Tuesday, August 06, 2013

Stop the shovel brigade

Industrial policy is risky for the well known reasons that it avoids capital markets (the only institution we have for allocating scarce capital) and compounds the problem by politicizing investment choices. This is not to say that we have "perfect" (or anything close) capital markets, but their problems can be traced too much crony capitalism (too little real capitalism).

These are old ideas but they have to be re-learned often.  This morning's WSJ includes "Volt Falls to Electric-Car Price War ... General Motors Lops $5,000 Off Sticker of 2014 Model; Cheap Gasoline Tethers Sales of Plug-In Cars ..."  Read the story. The details are amazing. The layering of blunders is stunning. Bail out General Motors instead of a Chapter 11 reorganization; push a pre-mature "green" but emotionally satisfying technology on the already politicized company; do all this in a city (Detroit) that is already in a deep hole; do all this in the context of an economic and federal budget crisis that are yet to be resolved; do all this as the fracking boom and cheap oil have arrived.

There used to be the idea of taking shovels away from people digging themselves deeper into holes. I expect that there will be more bail-outs of GM, Detroit and many others.  But whatever it is it, will be wrapped in something green and worthy, just like the Chevy Volt.

If we are going to have serious anti-carbon policies, they will be costly.  Further weakening a weak economy is not the way to prepare.