Editorial | November 19, 2008
Following the credit crunch and Obama’s decisive victory, liberals at Tufts and across the nation have relished in declaring laissez-faire economics dead. With the economy in peril, they prescribe a new era of regulation and New Deal style central planning. The two most troubling proposed actions of the Obama administration, massive subsidies for energy research and conditional bailouts for automakers, will waste taxpayer money, constrict economic growth, and fail to achieve their objectives.
Proponents of government funding for researching alternative energy sources attempt to draw a parallel to the Manhattan Project, in which the government hired scientists across the nation to develop a nuclear weapon. This was a far different situation. Government would never trust such a dangerous weapon to the private sector, even though it could do more efficient research. More significantly, the government knew what it wanted to discover, and assigned a specific project. Right now, no one knows for certain which form of alternative energy will ultimately replace oil. The government could conceivably pour hundreds of billions of dollars into research on solar and wind power, only for the private sector to find that geothermal is a more viable option. Given that the government is extremely inefficient and corrupt, causing programs such as the Big Dig to cost nearly 10 times its initial estimate, there is little evidence that expenditures on research will efficiently produce results. For such research to have a positive effect, government officials will have to select the correct sectors to subsidize, select the correct businesses within those sectors to subsidize without favoring companies where friends work, and these companies will have to create a product inexpensive enough to compete with oil. Similar attempts at subsidizing ethanol have burned away billions of dollars, created a net energy loss, and caused massive starvation worldwide. What further subsidies can achieve is limited only by the audacity of one’s hope.
The idea of bailing out General Motors under the condition it produce more fuel-efficient vehicles is also despicable. The company is poorly run and is losing more than a billion dollars a month. Though its management attempts to blame the credit crunch for its poor performance, the company has been failing for years. The proposed bailout of General Motors relies on the assumptions that the same government that just gave Goldman Sachs billions of dollars to pad its dividends with will actually be able to enforce restrictions on the type of vehicles SUV-happy General Motors produces, or that a GM hybrid could be competitive against vastly superior Honda and Toyota vehicles. Believing that requires a leap of faith along the lines of believing dinosaurs walked the earth 6,000 years ago. GM must go bankrupt and allow automakers that actually succeed at manufacturing cars to replace its market share and hire its fired employees.
Americans love the idea that they have a competent government capable of solving all their problems. They cling to the narrative of the New Deal’s success with a religious zeal, but facts have a nasty habit of ruining a great story. Actual analysis has concluded that Hoover and Roosevelt’s attempts to save the nation from recession led it directly into the Great Depression, and that it recovered slowly and painfully in spite of the New Deal, not because of it. Free markets are not perfect and they often make terrible decisions, but attempts by the government to improve its efficiency have consistently exacerbated its ailments throughout history. Unfortunately for Americans, Obama and the Democrats feel compelled to prove this theory once more.