Socialism By Any Other Name

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.

Michael Nachbar

Comments

[Nick Commons-Miller]

"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."

Most private academic research is funded through government grants. It would essentially be creating more grants and funding for environment-related research.

"waste taxpayer money"

No taxpayer money is being spent, or very little, I think. It is mostly printed money.

That IS a major inflation risk though.

"constrict economic growth"

I would at least agree that bailouts constrict long-term economic growth, because they reduce efficiency by reinforcing and keeping alive flawed and inefficient companies.

"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."

You can't know the path innovation will take. That is why it is innovation. Innovation is important though, because it is specifically what allows us to do better than we have been doing. (with no new ideas, you can't do better, because you will just be doing the same thing)

"What further subsidies can achieve is limited only by the audacity of one’s hope."

The train of argument is weak, honestly. If you are funding innovation that may make things more affordable in the long term, it can be successful. Some ideas fail, but that is not a reason to avoid innovation. Current failure HAS to be improved upon, otherwise we are just stuck in failure. You can't know what will be successful or not, but innovation is still necessary.

I like your closing sentence though, lol.

"The company is poorly run and is losing more than a billion dollars a month."

I agree, the company is poorly run, and that is a major issue. (even if their cars have gotten better than before)

"Believing that requires a leap of faith along the lines of believing dinosaurs walked the earth 6,000 years ago."

I loled.

If done for specific companies, bailouts just don't make sense. They reward failure, arrogance, and inefficiency. They don't fix the problems in the company. You can create standards for the company, but the reality is that these people can't fix the companies, otherwise they would have. That is why bankruptcy is a better option.

"Americans love the idea that they have a competent government capable of solving all their problems."

A bit of a generalization, but yeah, I think people do overestimate how successful our government is.

Right now, it seems that economic science is simply not good enough to offer a definitive explanation. If it did, then I'm sure our government could actually be effective though. (at least if the possible efficacy of the government is included in the real answer about how governments work.

"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."

I think there are alternate explanations, and it is debatable.

I also need to do more research though.

"Free markets are not perfect and they often make terrible decisions"

The market that existed at the time of this crisis was not even close to free anyway.

[Nick Commons-Miller]

*how economies work)

[Michael N]

"You can't know the path innovation will take. That is why it is innovation. Innovation is important though, because it is specifically what allows us to do better than we have been doing. (with no new ideas, you can't do better, because you will just be doing the same thing)."

Government funding does not provoke innovation. If the internet became completely ingrained in our society in less than 20 years, there's no reason the free market can't implement alternative energy when it becomes more efficient than using oil. The government believes it can speed up that process, I argue that it is a dubious assertion.

[Nicholas Commons-Miller]

"Government funding does not provoke innovation. If the internet became completely ingrained in our society in less than 20 years, there's no reason the free market can't implement alternative energy when it becomes more efficient than using oil. The government believes it can speed up that process, I argue that it is a dubious assertion."

It's as dubious as academic grants.

[Nicholas Commons-Miller]

Which are shown to have major results. I am adding this just so my sarcasm is not misunderstood by some people, if this ever got published.