romney's statement was in the context of his reference to someone's joke making fun of Obama for picking losing companies. He was clearly calling Tesla a loser.
That said, the majority of people probably found both candidates too wonkish and abstract in this debate for many minds to be changed. As a policy guy, I enjoyed it, and I thought Romney did well for himself although I prefer Obama. But the candidates talked past each other to a large extent, and both were pulling their punches a little.
What about the numerous areas in which government investment/research has paid off (eg. computing)? Could or should the free market today replace this type of public investment?
As to green tech, if it does not become more cost effective and as easy / easier to deploy than current energy generation, we have lost anyway. China and India are following the path the 1st world took (coal / oil). I expect the rest of the 3rd world to do the same. Nothing short of force will stop that.
Edit: overall, I have to concede, it is kind of dumb to attribute the internet to a single entity or person - it was a pretty natural progression of technology - basically the digital evolution of phone lines. Could you imagine trying to patent the internet?
If the government really wants to help out with energy, it should loosen environmental restrictions. I am as much a supporter of green tech and protecting the environment as the next guy, but there is something like 1000x the volume of natural gas under our soil as all the oil in the world combined. The sheer amount of wealth generated from tapping that resource could fund all kinds of green tech, and lessening foreign dependence creates jobs here and makes us stronger politically.
It's not about protecting the environment in the abstract. It's about who bears the costs of industrial activity. Loosening environmental reactions doesn't reduce costs, it shifts costs from polluters to the general public, particularly to the poorest people.
Polluting the air you breathe is no different than any other injury--if the government has any function it is to protect your bodily integrity. It is a failure of organized society when a company can profit by physically hurting you, and it's economically inefficient to allow polluting industries to shift the inherent costs of their activity onto other people. It causes companies to pick the technologies that have the most costs that can be passed to other people, not the technologies that are the most absolutely efficient.
The oil, coal, etc, industries were made possible by the intervention of government. Did you know that in the 1600s in American law pollution was basically illegal? E.g. if water ran through your property, it had to leave as clean as it went in. Allowing people to pollute during the industrial revolution was actually a tremendous government subsidy of industry.
That said our perception of air pollution may be a bit exaggerated. Atmospheric aeroforming is a very difficult task -- even if we tried actively for 500 years, I think we might have difficulty changing the composition of the earth's atmosphere significantly. Before air pollution is even a real threat, our technology will have probably progressed far enough naturally (i.e. sans government investment) to handle any problems. Keep in mind there are over 5,000,000,000,000,000,000 (5 Dectillion!) kilograms of atmosphere. Humans produce 2,500,000,000,000 kilograms of CO2 year roughly (2.5 trillion). However, each tree (on average consumes 33 kilos of CO2, and (by NASA estimate) there are roughly 400,000,000,000 trees on earth -- thus trees could consume up to 13,200,000,000,000 (13.2 trillion kilos of CO2), and CO2 is heavier than air so probably a fair amount of it reaches the ground. Even if only 1/5 of the trees processed CO2, we would still be not generating any significant amount of it. Anthropogenic global warming is mostly alarmist theory until we prove humans have a significant effect on the atmosphere (as one scientist pointed out, the earth has warmed and cooled dramatically before human existence, and it will continue to during it, despite our actions).
Also your analysis of air pollution is shockingly bad and you should feel bad. What on earth makes you think pollution mixes perfectly with the whole atmosphere before anyone breathes it in? It's like saying 2+2=cat.
Also, climate change isn't even the big issue here. I'm talking about much more mundane and also much more damaging air and water pollution from factories, cars, etc. We have very solid empirical evidence about that. Did you know that after the EPA's ban on leaded gasoline, blood lead levels in children dropped by a factor of 3-5x in just one decade? See: http://www.epa.gov/ace/body_burdens/b1-graph.html. This corresponds to a multiple IQ-point impact from lead. What's the dollar value of a multiple IQ-point impact on the nation's children (and future workforce)? It's a huge number.
Did you know that a recent Harvard Medical School study concluded that the true price of coal power factoring in the externalized environmental costs is 2-3x as much as the market price? http://www.boston.com/lifestyle/green/greenblog/2011/02/new_.... The same study found the total externalized costs of coal power to be $200-$500 billion/year: http://onlinelibrary.wiley.com/doi/10.1111/j.1749-6632.2010..... Here in Chicago we recently shut down two coal-fired power plants that were causing $100 million in health damage per year and only creating 50-60 jobs each.
The total cost of environmental damage being down every year, in terms of quantifiable impact to people is probably into the trillion dollar per year range. People tend to think of environmentalism as being about "soft values" but that couldn't be further from the truth. Even if we assign zero value to the environment itself, we can't avoid putting a dollar figure on the value of the services the environment provides us. When New York manages to avoid building a $6-$8 billion filtration facility by properly managing the Catskills watershed, we can't avoid the inescapable economic conclusion that damage to the Catskills and similar watersheds needs to be valued in the billions of dollars range. We can't avoid the conclusion that when a company dumps waste into those watersheds, it's an economic injury no different than if tore up city streets or caused a bridge to collapse.
It's the government's job to protect us from all this, the same as it's the government's job to protect us from people who steal your car or break into our houses. It goes to the heart of why government exists.
And most importantly:
But you did.
> And don't start with arguments about the internet - it was actually Xerox that largely made the internet (sic.) possible:
But you did: "Don't do X - X."
NIST is government funded. Are they also magically excluded from having done good things?
Don't tell these companies, because they sell $10k electric cars right now:
I wouldn't want to drive any of them. I wouldn't want to drive ANY $10k car. But you do not get to pretend "that time is not now."
Also, the question isn't whether direct subsidies are more efficient than taxing externalities. The question is whether direct subsidies are more efficient than doing nothing (which is the only politically feasible alternative).
2) Direct government subsidies for favored corporations is likely less economically efficient than doing nothing in cases. Subsidy decisions are not guided at all by the info encoded in the price system, and are instead likely to be based on rent-seeking by favored interests groups. See <http://en.wikipedia.org/wiki/Economic_calculation_problem...;
Your original comment cited "basic economics" and implied that the government would be better than the market at "picking winners and losers" in the face of negative externalities. But that is not a consensus view among economists.
In cases, yes. Given the sheer magnitude of thee externalities in environmental situations, not likely. We're talking trillions of dollars of implicit subsidies here.
We must do something.
This is something.
Therefore we must do it."
Direct government subsidies create deadweight loss, and by hurting the competitive position of companies and technologies that don't get the subsidy, they can actually make the negative externality worse. You can't justify a bad intervention just by pointing to the magnitude of the externality.
I mean, it would be, only in the sense that "criminal justice system picks losers, by arresting people who commit crimes".
One irony to Tesla is that while they do benefit from loan programs they would have been much better off if GM and Chrysler had been allowed to fail. As it is now Tesla has to compete with companies with strong government support.
Also, I'd arguing that taxing a particular form of energy is equivalent to picking a loser.
BTW, you've failed to substantiate your claim that the market fails to pick efficient winners and losers. How would you even define "efficient" without appealing to the marketplace?
Clever rhetorical trick.
> BTW, you've failed to substantiate your claim that the market fails to pick efficient winners and losers. How would you even define "efficient" without appealing to the marketplace?
It's not a claim that requires substantiation, it's common knowledge: http://en.wikipedia.org/wiki/Market_failure#Externalities
And then there's the whole "regulatory capture" thing.
Govts fail all the time.
And he's right because the free market has far more diversity. To put it another way, govt is pretty much the definition of systemic risk.
The free market has folks doing lots of different things. Some think that electric cars are the way to go while others stick with gas. Still others go with compressed air.
Govts don't make diverse bets and they're a lot slower to change course when things don't work (because the folks benefiting from the current plan aren't paying its costs).
Yes, "all the wood behind one arrow" can be more efficient, but only when everything works out, which is not all that often.
"Let 1000 flowers bloom" works much better in the real world.
Real life is not so simple, as negative externalities can also be generated by legal frameworks such as http://en.wikipedia.org/wiki/Limited_liability .
You need to examine the legal statutes governing each industry in question and develop measures of the ease at which claimants can receive compensation for damages to determine whether the observed externalities are intrinsic to the industrial process or whether the externalities are intrinsic to the legal process.
Regardless of where we come out on the above issue, my primary argument is that by recognizing that the existence of liability statues affects the existence of negative externalities, we recognize that we cannot make the assertion that markets cause the existence of negative externalities without first accounting for the effects of liability statutes.
Second, individual private suits will never internalize even a fraction of the cost of an externality. When you're sitting in a lab with a computer simulation, you can look at the data and do a good estimate of how many cases of lung cancer can be attributed to the nearby coal plant, but it's nearly impossible to meet the necessary burden of proof with regard to one particular case. Say one factory causes 10% of all the lung cancer cases in one part of the city. The burden of proof in civil litigation is more likely than not. For any given case of lung cancer, it is not more likely than not that the factory was the cause. We don't allow suits based on statistically divisible causality.
Third, enough people won't sue. Partly because most people will have no idea what caused their injuries, but also because a disproportionate number of people injured by pollution are poor. They're ignorant of the legal system and don't have money for lawyers. Lawyers won't take such cases on contingency, because winning is nearly impossible.
Fourth, even when the suits are successful, defendants will pay a fraction of what they should, because they'll pay a team of $1,000/hour lawyers to make sure they do. BP is probably paying Kirkland & Ellis $1,000/minute, and its worth every penny because they're saving billions of dollars.
A smart man once pointed out: "When large numbers of people are involved, the argument for the institution of property rights is weakened and that for general regulations becomes stronger." Ronald Coase, "The Federal Communications Commission," 2 J. Law and Economics 1, 29 (discussing spectrum allocation, but using smoke pollution as an example). Coase is of course one of the luminaries of modern economics, and his theories are the bedrock of conservative political policies.
I disagree. For example: http://en.wikipedia.org/wiki/Tobacco_Master_Settlement_Agree..., http://en.wikipedia.org/wiki/Mesothelioma#Legal_issues
Bodily harm is not the only form of harm for which one may be liable. Repeated dispersal of unwanted waste upon other's property could be considered property damage, even if the waste cannot or has not yet caused exposure related medical conditions upon their person.
In an alternate legal context, a society might decide that proving an ash residue repeatedly collected on your property matches ash repeatedly emitted by a factory is sufficient grounds for property damage litigation without requiring you to also prove bodily harm. However, this would raise costs on industry by requiring them to be located further from residential areas.
Different societies will arrive at different tradeoffs and balances on these issues through the use of non-market forces, which will influence the incidence of negative externalities as much as market forces.
I really hope they go mainstream, but it seems they're not targeting the average Joe. If it's going to be an "energy" project, it needs to go mainstream, like the Nissan Leaf or the Chevy Volt. I just don't see why the government should be sponsoring a company that will probably only ever sell to upper and upper-middle class customers.
Don't get me wrong, I love the Tesla company, but I think there were more interesting points of the debate than this. To be fair, Romney didn't single out Tesla; it was lumped in with other projects that haven't proven successful yet.
Yes, they have debts, about $505M. They also have $700M in assets. Calling them a "loser" implies bankruptcy or insolvency.
Quick search turns up this:
As I understand it their plan was high-price/low-volume to start and progressing towards high-volume/low-price as time went on.
I'm driving a diesel (being european this isn't too odd) and I'm driving a lot of long distances. The beauty about the fossil fuel powered car is, that I can drive some 800km on a tank, stop for fuel which takes me about 5 minutes and then carry on. Tesla claims a 3-3.5h charge time. Even if the range was the same, which it isn't, this just isn't gonna work for anyone who drives across a country rather than through cities. To this day I haven't heard of any battery powered car that is charging in acceptable time compared to filling up a fuel tank.
Don't get me wrong, in a way I like electric motors. The torque they produce is amazing! What bothers me is the use of batteries. The technology I personally saw most potential in was the use of hydrogen fuel cells. The tank is filled with hydrogen, the fuel cell powers the electric motor. I'm not for a second suggesting hydrogen is a good "fuel" in the sense that we can just dig it up somewhere and get additional energy. What hydrogen is good at though, is storing energy and because filling a tank with it happens in a matter of minutes it's a whole lot better than carrying thousands of laptop batteries in your car.
If you switch every gas station in the country for a place that swaps and charges batteries, electric cars are completely workable. The only question is how we get there from here.
The total expenditures then were a small fraction of what we're spending now.
Do you really think that the ROI today is as high as it was then?
Do you really think "govt spent money well once" implies "govt money spent now is well spent"? (It's also false that "govt money was spent badly in the past" implies "govt money spent now is badly spent".)
GM and Chrysler's assets would have been bought and put to use.
You can argue that the loans should not have been made on principle, and you can argue that they were a poor investment vis a vis net return to taxpayer dollars, but it's very hard to argue that they were a net loss on U.S. GDP unless you assume a "controlled bankrupcy" for GM and Chrysler would not have destroyed the U.S. (or global) auto industry. That's a big leap.
Why do you assume that the supply chain would have broken down?
> it's very hard to argue that they were a net loss on U.S. GDP unless you assume a "controlled bankrupcy" for GM and Chrysler would not have destroyed the U.S. (or global) auto industry. That's a big leap.
It's easy to assume that standard bankruptcy would not have destroyed the US auto industry because there's no reason why it would have destroyed the US auto industry.
Bankruptcy is basically about separating assets from liabilities.
If GM's assets are well-suited to profitably making cars, that's what they'd have been used for post-bankruptcy. Why do you assume otherwise?
US airlines go bankrupt every so often. Their creditors take a loss but the effect on the rest of us is that a few flights get cancelled and that's about it.
GM was the only problem because Ford wasn't in trouble and Chrysler was (and still is) negligible.
> auto industry is highly concentrated in a single geographic area
Most "US made cars" are not made in Michigan.... "In 2011 , the Detroit Region produced 1.56 million vehicles, accounting for nearly 82% of Michigan's motor vehicle production, over 18% of the United State's motor vehicle production, and nearly 12% of North America's motor vehicle production. Currently more than 151,000 metro Detroiters work in the automotive and auto-related industries." http://www.detroitchamber.com/component/content/article/14-a...
US auto suppliers sell to all companies that make cars in the US.
> Who would be left then to use these assets? Some unnamed US automotive company?
Not necessarily - there are folks who could have afforded the assets. (Penske is a minor player and they made a serious bid for Saturn.)
Note that GM was selling cars for more money than it cost to make them - the problem was the legacy liabilities, liabilities which they'd have shed in ordinary bankruptcy.
The "bailout" money was a political payoff. It mainly went to keep the UAW pensions solvent and GM shut down Saturn as a sweetener. (The UAW always hated Saturn, even after organizing it.)
Fixed the title.