A boom in shale gas? Credit the feds.
A boom in shale gas? Credit the feds.
By Michael Shellenberger and Ted Nordhaus (hat tip to Barry Ritholtz)
Since the high-profile bankruptcy of Solyndra, the solar company that received $535 million in federal loan guarantees, many have concluded that government efforts to promote energy technologies are doomed to fail. Critics cite the abandoned synthetic fuels program, attempts to capture carbon pollution from coal plants and next-generation nuclear reactors as further proof of this conclusion.
Many often point to the shale gas revolution as evidence that the private sector, in response to market forces, is better than government bureaucrats at picking technological winners. It’s a compelling story, one that pits inventive entrepreneurs against slow-moving technocrats and self-dealing politicians.
The problem is, it isn’t true.
While details vary, the story is basically the same for nuclear power, natural gas turbines, solar panels, and wind turbines — pretty much every significant energy technology since World War II. That’s because the private sector alone cannot sustain the kind of long-term investments necessary for big technological breakthroughs in the midst of volatile energy markets and short-term pressure to produce profits.
No doubt, government energy innovation investments could be made more efficiently and effectively. But it would be a mistake to imagine that we’d be better off without them.
The process of fracking has been around long before 1979. It was used in the late 40’s by Halliburton and Stanolind Oil. They used it to extract oil. Not saying teh DOE may not have done some more work as it applies to gas, but they sure as heck did not invent the process. Price and Demand will still be the best mothers of innovation.
Now, the government totally retarded our use of gas through crappy regulation. Started with the Natutral Gas Act of 1938, then wellhead price regulation. It got fixed in 1978 with teh natural gas policy act.
So given what you write, and the poor regulations above how should I view government?
No claim for inventing a an idea, a process might be better defined. Well, just as we know many private companies are both beneficial and destructive as well….what is the real question?
When government crowds out private investment in R&D, don’t be surpised to see lots of innovation which is linked to the government in one way or another.
“When government crowds out private investment in R&D”
How does this boilerplate apply?
Between 1992-2006, R&D investment by the major petrol corps increased YOY.
What evidence do you have of “crowding out” of investment dollars into R&D by the Federal govt?
Basically based on 40 years of misguided gas policy up until 1978, I do not credit teh feds with any gas boom. That boom could have happened long ago.
How does gov’t crowd out private investment? Is there a limited pot of investment and when government does it, the private sector can’t?
Very few OECD countries outspend the U.S. gov’t in R&D as a percent of GDP (not that I find GDP particularly robust as a metric). Because “factors of production” for R&D aren’t unlimited, any gov’t expenditure necessarily diverts resources from possible private use. Private R&D can increase right alongside gov’t R&D, but this doesn’t mean there may not be even more private R&D without gov’t involvement.
On the other hand, private funding may not even get involved with certain things the gov’t is funding: Both private and public funding vehicles can make “mistakes” in their expenditures (i.e., expenditures don’t line up particularly well with enough end-use subjective prefences), but public vehicles generally have far less long term backlash for such errors. This weak feedback mechanism creates an environment where end-use preferences ultimately have little effect on expenditure decisions.
As explained above, there’s a limited pot of R&D “factors of production,” so when gov’t uses a particular resource, it can’t be used by the private sector. As also explained, though, that doesn’t necessarily mean that the private sector “should” use those resources, as they may not line up with enough subjective end use prefences to be worthwhile.
There’s a particular art to entrepreneurial preference forecasting even in R&D, and those who are poor at the art tend to get weeded out over the long term in a market undistorted by force.
But isn’t the most important factor of production the graduates of the public education system, like MIT and almost every other engineering and scientific school.
That something is primarily provided by the gov’t now is no argument that it must or should be.
Though current demand for higher education is probably greatly inflated through public subsidy, private institutions could very conceivably supply education systems to produce quality STEM graduates to meet whatever fundamental level of demand there may be.
That field has been distorted for so long and in such deep ways, however, that it’s just pure conjecture to offer a vision of how such a system might look. I personally would guess that distance learning would be far more widespread, and great teachers would likely become highly paid minor celebrities.
Capacity follows the money, “crowd out” is a meme.
Government spending in aerospace is somewhat wasteful, because it is socialized risk in stages far beyond basic research, building things like the B-2 and F-35 which are incompetent and should never be built. That does not crowd out things like the Boeing 787, or the ever improving jet engine technology which is far beyond the (crazed buying of useless capacity) dreams of delivering JP 8 to Samerkand in Boeing 767 tankers.
Given the socialized nature of a good part of aerospace the DoD may have dumbed it down with the good engineers being dragged into military welfare. That is opportunity which is not the same as crowding out.
Capacity always follows the money so ‘crowding out’ is myth.
ilsm, could you explain your point about capacity more fully? It actually sounds somewhat plausible, but I feel like something’s missing.
To clarify, I’m wondering how the capacity argument overcomes the fact that not everyone has the aptitude or interest in becoming a production factor like an engineer.
Poppies has a vavid imagination.
Next he will be assuming a can opener.
What? What’s the limit to factors of production to oil and gas R&D?
US has more trained engineers than are doing engineering.
A few years ago there were expected shortages of nurses, now the demand is largely filled and then some.
Money driven society, has been around in the west for 2500 years, in the east longer.
I read a bit of intro for a book on the history of mobilizing the US economy for WW II.
The point was economicists had to be brought in to analyse the shift and one observation was the money made the capacity for war.
The idea goes back to the Peloppenisian wars when they could keep going forever as long as the Athenians had access to silver and access to their graneries in the Black Sea…….
But economists had to help the military planners to determine how to use the “money”.
That actually makes much sense, but simply expands the “crowding out” field of view. That is, socialized investment is creating distorted price signals which pull away resources from their “best” use, sometimes in cross-sector movement. Resources may be being marshalled in service of a vision of optimization actually based on inefficiencies. The gov’t is effectively “crowding out” end consumers in signalling.
I still contend, though, that production factors are not as flexible as the picture you paint. “Engineers” are not some homogeneous entity, for example. Those individuals with experience and knowledge regarding geology, fluid dynamics, drilling tech, etc. will not be easily replaced with semiconductor engineers. The more specialized a resource, the more crowding out which can occur.