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The New York Times and the End of Simple Economic Logic

Politics / Economic Theory May 22, 2012 - 06:04 AM GMT

By: William_Anderson


Best Financial Markets Analysis ArticleYears ago, Murray N. Rothbard wrote that modern egalitarianism constituted a "revolt against nature," and Rothbard provided the intellectual ammunition to prove his point well. The modern Progressive "revolt against nature" is not limited to just egalitarianism, however, as Progressives long have tried to convince everyone that if they could just direct enough government resources at something, they could undo the very laws of economics.

During the Great Depression, President Franklin D. Roosevelt even claimed in his 1932 nomination speech at the Democratic National Convention that economics laws were arbitrary things. Declared FDR:

But while they prate of economic laws, men and women are starving. We must lay hold of the fact that economic laws are not made by nature. They are made by human beings.

Indeed, Roosevelt spent almost an entire presidency railing against economic laws that were not "created" by anyone, but rather discovered by people who understood the realities of nature and natural law. The same president who claimed to care about the "starving" also had farmers destroy tons of food (the destruction financed by a tax on agricultural products) in the name of making food more expensive.

One would think that at some point, the educated and elite people among us would have learned from the lessons of the Great Depression that government intervention makes things worse, but a week of reading the editorial page of the New York Times, the very pinnacle of status in American journalism, will cure one of the belief that "educated elites" learn anything at all. Thus it was that I stumbled onto an editorial in the NYT that truly defies all natural laws and actually is akin to an editor railing against the Law of Gravity.

In calling for more subsidies for "clean energy," the editorial declares:

The federal government has given generously to the clean energy industry over the last few years, funneling billions of dollars in grants, loans and tax breaks to renewable power sources like wind and solar, biofuels and electric vehicles. "Clean tech" has been good in return.

During the recession, it was one of the few sectors to add jobs. Costs of wind turbines and solar cells have fallen over the last five years, electricity from renewables has more than doubled, construction is under way on the country’s first new nuclear power plant in decades. And the United States remains an important player in the global clean energy market. (Emphasis mine)

It is quite clear from this editorial that whatever legacy Henry Hazlitt might have had at the "Newspaper of Record" while he was an editorial writer has long disappeared. Hazlitt never would have considered writing anything that smacked of the "Broken Window Fallacy," but today, the NYT shatters glass every day.

A few items are in order here. First, and most important, any business enterprise needing tax subsidies to survive is not creating wealth; it is destroying it. Furthermore, one can note that no matter how many subsidized jobs were "created" by this industry, many more jobs were lost elsewhere because the subsidies.

Frederic Bastiat wrote of what is "seen" and "what is not seen," and it is clear that the editors of the NYT are unable even to imagine what is not seen; they see only the people working for politically-favored companies. As for people who have lost their jobs because the government is forcing resources to be directed away from where consumers want them to go, the editors simply look the other way or simply are ignorant.

The editors of the "Newspaper of Record" not only are economically ignorant, but also are utterly hysterical over the fact that taxpayers may not have to contribute as much in the future to these "clean energy" firms. The editorial fumes:

… this productive relationship (between subsidies and "clean energy" firms) is in peril, mainly because federal funding is about to drop off a cliff and the Republican wrecking crew in the House remains generally hostile to programs that threaten the hegemony of the oil and gas interests. The clean energy incentives provided by President Obama’s 2009 stimulus bill are coming to an end, while other longer-standing subsidies are expiring.

While I hardly wish to shill for oil and gas companies, nonetheless the reason that they have this alleged "hegemony" is because factors of production used for those products generally are moved from lower-valued to higher-valued uses, which is the opposite of what happens with factors used to produce alleged "clean energy." Furthermore, consumers prefer using the forms of energy which, while meeting the disapproval from the NYT editors, effectively keep them warm in winter and cool in summer.

The editorial continues:

If nothing changes, clean energy funding will drop from a peak of $44.3 billion in 2009 to $16 billion this year and $11 billion in 2014 – a 75 percent decline.

This alarming news is contained in a new report from experts at the Brookings Institution, the World Resources Institute and the Breakthrough Institute. It is a timely effort to attach real numbers to an increasingly politicized debate over energy subsidies. While Mr. Obama is busily defending subsidies, the Republicans have used the costly market failure of one solar panel company, Solyndra, to indict the entire federal effort to encourage nascent technologies.

The Republican assault obscures real successes that simply would not have been possible without government help. Wind power is a case in point. By spurring innovation and growth, a federal production tax credit for wind amounting to 2.2 cents per kilowatt-hour has brought the cost of electricity from wind power to a point where it is broadly competitive with natural gas, sustaining 75,000 jobs in manufacturing, installation and maintenance.

Other than the fact that the Solyndra debacle involved outright financial fraud, and that the company gave a lot of money to the Obama campaign – and the president singled out the firm for special praise (before it went belly-up) – one would suppose that we should not pay attention to Solyndra’s financial collapse.

To call the decline of wealth-destroying and job-destroying subsidies "alarming news" is something that only Progressives would say. Furthermore, there are numerous problems with wind power, including the simple fact that wind is intermittent, but demand for electricity is not, which means that power plants must be kept online and running. Even Denmark, which has built thousands of windmills, has not shut down one power plant despite the supposed potential of wind power.

Furthermore, many of the "gains" from wind power have come because state governments have mandated that power producers generate certain percentages of electricity from "green" sources. Thus, like ethanol, which the government forces consumers to purchase, consumers will have no choice in the matter and ultimately will finance this coercion via their electric bills.

Not surprisingly, the advocates of "broken window economics" lament the fact that if the subsidies are eliminated, some jobs in these subsidized industries also will be lost. While that is true, the reality is that the sooner these examples of malinvestment are no longer subsidized, the sooner resources can be devoted to those goods that consumers actually want.

This fact drives Progressives (such as NYT editorial writers) to angst, as the last thing that should drive an economy is consumer needs and preferences; instead, people should buy what Progressives say that people should purchase. Ordinary consumers, after all, don’t know what is good for them, and that includes fuel purchases, which means that government (controlled by Progressives, of course) should either narrow consumer choices or mandate directly what others should purchase.

Of course, Progressives claim to love those who are poor or who are not "privileged," and while Progressives often rail against people they deem to be "privileged" (and generally ignoring themselves, especially since most modern Progressives come from elite backgrounds), their policies both support the privileged elite and put lower-income people out of work. For example, the NYT recently gushed over a new executive order from President Obama that essentially makes it impossible for any energy company to construct a new coal-fired power plant.

Over time, this policy will raise electricity prices, which not only will destroy wealth, but also will destroy whole lines of employment, and most people employed in the profitable energy business are not educated elites. Such people are invisible to most Progressives, who tend to be wealthy, politically-connected, and utterly contemptuous of the very people they claim to be helping. (Not surprisingly, those same Progressives that decry the use of oil and coal are the first to demand price controls when oil and coal prices rise, claiming that the energy companies are "manipulating" the markets.)

There is one more little item to cover. While demanding that taxpayers continue to fund wasteful energy turkeys (with no offense intended for those birds that enhance our Thanksgiving meals), which means that huge amounts of resources literally are thrown into an economic black hole, the NYT also decries the fact that we have not had a real economic recovery. A recovery will happen, according to the NYT and its resident economist Paul Krugman, only when government increases subsidies, expands the bureaucracies (called "job creation"), expands its web of business and financial regulation, and wastes resources on "green" boondoggles.

It is not as though these folks ever will "get it." No, what they want is for the government to step in and force people to make purchases they never would make in a free market. At the same time, they demand that governments at all levels block expansion in the very industries that we need for a real recovery to occur.

The irony here is that while the NYT and Krugman go on and on about a recent $2 billion loss by J.P. Morgan, they lavish praise upon an industry sector whose losses dwarf anything seen by the banks and demand that taxpayer bailouts of these permanently-sick industries be increased. Such is the arrogance these days of American Progressives.

William L. Anderson, Ph.D. [send him mail], teaches economics at Frostburg State University in Maryland, and is an adjunct scholar of the Ludwig von Mises Institute. He also is a consultant with American Economic Services. Visit his blog.

    © 2012 Copyright - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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