Not to Use But to Sell

Thirty some-odd years ago I heard a quote that was attributed to Morrie Mages. Morrie Mages was a guy who started out with a pushcart on Maxwell Street and ended up owning and operating a local chain of sporting goods stores. When confronted by an angry customer upset at the low quality of a tennis racket he’d bought from one of Mr. Mages’s stores, the owner replied “These are not sporting goods to use; they are sporting goods to sell.”

I don’t think that either President Obama or Keith Hennessey understands what the Germans and Chinese are doing. In a recent speech the president said that he didn’t want to “cede the wind and solar and advanced battery industries to countries like China and Germany” as part of a justification for the U. S. subsidizing its own wind, solar, and battery industries. Mr. Hennessey retorts:

If the President wants to subsidize wind and solar power because he wants to accelerate the development of carbon-free alternatives to coal and natural gas, he should make that argument. If President Obama is instead going to subsidize industries either because he likes them or because other Nations’ governments are subsidizing them, then we must acknowledge that he is engaged in industrial policy, aka state-managed capitalism, with an open question about whether the managing state is based in DC, Berlin, or Beijing.

There’s a basic difference between what Germany and China are doing and what we would be doing. Germany and China aren’t subsidizing their wind, solar, and battery manufacturing industries to use them. They are subsidizing them to sell windmills, solar cells, and batteries. Does anybody seriously believe that we can undercut the Chinese on price in any of those areas? They’ve obviously got us on labor and all of those technologies which require rare earth elements. China is now the primary (if not exclusive) provider of rare earth elements for manufacturers everywhere, at least in part because refining them is dirty and the U. S. (formerly the primary provider) has made the decision not to do something so toxic on its own soil, polluting its own air, soil, and water. China has put rare earth exports on allotment, giving priority to their own industries. In the near term at least China has us by the short and curlies with respect to rare earth elements. In the longer term we could resume producing rare earth elements here but should we relax our environmental regulations on behalf of economic nationalism?

The Chinese and Germans plan to sell their products here. For the Chinese in particular those products are too expensive to use domestically. They’ll stick to coal and hydro. If we’re going to subsidize our wind, solar, and battery manufacturing for sale here, we’d best restrict our imports while we’re at it. Otherwise we’ll just be pissing the money down the drain.

In case it isn’t clear from this post I think the entire idea is a boondoggle. We should impose Pigouvian taxes on oil, put whatever environmental regulations we think are necessary in place, stop subsidizing ethanol production, end whatever energy subsidies we’ve got in place, and let the market work its wonders.